Mayor's Bond Request and the Capital Improvement Plan

At the February 12, 2008 MC meeting, the Mayor submitted bond requests for 2 separate items:

• $5,076,000 for Water System Improvements
• $22,500,000 for Waste Water Treatment Plant Upgrades

I look forward to getting more information on these requests at the Finance Committee but here are a few initial observations. I noted in another post the background for the larger Waste Water Treatment Plant upgrades. From the 1/09/08 Daily News article and the orders submitted by the Mayor, it appears that both of these requests would be rolled into the low-rate (2% interest) bonds issued through the MA Water Pollution Abatement Trust award that we were recently given. The DN article in fact mentions that the award covered both the Treatment Plant upgrades required by the US Environmental Protection Agency and "water mains, pump stations and water tanks" for our system.

I looked at Amesbury's Capital Improvement Plan (CIP) from 2007, covering 2008-12, to see if any or all of the items in the Mayor's request were in the CIP. Major capital expenses such as these should be part of a well-developed capital plan and an overall debt management strategy. Click here for a comparison of what was in the CIP versus the Mayor's request.

For Bill 2008-012 ($22.5M), the CIP planned for $13.5M in costs. That's a $9,000,000 or 66% variance/increase. For Bill 2008-011 ($5.076M), the CIP planned for $3.62M. That's a $1.45M or 42% variance/increase.

At the top of questions regarding both of these requests will be the large gap between planned costs (CIP) and these requests.

Only some of the improvements in the Mayor's bills are planned for FY2008. Others are spaced out to 2009 and 2010. The capital improvements in the Mayor's requests are all included in Amesbury's immediate and near term capital planning. The approval of this or any bond does not mean that Amesbury would draw against the bond authority all at once or even up to the limit approved. As I understand it, we'd have quite awhile to actually draw on the monies from the MA Abatement Fund. And I assume that it is likely prudent, if possible, to bundle these planned improvements under the good interest terms from the MA Abatement Fund while we can.

So, the improvements fall squarely within our Capital Improvement Plan. The interest rate for this debt is good. However, the large gap between planned costs and request costs is a significant concern and such large discrepancies would need to be well explained and justified. As ever, the Finance Committee will need to evaluate if Amesbury can afford these particular debts in the larger context of our overall debt service and debt plan.