Analysis of Barker Projections

I have been reviewing the financing projections prepared by City Finance Director Barker and presented to Council at our recent workshop. First, let me say that Mr. Barker is an exceptional City Finance Director with a knowledge of municipal finance that I do not have, nor will I ever have. What follows are my observations of the differences between the financing plan presented in 2007 and the financing plan presented at the recent workshop. My overall comment is that the projections are unrealistically conservative.

The key assumptions in Mr. Barker's projections from 2007 to 2009 are:

• The change in growth rate of CRA TIF revenues. Under Mr. Barker's current model, CRA TIF revenues will not return to their 2007 levels until 2016 (8 years from now). While CRA revenues have declined in the past, no such example of a continuing slump in market value has existed since the foundation of the CRA even in down markets. Additionally, Mr. Barker's assumptions do not account for large developments that will occur at both the Maritime Park site and across the street at the Sewage Treatment Plant site. These two projects alone with Studer's $12 million dollar office building, a planned hotel project at the CMP and whatever is built on the WWTP site will bring significant TIF revenues to the CRA, not to mention the increased values to the commercial properties in the surrounding areas.
• The difference is too big. As presented last week Mr. Barker's projections reflect annual TIF revenues in the CRA will be $554 million less over the next 36 years than he predicted in 2007. (2007- $ 934 million from 2009 through 2044 compared to 2009-$385 million for the same period)
• The CMP Proposed Debt. In 2007 Mr. Barker proposed a debt amortization that reflected adjusting principal and interest payments that paid substantially more principle in the near term allowing for smaller payments in the outer years. In the current model due to the substantially less TIF revenues, Mr. Barker assumes a more straight line amortization with principle and interest payments being consistent throughout the loan period. To date a change to straight line amortization has not been explained.
• Wastewater Plant Financing - We have waited so long to begin this project that the funds committed to the sewage treatment plant relocation have actually come due before the CMP debts will begin. In the 2007 plan, the CMP debt repayment preceded the WWTP obligation by two years. I remember the opponents of the Park stating the stink of the plant would keep people away. It appears that due to our lethargic progress on the CMP the plant will be closed and removed prior to the Park opening. Mr. Barker stated he would be investigating adjustment to the WWTP finance plan to better accomodate TIF revenues.

While short term financing has its place, I believe we should have been moving ahead with the bond before now. When challenged in August 2008 as to why the City had not been actively pursuing bonds after the then City Council approved an alternative funding source in the wake of a potential Strand decision, Mr. Barker stated “It’s really just an alternative that we gave the council, the timetable depends on when the environmental is through,” says Dick Barker, city finance director. “We will be ready to go about 60-90 days after we get everything cleared (meaning the environmental, etc.). I’m thinking it’s going to be at least next spring, but if it’s ready to go before then, we’ll be ready to jump in and get started.”

I just hope that the staff's delay in moving forward with securing a bond prior to now doesn't end up costing the CRA the $17 million Mr. Barker now projects. I look forward to clarification as to why short term financing is preferred and if it subjects the CRA to additional interest rate risk on this project. Additionally, I would like for the cities bond counsel to brief our City Council on the current state of bond markets and what he thinks he sees in the future.