Memorandum

City of Lawrence

Finance Department

TO:	Dave Corliss, City Manager
FROM:	Ed Mullins, Finance Director
CC:
Date:	June 14,  2007
RE:	Debt Service Projection

Background 

          The City Commission was previously sent a spreadsheet that the Finance Department uses to project the impact of the City’s general obligation debt issuance.  The major source of revenue for the debt service fund is the property tax.  However, the property tax is divided into two major components.  The at-large property tax is paid by all taxable properties in Lawrence.  Special assessments are property taxes that are paid by taxable properties within a benefit district.  If the special assessments aren’t paid, the obligation is assumed by all property tax payers.  Of the City’s $85 million in general obligation debt, approximately $13 million is payable from special assessments, $11 million from sales taxes, and $7.5 million from storm water fees.

Analysis

In order to determine the necessary mill levy to retire the at-large general obligation debt, the debt payable from special assessments, sales taxes, and storm water fees are deducted.  An estimate is then made of other revenue such as interest earnings, motor vehicle taxes, and airport hangar rents.  In addition, an amount of future at-large general obligation debt is assumed.  The spreadsheet assumes a 3% increase in assessed valuation in 2008 and a return to a more historic level of 6% afterwards.

The tab labeled “Levy Projection” displays the final result of the above calculations.  The spreadsheet assumes that future special assessments will pay off the matching special assessment debt.  This enables the spreadsheet to calculate the mill levy necessary to pay off different amounts of at-large general obligation debt.

        The projection shows that the issuance of approximately $5.0 million in at-large general obligation debt can be supported with the current debt service mill levy.  However, this does result in the reduction of the fund balance to below $1 million by 2012.  The amount of reduction slows substantially beginning in 2011.  Given the significant level of fund balance, it is reasonable to reduce it in the short term.   The amount of annual payments in the debt service fund is compared to the projections to determine if the reductions are at the level anticipated.  Any increase in at-large debt issuance above $5.0 million or changes in assessed value below 6% after 2008 may result in a recommendation to increase the debt service levy.