A basic component of Woodland’s overall budget is its Capital Improvement Program (CIP), which involves both: external debt service to repay bonds and internal loans between various municipal funds.

The CIP contains about 200 projects — engaging a 10 year expenditure of around $232 million.

Woodland has long been using a — “pooled cash” — approach for financing its CIP, which involves transferring (borrowing) surpluses in certain municipal funds to meet deficits in other such funds.

Also, “the City [has] implemented and expended money on various capital projects in advance of collecting the related development fees, and opted not to pursue additional bond financing[; therefore,] several development fee funds reflect negative balances[,]” describes an associated staff report.

Combining these fiscal practices — in a deteriorating economic climate — has created a very — “challenging [  ] situation” (declares city staff), inherently affecting Woodland’s evolving financial condition.

___  Development Fees Insufficiently Service Bonds  ___

As outlined in this staff report: “Pledging development impact fees as the primary source of repayment for [four separate bonds] has proved problematic because, by nature, these types of revenues can be unpredictable and sporadic.”

Comprehensive analyses by city staff, of financial processes related to the CIP, has demonstrated that: “Even with relatively moderate development activity meeting current debt service requirements will be challenging. Given the adopted reduction in development fees combined with the decreased level of development activity, the Park, Fire and Sewer Development Finds will not generate sufficient revenue from residential development to meet minimum debt service requirements.”

Woodland has four capital improvement (project) bonds to service (Community and Senior Center, Sports Park, Fire Station 1, and the Wastewater Treatment Plant), which were issued between 2002 and 2007.

Aggregate annual debt service on these four bonds totals — $5.39 million — with $4.1 million to be annually repaid through development impact fees and the remainder ($1.2 million) by either Measure E funds or the Sewer Enterprise Fund.

Woodland is also running substantial deficits in most of its municipal funds — including some deficits that are significantly widening (park and storm-drain funds).

“Pooled-cash” mingling of city funds must thus be temporarily extended as a fiscal practice, according to city staff. “[G]iven these large [  ] deficits, substantial slowdown in development, and the magnitude of reduced development fee revenues, the City is not able to fund necessary projects without some level of continued pooled cash borrowing, primarily because of external debt service commitments[.]”

___  Key Changes Coming in City’s Financial Practices  ___

City staff is recommending a key alteration of financial policy be adopted alongside the 2009-10 (operational and capital) budget, due for consideration and potential adoption by the city council on June 16.

“Section 4.8 [of] the procedure associated with financing has been modified from  Encourage pay as  you go financing of capital improvements where feasible  to  Fully evaluate the financing of capital improvements to determine the most economical means to complete the work.

“This change is intended to require analysis of financing capital improvements, including the potential impact of escalating future development / construction costs versus annual debt service payments and interest[,]” continues the staff report.

Complementary to this policy change, “staff needs to further study this trend in growing internal debt and develop alternatives for the Council’s consideration.”

“This situation was generated by years of internal borrowing, exacerbated by the current recessionary economy and further impacted by the decision to reduce development impact fees. It will require a long-range, programmed and disciplined approach in order to be resolved[,]” concludes the staff report.

___  Details of Fund Deficits  ___

Woodland faces current deficits in its municipal funds — totaling $20 million — within “[t]he more significant borrowing balances,” as of July 1, 2009.

In round figures, this amounts to deficits of:  $10.2 million in the sewer fund, $4.2 million in the police fund, $4.3 million in the road fund and $1.1 million in the storm-drain fund.

“At the end of the ten-year plan,” states the staff report, “internal borrowing balances are anticipated to be” as follows:

Sewer Development  — $5.8 million deficit; Police Development — $2.1 million deficit; Fire Development — $1.3 million deficit; Storm Drain Development — $12.4 million deficit; Park Development — $10.6 million deficit.

Deficit within the Sewer Development Fund — “originated more than ten years ago as a result of work done on the Wastewater Treatment Plant Phase I expansion project and various wastewater improvement projects where development paid a portion of the cost,” relates the staff report.

Recent plant expansion was funded “through a combination of internal borrowing and bond financing.” Debt service will continue in this fund until 2035, with total project expenditures of “less than $200,000 until 2019, at which point the deficit will have been reduced by about $4.5 million.

The Police Development Fund deficit — “originated in 2005 as a result of construction of the new police station.” During the next 10  years, this fund’s deficit will drop by half ($2.1 million). However, because of the condition of this fund, relevant projects in the future are being carefully prioritized.

The Fire Development Fund — “develops a deficit as a result of annual debt service requirements related to the construction of Fire Station 1. This fund has only one capital project over [the next 10 years]; however, annual revenues of approximately $500,000 and annual debt service of nearly $300,000 [will] lead to a slow recovery.”

___  Serious Structural Deficits Projected – Big New Development Needed  ___

Deficit within the Storm Drain Development Fund — “increases dramatically through the course of the [10-year] CIP. Residential development in Spring Lake does not pay a citywide Strorm Drain impact fee; because nearly all the residential development in the CIP is related to Spring Lake, expected revenues in this fund are minimal.

“[A]dditional commercial, industrial or non-Spring Lake residential development, or removal of flooding and drainage related projects, are necessary to reduce the deficit[,]” indicates the staff report.

The Park Development Fund — “develops a substantial deficit through the course of the CIP related almost entirely to debt service. The annual debt service requirement of [this fund] is about $2.2 million.”

“Non-residential development does not pay a Park impact fee, and based on the current residential development impact fee for Spring Lake, the City would need to issue 670 permits each year just to break even; this level of development is not achieved at any point in the CIP, which creates a structural deficit that grows every year.”

“Debt service requirements will continue through 2035; [and this fund’s] recovery from [  ] deficit will likely be slow and prolonged without a fee increase or completion of other large residential development projects[,]” relates the staff report.