Mesa’s Debt Bomb: Vote NO to all Four Bond Issues

In mid-August, 2014, Gilbert Watch published an article written by Mr. Gene Dufoe titled "Mesa’s Debt Bomb, thanks to former Mayor Scott Smith."  Click HERE to read the article.  

Mr. Dufoe has been doing more research and has provided the following update.   

Vote NO on all four of the bond issues.

It is time for the City of Mesa to cut all but essential services; for repayment schedules to be part of any future bond authorizations;  and get back to pay-as-we-go management.  We need to pay for the City’s needs without drastically increasing taxes or utilities. 

Since July 1, 2011, the debt of the City of Mesa has ballooned from nearly $1,356 Million (that’s $1.356 Billion) to nearly $1,932 Million ($1.932 Billion) and we are being asked to approve another $580 Million in new revenue bonds for a total indebtedness of $2,512 million ($2.512 Billion) or nearly double what we owed in July 2011!

Not only will that be a major increase of the debt, but it will also cause utility rates to continue to dramatically increase.  This will occur because of the combining the lengthening of the bond life with the current City of Mesa approach to the repaying of Utility Revenue Bonds with interest-only payments for the first twenty-nine or thirty years and then paying the BALLOON principal payment(s) in the last year or two of the now 30-year bonds.  Note that the life of the Revenue Utility Bonds have increased from 18 years in 2009 to 24 years in 2014 and now 30 years for the new bonds to be voted on in November 3, 2014.  

In an economy growing better than three years ago, the City Council is not properly protecting the interests of the City of Mesa residents.  The City Council and Mayor Giles, as the newly-elected mayor, needs a wakeup call.  Note that Mayor Giles also served in the City of Mesa City Council from 1996 to 2000.       

On Monday, Oct. 5, I spoke at the City of Mesa Council meeting for 3 minutes on why $580,000,000 Utility Revenue Bonds should not be approved at the election on November 4.  

To see why the concentration on the City of Mesa’s Utility Bonds, we need to look at the City of Mesa Budget: FY2014-15 Auditor General Schedules A-G: Schedule A Summary of Estimated Revenues and Expenditures.  Click HERE.   

Looking at Interfund Transfers In (Out), we discover Transfers (OUT) of $(173,606,136) for the ENTERPRISE FUND and Transfers (IN) of $85,429,615 to the GENERAL FUND plus $92,164,059 to the DEBT SERVICE FUNDS.  The ENTERPRISE FUND is the business portion of the City of Mesa operations, i.e., the various utility operations run by the city.  This withdrawal from the ENTERPRISE FUND is taking more than $173 million of the current profits of the various utility funds and using it mostly for the current operations of the GENERAL FUND and the DEBT SERVICE FUNDS. 

Note that the Property Tax Revenues of $33,440,000 also boosts the DEBT SERVICE FUNDS.  The result is the City of Mesa is taking current funds from the Enterprise Fund to spend immediately.  They are not using that money to responsibly maintain the infrastructure required by Enterprise Fund operations.  Instead, they are asking the residents of Mesa to mortgage our future as well as our children and grandchildren’s future, to make many of these needed infrastructure improvements with revenue bonds that will last through the year 2044. 

The earlier article I wrote (click HERE) discusses how the Utility Revenue Bonds are paid from the revenues i.e., the monthly water, waste water, electric, natural gas, and solid waste (garbage) utility bills, so they do not effect the direct tax burden.  However, paying utility bills comes out of the same pocket as paying any other bill.  This year’s CIty of Mesa rate increases on July 1, 2014, over the prior year, are as follows:  

•  Electric rates increased by 2%, 

•  Natural Gas rates increased by 3%, 

•  Water rates increased by 7%, 

•  Wastewater rates increased by 7%,  

•  Solid Waste rates increased by 6.9%.  

The Secondary Property Tax also increased from $22,105,000 last year to $33,440,000 this fiscal year.  That is an average 51% increase per household.         

The only other CIty of Mesa Interfund Transfers (OUT) is $(7,038,653) from the IMPACT FEE FUNDS, and the only other Transfers (IN) is $3,051,115 to RESTRICTED FUNDS.  Impact fees are assessed for new construction and are intended to go toward building the infrastructure for that new construction; however, the City Council has voted to use impact fees to bolster the General Fund and satisfy Debt Service.

According to Ryan Wimmer of Mesa’s Office of Management and Budget, on July 1, 2014, the authorized, but not yet sold, bonds total $219,668,000 of which $72,213,000 are Utility Revenue Bonds.  A total of $580,000,000 on the November 4, 2014, ballot is divided as follows:

•  Water System Revenue Bonds:  $315,700,000; 

•  Wastewater System Revenue Bonds:  $178,200,000; 

•  Electrical System Revenue Bonds: $27,000,000; and 

•  Gas System Revenue Bonds: $59,100,000. 

The bonds shall be payable solely from the revenues of the City’s utility systems, bear interest not exceeding 10% per annum, and pay principal over not more than 30 years from the date issued. 

The last utility revenue bonds, Series 2014, were for only 24 years.  If these utility revenue bonds are funded in the same manner as those previously authorized and sold, these bonds will be repaid over the coming years with interest-only payments for most of the years.  The principal won’t be paid until the last year or two of the bond’s life.  This will mean that the total interest repaid will be significantly more than the initial bond principal.   

From the “Moody’s assigns Aa2 rating to City of Mesa, Arizona’s Utility Systems Revenue Bonds, Series 2011” dated 13 May 2011, the following is quoted:  “In fiscal 2010, $84.4 million was transferred from the Utility (Enterprise) Fund to the General Fund revenues.  Near term transfer amounts are forecasted to remain stable at $83.6 million.”  However, that did not happen.  

Since that time:  

The Secondary Property Tax has increased from $14.1 million in FY10/11 to over $33 million in FY2014/15; 

The Enterprise Fund transfer to the General Fund and Debt Service has increased from $83.6 million to over $173 million in the current year; 

The stated bond indebtedness has increased from $1,354,816,963 on July 1, 2011, to $1,710,800,000.

That is an increase of nearly $356 million in debt in three years.  The City of Mesa still has $219,668,000 of taxpayer-approved bond authorization, not yet sold, and is requesting approval for an additional $580,000,000 in Utility Revenue Bonds.  If the four Revenue Utility Bond issues pass, and considering the already approved bonds not yet sold, that will be an addition to the current debt of nearly an additional $800 million.  Vote NO to these bond issues!

Gene Dufoe, interested citizen of Mesa

Mr. Dufoe is a retired Boeing engineer/manager who possesses the following degrees:  BSAE, MSAE, and an MBA with an emphasis in Finance.

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