This article appeared in Sunday’s Arizona Republic.
Scottsdale debt load tied to big projects
By Beth Duckett, The Republic | azcentral.com
Scottsdale has taken on new debt to pay for projects ranging from the McDowell Sonoran Preserve to an expansion at the Tony Nelssen Equestrian Center at WestWorld of Scottsdale.
Now, city officials say the price tag for these investments is the prevailing reason that Scottsdale’s debt per capita — the money per resident that Scottsdale has borrowed and must pay back — ranks the highest among eight major Valley municipalities.
Scottsdale, like other municipalities, issues debt backed by taxpayer dollars to fund capital projects and public needs. In November, the city will ask voters to take on more debt —as much as $212 million — for bonds to finance new public projects and improvements.
A Republic analysis showed that Scottsdale owes $1.27 billion. Based on 2011 census estimates, the city’s debt per capita is $5,746.
“The question is not whether you have a lot of debt, it’s whether you have too much,” City Treasurer David Smith said.
Scottsdale’s debt per capita is high “because of initiatives the citizens said they would like to do,” Smith said.
Scottsdale still maintains the highest bond ratings from three major national rating agencies, and is not in danger of breaking a state-mandated threshold limiting a city’s amount of general-obligation bonds, a common type of municipal bond.
Scottsdale’s available borrowing capacity — the amount of debt it is allowed to issue from general-obligation bonds — is $613.7 million, behind only Phoenix.
The capacity is based on the city’s secondary assessed valuation, which is the “unlimited” assessed valuation of all properties in the city, including residential, commercial and other land, said Lee Guillory, finance director.
“We have an advantage here in Scottsdale, in that the assessed valuation is pretty high because we have some pretty pricey property,” Smith said.
Scottsdale still has leeway to issue more general-obligation bonds, a fact frequently cited by supporters of the Nov. 5 bond election, which will ask voters to approve as much as $212 million in bonds for 39 city projects.
Mayor Jim Lane said the debt finances long-term capital needs, and “Scottsdale has significant investments on a number of different levels.”
The high price tag for the McDowell Sonoran Preserve, for example, sets Scottsdale apart from cities that don’t borrow money to fund large land buys. In 1995 and 2004, Scottsdale voters approved separate sales-tax increases to pay for the preserve. The city has nearly $380 million in preserve debt, with plans to purchase an additional 2,360acres this year.
Scottsdale does not tap into property tax revenue to pay for the preserve. The debt is backed by the dedicated sales-tax revenue approved by voters for the preserve only.
“Citizens have approved not once but twice the tax,” acting City Manager Dan Worth said. “The preserve is a huge priority for the citizens of Scottsdale.”
Lane said the preserve accounts for nearly one-third of the city’s debt.
In addition, Scottsdale has a hotel bed tax charged on overnight lodging stays. The revenue from a voter-approved bedtax increase covers bonds to pay for tourism-related endeavors and projects, including the $47million equestrian center project.
Unlike other cities, Scottsdale has dedicated funds to pay the debt service on new tourism infrastructure, Lane said.
The council also voted to commit $13.6 million in bond debt to fund construction of the Scottsdale Museum of the West, to be built northwest of Marshall Way and Second Street, in downtown Scottsdale. Bed-tax revenue will cover the annual debt service.
Smith said Scottsdale’s debt from Municipal Property Corp. bonds, which do not require voter approval, has risen in recent years largely because of council- supported projects, such as the equestrian-center expansion.
Scottsdale plans to take out an additional $20 million in MPC bonds to repair and replace aging wastewater infrastructure, said Annie DeChance, public participation and outreach manager in the city’s Water Resources Department.
By the end of June 2014, projections show Scottsdale will have an estimated $1.259 billion in debt.
John Washington, a former Scottsdale mayoral candidate, said he shares concerns about how the debt load and lack of concern might impact bond ratings.
“Structural deficits and other indicators of mismanagement also create pressure on bond ratings,” Washington said. “Of course, if bond ratings suffer, the cost of borrowing goes up.”