GY Financial Forecast. Utility Increases, Debt Extension, Hope, Smoke, and Mirrors

In an October 17 GY city council work session, the GY Finance Dept, presented nearly 60 slides based upon output from their 5 year financial plan models (spreadsheets).  Nowhere in the 60 slides did these forecasting models raise any dire financial warnings.  Nowhere did “potential bankruptcy” appear, nor was it mentioned.

Yet howardsgoodyearblog has been telling readers that GY is in dire financial condition and on the brink of bankruptcy.  What gives?

After obtaining through an FOIA request and then reviewing the electronic spreadsheets and power points (*all attached below) that according to the city of GY were used in the Oct 17 meeting, I believe that GY is denying the reality of their impending financial meltdown in four ways.

  1. There are outlandish assumptions in the financial models. Utility revenues are increased over 20% while expenses are assumed to be flat for over five years. This adds over $6 million per year (~ 10% of General Fund) to city funds in the models. The extra cash from higher and higher utility revenues is used to pay off General Obligation debt.  I detail this below with specific examples from the financial models.
  2. General Fund revenue increases nearly $7 million (an additional ~ 12% of GF) starting in 2014-15 when the mall starts up ON SCHEDULE in 2014 but no additional expenses (police and fire?) are incurred as a result of its start up.
  3. GY extends their $300 million in debt further into the future and spends the proceeds now.  I show that this appears to have been done in the past 12 months and I believe the refinance from the Oct 17 meeting is more of the same.  Details below.
  4. Either no one on GY city council understands what they are looking at or they just don’t want to know what they are looking at.  In the Oct 17 meeting Georgia shushes anyone who asks any meaningful questions that might have potentially negative answers.  Then they all chuckle about it. (Don’t believe me, you can go watch the video tape for yourself. Check @ 2:40 and 3:36 for examples).  In the same meeting they call the need for the refinancing “a hump” they have to get over.  In fact, it’s when GY has to start paying significant principal on the stadium.  Not exactly a hump.  Nowhere is a default by Westcor on their $3.5 million per year assessments or even a further delayed start up considered. The Westcor bonds currently trade at BBB, just barely investment grade.

GY Finance Five Year Plan Outlandish Assumptions

  1. In FY 12-13 GY assumes that residential sewer revenues will increase by 8.5% and will continue to increase by 4% per year every year thereafter.  A 27% increase overall.  In the same time period, expenses will be flat. Expenses flat, while revenues go up by nearly $2 million.
  2. In FY 12-13 GY assumes that residential water revenues will increase by 4.3% and will continue to increase by 4% per year every year thereafter. That’s a 22% increase overall.  This time, expenses are assumed to go down by $200k over the same time period. Revenues will be up by nearly $2 million, expenses down by $200k.  A $2.2 million contribution.
  3. In the General Fund, revenue increases over the 5 years (in addition to the mall impact) amount to $5.5 million from 2012 – 17.  Over the same FIVE year period expenses are projected to be flat with one exception.  Employee merit increases will increase from $1.3 million to $5.3 million per year.  What about health care and retirement cost increases that have increased 9% per year recently? Unless they are included in the merit increase number they’re not mentioned.  But I’ll assume it’s in there. It still leaves a net $1.5 million contribution.
  4. The Sanitation department has a 6% per year contractual increase expectation with Waste Management, but other than that no other expenses will increase over the next five years.  Highlighted in yellow in this spreadsheet and waiting to be filled in is a line for 3% per year rate increases.  Without those increases the current $1 million positive fund balance in Sanitation becomes a negative $1.5 million by 2017.
  5. HURF. Revenues from the state will be up (imagine that) and expenses will be flat.  Net contribution, $200k.
  6. The new mall is going to start up as scheduled and help increase total General Fund revenues starting in 2015 by 11% and just keep going up from there. It’s about a $7 million jump in revenues from 2014 to 2015, and another $10 million after that but I’ll just consider the one time $7 million for now.  Wouldn’t you think there would be a commensurate increase in personnel costs the same year (additional police and fire?) that the mall starts up?  Not in GY’s model. Is GY police and fire already staffed for the new mall and we’re just waiting around paying them year after year until it happens? I don’t know, just asking.

Moving Money in the Model

  1. GY plans to take the increases in water, sewer, and sanitation, and transfer an additional $3 million plus per year into the General Fund which will allow GY to continue its spending.
  2. GY plans to take out about an additional $7.5 million per year from Water and Sewer in order to pay off  General Obligation Bonds (GO) which are jumping up to $12 million per year starting in 2012 from about $9.5 now.  To compound the problem, the secondary property tax continues to fall with falling valuations and starting in 2017 GY has to start paying off some principal on the stadium debt.

Extend the Debt

  1. GY did not provide me with their calculations on the “savings” that they expected from the refinance that was discussed at the Oct 17 meeting but I’m still trying to get it. However, in a recent post, I have documented that while in the work session council was told that no debt would be extended as a result of this action the actual ordinance which passed 7 -0 allowed it.
  2. Take a look at these two screen shots from the 2011 and 2012 GY budget book. 2011 Debt Svc Schedule GO Bonds   2012 Debt Svc Schedule GO Bonds You can see that during the 12 months between these two reports, GY increased its long term GO debt by about $5 million (143.8 to 148.4) while they lowered their current interest and principal payments year over year by over $2 million (11.7 to 9.6).  Magic?  I don’t think so.  A present to our grandchildren.

As I have stated here many times, GY continues to plan for the best and hope the worst doesn’t happen which at the end of the day will come back to hurt city employees the most when things finally blow up.  But what is in these financial models goes beyond that.  Who really thinks that costs are going to remain flat over a five year period?  If these files are any indication, GY is planning on big utility increases and debt extension to pay off their debt instead of reining in current spending. Property taxes can’t be far behind.  As long as GY city council keeps getting re-elected by city employees, union PACs from outside the city, and developers, who do you think they’re looking out for? Unfortunately for city employees, it is my contention that GY’s “let’s hope we make it” attitude puts city employees most at risk.

Unrealistic optimism, lack of leadership, (or perhaps even competence) to address the problems, and a “pass it on to the grandchildren” mentality.  That appears to be GY’s plan.  What do I think they should do?  I’ve previously told you  .

*Here are all the files GY sent me in case you’d like to check any of my facts.

Debt Overview (slides)

Debt Overview(spreadsheet)

Financial Forecast (slides)

General Fund

Utilities combined





One Response

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: