2009 - 09-21-09 Regular Meeting - Laserfiche WebLink

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eooK 23 Fair 52 With that in mind, I did not believe a large borrowing would occur and felt that the reduction in debt service and capital contributions were appropriate due to the large drop in sales tax revenues, state shared revenues, and other sources of revenues (a situation we discussed at the Board Retreat) If everyone remembers in the FY 2009 budget, we were trying to cover $2.1 million in new operating expenses for the Lee County Board of Education ($1 2 to San Lee Middle School), and in the FY 2010, budget we covered a $3.5 million gap in revenues versus budgeted expenditures. Over the two year period the $670,000 drop in contribution to debt service and capital reserves helped cover both those issues. After this year's budget process, Lisa and I had already decided we could no longer reduce the contribution to debt service and the Capital Reserve Fund. We decided that as the economy rebounded we would need to hold our headcount so our debt capacity would begin to rise again and quickly. We were prepared to follow through on this plan even with the anticipated cut in the ADM funding by the State Legislature. This years ADM funding is budgeted at $520,000. Now that the State has followed through and has taken these funds, our debt capacity is reduced again by $6.5 million. ADM funds go toward debt service on San-Lee Middle School, therefore these funds have to be replaced. In our financial discussions, our assumptions were based on the optimism that we had reached the bottom of this recession and we would begin an economic recovery over the next couple of years. I cannot predict when our revenues will turn around and, therefore, cannot predict how our debt capacity will be affected by that revenue growth- Without growth, we won't grow our debt capacity, therefore, I cannot predict into the future when we can borrow funds without a tax increase. As we work with our financial consultants, Davenport & Associates, and develop financial models our forecasts are being affected by the drop in the amount of property tax we contribute to debt service and the capital reserve, and the loss of ADM funding We have not added the ADM funding back to the models after the two year sunset because there is no guarantee the Legislature will restore this funding to us at that time. The-models show that with the new Y, cent sales tax our debt capacity at the current tax rate is below $12 million. This is a large reduction from the estimate 15 months ago (before the first referendum) where our capacity would have been over $26 million if it had passed. The models take part of the 'Y, cent and cover the loss of the ADM automatically since the ADM is part of the existing debt service structure. In the models, this reduces our debt capacity by $6.5 million from the new tax If we cover the ADM from another source, it obviously raises the debt capacity by this amount. So to answer the question, why is our capacity less now there are three reasons: first, the new tax would now generate $1.24 million a year where as before it would have generated $1.51 million (due to the recession), second, the drop in property taxes that were contributed to debt service, and third, the loss of ADM funding. This means that the new quarter cent sales tax would generate between $10 and $12 million of debt capacity at the current property tax rate This amount can be raised to between $16 and $18 million if we choose to address the ADM reduction in other ways and dedicate the entire new Y, cent sales tax to new debt only We can also increase our debt capacity by getting back to contributing more of the property tax revenues to debt service This situation is predicated on the fact that we do not know where the economy is headed- The only way to contribute more of tiie property tax revenue to debt service is for the tax base to begin to grow again. What we do knovd is that historically the sales tax revenues and other revenues dependent on economic activity fluctuate greatly and that over time they will begin to increase at a rate comparable to before the recession We cannot tell when the rebound will occur. It could be several years due to the lack of job growth occurring everywhere at this time - 2