Eight years ago a different council got a tour of the city

Eight years ago a different council got a tour of the city's public works facility as the administration was making the case for a new complex. The city is still struggling to pay for that complex. Nick Klufas, right, then in his rookie year, is the only member who was part of that visit and who remains on the council today. It is his last year. (© FlaglerLive)
Eight years ago a different council got a tour of the city’s public works facility as the administration was making the case for a new complex. The city is still struggling to pay for that complex. Nick Klufas, right, then in his rookie year, is the only member who was part of that visit and who remains on the council today. It is his last year. (© FlaglerLive)

Some cities have mountains of debt. Palm Coast doesn’t. But it faces mountains of needs, from stormwater infrastructure to roads to a public works facility, plus some wants like parks and a future sports complex on the west side. The city’s ability to finance those needs is limited. Its revenue sources are few and spoken for. Its charter places severe restrictions on borrowing. 

Now, coinciding with the city’s 25th anniversary, the Palm Coast City Council wants to explore ways to ease the charter’s restrictions on borrowing. The council agreed today to devote a workshop to that discussion. 

Any changes to the charter’s restrictions would have to be approved by referendum. The council’s sudden urgency suggests that some of its members may want to see a referendum amendment proposal on this November’s ballot. Otherwise, any possibility of change would be pushed at least to 2026. 

Today’s discussion was in the context of Finance Director Helena Alves’s presentation on the city’s tax structure, its revenue sources, restrictions and financing options. The segment on restrictions was a first. But clearly, Alves was presenting it at the request of council members. “We have not included this section in the past, but we do feel it’s relevant to the budget process as council will have several presentations on the five year CIP [capital improvement plan] and respective funding needs,” Alves said. 

Joel Tindal, a managing director with Hilltop Securities, the firm that’s advised city finances for years, summarized the different ways local governments can finance projects: bonds, notes, loans or lease purchase agreements, backed by revenue sources and explained the city’s limitations. 

By state law, bonding for general obligations using money from the general fund–say, if the city wanted to build a City Hall on borrowed money–requires a referendum. 

In Palm Coast, the charter is stricter. It requires a referendum if the city were to enter into a lease-purchase agreement or any other project requiring borrowing of over $15 million, or whose repayment would extend beyond 36 months. The charter does not make exceptions for emergencies. The restrictions apply to numerous types of borrowing, including in public private partnership projects, and exceed state law requirements. Loans for the utility system are a notable exception to the referendum requirement. 

Tindal said that can change by referendum. “Subject ultimately to a referendum and any change to the charter I think you have flexibility,” Tindal said. 

“I think there’s upside but there’s also a lot of risk,” Council member Theresa Pontieri said. “Our charter is the way it is now to keep us from incurring that risk.”

Mayor David Alfin was interested in having the flexibility as long as it ensures that the city maintains its bond rating. “It’s a little creative, but what it does is it protects the overall idea that the bond rating is incredibly important to the city,” Alfin said. “You could sort of consider it on a project by project basis, keeping in mind that you want to protect your bond rating.” 

But as Tindal noted, the city does not and cannot control its bond rating. That’s controlled by independent rating agencies. They base their rating on the financial soundness of the city, with debt load the main factor. A city cannot simply increase its debt load willy nilly and expect its debt rating to remain high. 

“I’m curious as to what kind of what limitations we can put on ourselves because I don’t want this to be the wild west of borrowing,” Pontieri said. She agrees with the limitations in place in the general fund. But at the same time, she is interested in exploring some borrowing possibilities to make it easier for the city to develop public-private partnerships outside of debt that out be secured with property tax revenue. 

“We are handcuffed by not being able to enter into private public partnerships, big time,” she said. “The pay as you go just for the [public works] operations complex alone, I feel like we’re never going to get there realistically.” The council first started planning for the complex in 2017. 

If a loan is not secured by property taxes, it could only be financed by a limited number of revenue sources, causing Pontieri to ask: “Is the juice worth the squeeze here?”

To Alfin though, the restriction “that’s in the charter now was probably put in there arbitrarily just because they put a number and it’s not been addressed in 25 years.” (In inflation-adjusted dollars, the $15 million limit in the charter now would have been $28 million in today’s dollars.) 

When the council discusses this in a dedicated workshop later this month or next month, it will hear a presentation on the various capital projects that are unfunded at the moment and the different financial tools to help fund those projects, including different debt options. That means an exploration of the city’s charter restrictions, and how to overcome them. 

“This is something that should be explored. But this is a very, very important decision with a lot of implications,” Pontieri said. 

The city has no general fund debt. Its utility accounts for 84 percent of debts outstanding, with the stormwater fund accounting for 10 percent and the Old Kings Road special assessment district–the portion of Old Kings Road that was four-laned in 2010, originally with a loan from the utility fund–accounts for 3 percent of the debt. 

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