BRISTOL — Mayor Neal Osborne used the words “scary” and “sobering” to sum up the city’s precarious financial situation Thursday, following a presentation about alternative ways to fund landfill work.
City leaders are attempting to solve the riddle of how to pay for millions of dollars worth of state-mandated landfill improvements without breaking the backs of its residents, undoing years of solid financial improvement or wrecking the city’s credit rating.
On one side is the city’s massive long term debt — roughly $130 million — which greatly limits its ability to borrow substantially — a total capped by state law at about $30 more million. On another is a reserve fund carefully built to more than $20 million through conservative spending, no borrowing and policies requiring the city to set funds aside.
David Rose of Davenport & Co., the city’s long-time financial advisers, told the council Thursday it is those reserves and policies which have put the city in good stead with creditors and rating agencies. And draining those funds would send the city on a negative spiral as much or more than borrowing the maximum amount then dramatically raising real estate tax or garbage collection rates to repay it.
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“Financially the city has done its part for the last half-dozen years and gotten to a good place. There are all kinds of good things going on in the city and the future looks bright. But all of this dwarfs all of that,” Rose told the council.
In the near term, higher, or $52 million over the next 18 months.the city has a number of substantial projects at the landfill which must be completed within 12 to 18 months. City officials previously estimated those costs at about $30 million.
However, based on recent project bids coming in much higher than expected, Rose now estimates those construction costs could be up to 50%.
A figure that doesn’t include required landfill closure costs of $23 million, but that process would likely not begin for another five to ten years, he said.
Assuming the city uses $8.5 million of federal ARPA funds and transfers $7 million from reserves, it would have to borrow $37 million — beyond its general obligation bond capacity — and generating an estimated annual debt service increase of $3.3 million to the budget’s bottom line, Rose said.
Once all costs are factored in, using just the real estate tax rate, would require raising the tax rate from $1.12 per $100 of assessed value to $1.96 — by far the highest rate in Virginia.
For the owner of a $150,000 home, their tax bill would skyrocket from $1,680 to $2,933. One cent on the real estate tax rate generates about $125,000.
“That’s not realistic,” Rose said.
Neither is putting the full weight of the borrowing on the trash collection fee which would theoretically go from $33 per month to $157 per month — a 377% increase.
Beyond that, Rose said, adding both phase one and the closure cost borrowing of phase2 to the city’s debt would push that total to nearly $190 million, more than double the average Virginia city with an A credit rating and nearly double the $102 million average of Virginia cities with an Aa rating.
Last year Moody’s rated the city’s long-term debt as A2, an improvement from A3.
Also, typical Virginia cities with a similar rating have debt at about one times its operating revenue. Bristol is presently at 2.2 times and would climb to more than three times its average operating revenues, Rose said.
“Twelve to 18 months back you started making serious investments in the landfill. With all of the uncertainty going on with the state, we’re going to sit down after this meeting — after you talk — and try to really see under different scenarios … we’re going to come up with some recommendations for you,” Rose said.
He expects to return in April to present those recommendations; timing which could slow the city’s process of approving its budget for the fiscal year which begins July 1.
“I don’t think the timing will be affected significantly,” City Manager Randy Eads said after the work session. “We may have to adjust some of the May dates for the readings of the budget.”
“It is an astronomical number,” Osborne said after the work session. “It’s an astronomical amount of money we need to come up with to do these projects. Right now we are working with to secure funding from the state, we are making our plea to the federal government because we don’t want the type of numbers presented tonight to fall on city residents.
At the end of the day we have to come up with a way to pay for this and we want to do it with minimal impact to taxpayers.”
