Monday, October 28, 2019

What if the Public Facilities Bond vote was to fail in Davidson?

As Davidson voters head to the polls this election, deciding two referendums impacting the Town will likely be the biggest choices voters make seeing that the Mayoral race is unopposed and the Board outcome is assured a solid majority of incumbents.

Those referendums include approving the sale of Continuum/Mi-Connection and $14 million in Public Facilities Bonds.

aShortChronicle thought it would be useful to look at the four possible outcomes between these two votes since both directly impact future finances of the Town, particularly the Town's options for addressing public facilities needs.  Here are the combinations.

A) Both referendums fail
B) Continuum fails / Bonds pass
C) Both referendums pass
D) Continuum passes / Bonds fail

For Options A and B, the outcome for the Town as it impacts the public facilities projects would effectively be the same.  In the unlikely scenario where voters don't choose to sell Continuum
  • the $1 million per year subsidies to the cable operation would continue indefinitely
  • the Town would not receive any money from the company's sale after paying off the remaining debts owed
  • the Town's hands would remain tied on Public facilities because of the hefty tax increases that would be required in either of these scenarios
These outcomes effectively eliminate freed up money for public facilities with the only way to fund these projects being an unpopular unilateral decision by the future Board to borrow money against voter wishes and pay for it with significant tax increases.

Without the passage of the Continuum sale referendum, any significant public facilities spending is unlikely - illustrating the importance of this sale going forward.

Option C provides the most money for obvious reasons.
  • The sale of Continuum provides an unspecified one-time infusion of cash to the Town after all related debts are paid.
  • The sale of Continuum frees up $1 million per year currently used to subsidize the cable system.
  • $14 million in additional approved Bond debt specifically for public facilities.
This option will bring the Town's total approved bonds to $29 million including the $15 million approved in 2017 for parks, roads, and greenways.  If all of it is issued residents would likely see significant tax increases over time, or commitment of the entire freed up $1 million annual money from the Continuum sale to prevent these tax increases.  Commitment of this $1 million per year in savings to servicing bond debt however, prevents that money from being used for something like lowering the Town's onerous solid waste fee - meaning taxpayers effectively receive no relief from selling Continuum after years of subsidizing it.

Option D is maybe the most interesting scenario.

What could happen if the sale of Continuum is approved, but the Public Facilities Bonds are not?

In this event, the Board could offset the portion of the public facilities projects for Police and Fire with whatever one-time funds come from the sale of Continuum.  The Town has conspicuously not talked about what it would do with any one-time funds received from a Continuum sale or even how large an amount might be cleared from a sale.  However, that number could be significant.  Based on the numbers that are publicly known ($80m sale price; $59m outstanding debt; roughly $1.8m owed to Mooresville under the interlocal agreement, plus the $1m set aside already for that Mooresville debt) Davidson could receive enough to make a big dent in the costs to renovate the existing Town Hall for Police and Fire.

$80m minus a 6% underwriting commission on the sale yields $75.2m.  Paying off the $59m outstanding debt leaves $16.2m.  Splitting
 that based on the 70%/30% ownership between Mooresville/Davidson leaves roughly $4.8m for Davidson minus another roughly $800k net owed to Mooresville beyond the $1m Davidson already has set aside.  That means Davidson could clear as much as $4m as a best case scenario.

Again, it would have been better for the Town to provide this calculation in more detail.  This calculation presented here is just for illustrative purposes.  If there are other expenses that come up as part of the sale the amount cleared to the Town could certainly be lower.  For example, maybe the commission is higher, or maybe there are some unexpected things that need to be addressed before closing.  However, the amount cleared can only go to zero as a worst case, and that still leaves the $1m per year that is freed up by eliminating the annual subsidy that could be directed towards public facilities in some portion.  Using this money this way would prevent lowering the solid waste fee, but likely for a shorter delay than if committed to a 20-year bond.

Regardless, if the Board after the election sees Police and Fire as a top priority (and they should) this part of the Public Facilities plan should be able to move forward in some fashion.  If the Public Facilities Bond fails to pass it is the belief here at aShortChronicle, it will be because of the overall cost, not because the public does not support the portion for Police and Fire.  Of course as part of moving public safety forward, the remaining staff would need to be accommodated somewhere until a new, less expensive plan can be devised for the 251 South Street facility.

That could be accomplished a number of ways such as: Phasing the public safety upgrades; Renting office space for staff; Making the most efficient use possible of all Town owned space;  Incrementally upgrading select space in 251 South Street.  It certainly might be difficult, but it could be done.  It being difficult also should not be used as an excuse for not moving forward with Police and Fire - again, if the Board sees that to be a priority.

The good news is that the sale of Continuum, if approved, gives the Board options no matter what happens with the Public Facilities Bond.

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