Property tax, utility rate increases loom

This graph shows the annual debt service requirements for the next 10 years.

By Seth Schmidt

Midway through a review of Tracy’s 2016 financial audit, Mayor Steve Ferrazzano asked:
“Haven’t you got any good news?”
Tom Olinger, representing the firm ABDO Eick & Meyers, had just outlined two needs that will affect residents’ wallets: increased water and sewer rates and bigger property tax levies to pay for long-term infrastructure improvements.
“You’ve got to look at increases,” Olinger said. “There is some significant debt that is coming on the books that will need to be taken care of.”
The CPA was referring to the city’s $3.8 million Phase One sewer, water, and street project that began this year, as well as the $7 million Phase Two plan to build new sewage lagoons northeast of the airport.
Olinger recommended that utility rates be increased over a three-year period, rather than make “one huge spike”
In addition to increasing water and sewer rates, Olinger also suggested that gradual increases in the city’s annual debt retirement levy be implemented, rather than large increases after new borrowing. He noted that the roughly $11 million in temporary bond financing that the city has obtained recently sets aside money to pay both interest and principal costs.  When the Phase One and Phase Two projects are completed and the city obtains its permanent funding, Olinger indicated that Tracy will need to generate enough to revenue from utility fees and property taxes to service the 40-year loans in permanent financing.
Because the city’s current bonded debt obligations do not decrease until 2023, Olinger indicated that Tracy will almost certainly need increases its annual bonded debt property tax levy.
A bright spot for the city, Olinger said, will likely be less repair and maintenance expenses from the new infrastructure.
The City of Tracy has already been promised $593,000 in federal grant funding and $2,663,000 in 40-year, low-interest loans to finance Phase One.  City leaders are hoping that grant funding will increase, because Phase One costs have been more than expected.
The City of Tracy has not gotten a permanent funding commitment year for the Phase Two project to build the wastewater ponds, because Rural Development continues to finalize plans and not all permits have year been obtained.  The city can’t call for bids on the wastewater ponds, until all paperwork is complete.
The city has not yet obtained permanent Phase 2 financing from Rural Development, or a breakdown on how much funding will be available in grants.  Estimated cost for the sewage settlement ponds is $7.4 million.
Tracy has a bonded debt obligation of about $440,000 for 2017, with debt payments increasing to $500,000 for the years 2018-22. With no new debt, the city’s debt obligations would decrease to just over $400,000 in 2023.

For more on this article, see this week’s Headlight-Herald.