[Durham INC] City Manager's Response to Street Bond Inquiry

Mon Nov 1 11:10:37 EDT 2010

Below is the response from City Manager Tom Bonfield to a resident inquiry regarding the 2010 Street Bond Referendum. The original inquiry to the city manager and City Council, along with the letter to the editor submitted to The Herald-Sun, are copied below. This response is being forwarded to Durham’s community list servs to help educate voters about this issue. For more information on the 2010 Street Bond Referendum, visit www.DurhamOperationGreenlight.org. 

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From: Bonfield, Thomas
Sent: Wed 10/27/2010 10:15 AM
To: Rod Gerwe; Woodard, Mike; Clement, Howard; Ali, Farad; Eugene Brown; Cole-McFadden, Cora; Catotti, Diane; Bell, William
Subject: RE: Road Maintenance Bond

Mr. Gerwe:

Thank you for your email, comments, and questions regarding the proposed 2010 Bond Referendum.  

While I certainly can’t argue with the point that paying cash is cheaper than borrowing, the City does not have the $20 million on hand to complete the paving of the 150 miles of poor and very poor conditioned streets; so when evaluating costs it would also be important to consider the cost of doing work now vs. paying inflated prices in the future as cash is available and netting that against any interest costs incurred over the life of the debt.  

Another thing to consider is the increase costs associated with repairing or even reconstructing streets that are allowed to deteriorate further because they are not resurfaced timely. A recent example…repaving Revere Road was expected to cost about $300,000, however due to deterioration, that road had to be rebuilt costing taxpayers about $1.3 million.  

The City proposal is to upfront the needed repairs of poor and very poor street with bond funds (at historically low interest rates) and then fund ongoing needed resurfacing as part of the annual budget to avoid returning to this position into the future.  

I would also point out that the initial assumptions of cost of borrowing and (subsequent tax equivalent) were based on a 4% borrowing rate. The most recent borrowing rate for the City has dropped to 2.6%, so I am confident these projections are on the high end. Ultimately, the exact rate necessary to pay the debt will be calculated if the referendum is approved by the voters and once the borrowing occurs. 

I did ask the City Finance Director to calculate the cost over the entire life of the debt for a home with a taxable value of $300,000 and the estimate was $280 (in current dollars).  I would be glad to have staff get with you if you would like more specificity about this calculation.

Again thank you for taking the time to consider this important issue and contact the City with your thoughts and questions. 

Tom Bonfield

City Manager

101 City Hall Plaza

Durham, NC  27701

"Great Things are Happening in Durham!"

Notice: All email to and from the city manager is available for media review and all communication not specifically exempted by North Carolina law is a public record and subject to release upon request.

From: Rod Gerwe 
Sent: Monday, October 25, 2010 3:25 PM
To: Woodard, Mike; Clement, Howard; Ali, Farad; Eugene Brown; Cole-McFadden, Cora; Catotti, Diane; Bell, William; Bonfield, Thomas
Subject: Road Maintenance Bond

Dear Council and City Manager:

You have been promoting the road maintenance bond issue by mailings and advertising stating that the bond “could cost you a cup of coffee.”  You further state that for a $150,000 valued house, the bond will cost “only” $11.46/year.  

Such promotion falsely trivializes the very significant cost of the $20 million borrowing.

Most Durham houses are assessed at much more than $150,000.  For a $300,000 house the tab is $22.92/year or $687.60 over 30 years.  This doubles again to $1375.20 over 30 years for a $600,000 house.  A $20 million 30 year bond at 3% interest will cost the tax payer $30 million according to an amortization calculator.  Consider also that $30 million divided by 220,000 Durham residents will cost each family of four on average $552.  That is on top of the existing property taxes.  The Durham city council has already asked approval for road bond issues in 2005 and 2007.  City property taxes went up 8% in 2008 partly to help make payments on earlier bonds, for which we are still paying. We were told these earlier bonds would take care of road maintenance backlog. Durham government must find ways to carve out a budget line item for road maintenance each year from existing revenues.  Annual road maintenance is needed, but repeated borrowing, which leads to significantly increased property taxes, is not necessarily the least expensive way to do it.  Carve out few million each year for road maintenance out of the existing budget, pay as you go, and reduce borrowing and interest payments.  

Please stop understating the real cost of such bonds.

Sincerely,

Rod Gerwe

-----------------------------------------

Oppose road bonds

Let’s examine the $20 million road bond issue, the Durham mailing to residents says “could cost you a cup of coffee” — certainly a sly understatement. City council says that for a $150,000 valued house, the bond will cost “only” $11.46 per year. For a 30-year bond, that’s $343.80 over 30 years. Most Durham houses are assessed at much more than $150,000. For a $300,000 house the tab is $23.92/year or $687.80 over 30 years. This doubles again for a $600,000 house. 

A $20 million, 30-year bond at 3 percent interest will cost the tax payer $30 million, according to an amortization calculator. Consider also that $30 million divided by 220,000 Durham residents will cost each family of four on average $552. That is on top of the existing property taxes. 

The Durham City Council has already asked approval for road bond issues in 2005 and 2007. City property taxes went up 8 percent in 2008 partly to help make payments on earlier bonds, for which we are still paying. We were told these earlier bonds would take care of road maintenance backlog. Durham government must find ways to carve out a budget line item for road maintenance each year from existing revenues. Annual road maintenance is needed, but repeated borrowing is not necessarily the least expensive way to do it. 

ROD GERWE

Durham 

http://www.heraldsun.com/view/full_story/10083250/article-Oct--29--2010?instance=opinion_hs_letters 

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