Council OKs $2M borrowing
NORTH WALES » They’ve been planning for years, and now gone ahead and gone big.
Borough council has approved a $2 million borrowing meant to start tackling projects on the borough’s now-finished comprehensive plan, a move that could lead to a small tax increase later this year.
“We had talked about, when we were doing the comp plan, and even as of last year, about acquiring debt and this being a prime time to do so because interest rates are so low,” said Borough
Manager Christine Hart.
Council members and staff have discussed a possible long-term borrowing to address local infrastructure needs as far back as 2014, but changes in the town’s administration in 2015 and the drafting of the “North Wales 2040” comprehensive plan from 2016 through 2018 have delayed any formal action. The town’s last long-term borrowing for infrastructure from 2002 was paid off in 2018, Hart told council on Aug. 25, and the only long-term obligation left on the books is a final payment on a borrowing for upgraded police radios that dates back to 2011.
“We have paid off our debt. We had a little bit of debt in 2020 for the radio loans, that has now been extinguished or depleted, if you will,” Hart said.
“We still carry a general obligation portion of tax millage for our debt service, and we have not acquired any debt,” she said.
In the town’s 2020 budget that was approved last December, the 5.001 mill tax level contains .226 mills that go toward debt service, and which equaled roughly $35,000 in revenue in 2019, according to budget documents and the manager. The “North Wales 2040” comprehensive plan update calls for capital spending projects around the town that include uniform signs at all parks and open space, repairs and replanting of stormwater basins and rain gardens, a tree survey to identify and replace trees, new trail connections including along Center Street, way finding signage, upgrades to the borough-owned church and office building at 125 N. Main Street, streetlight upgrades, new streetscape elements like seating and planters, parking meters and signage, sidewalk and road repairs, upgrades to bus stops and crosswalks throughout the town, and more.
“We have a laundry list of things that the borough, and/or that the planning commission would like to see as improvements: we have a streetscape, we have signage, we have downtown and park improvements,” Hart said.
“We have a whole plethora of things that are in the comp plan. The $2 million would not be able to do all of them, but it’s a start,” she said.
With that to-do list now formalized, in May Hart said she had begun looking into borrowing options, reported in June on talks with the Delaware Valley Regional Finance Authority, and said in July that council’s finance committee had begun evaluating options. On Aug. 25, the manager gave the details, outlining the numbers for a total of six borrowing options, for 15 or 20 year terms on borrowings of $1 million, $1.5 million or $2 million, with processing charges likely lower by borrowing via loan than bonds.
Each of the six borrowing options was evaluated assuming interest rates of 1.011 percent to 1.13 percent, Hart told council, which produced annual payment amounts ranging from a low of just over $56,000 for the $1 million borrowing over 20 years, to as high as $144,300 per year, for a $2 million borrowing paid back over 15 years.
Starting with the $35,000 in debt service revenue from the tax millage, and adding in $31,000 from lease rental of the second floor offices at borough hall, the borough has roughly $66,000 it can put each year toward the debt service, which Hart compared to the annual payment amounts for each proposed borrowing.
“If you take loan number one, if nothing changes, which is being extremely conservative, we’d be taking off the $35,000 and the $31,000, which leaves us negative $6,149 to complete the payment” each year, she said.
Taking the annual payment amount for each of the six loan options, then subtracting the $66,000 in annual debt service revenue and an additional $6,000 from the balance in the borough’s debt service account, yields six amounts needed: the $1 million over 15 years would require just shy of $150 in new revenue, while the $1 million loan over 20 years would yield a “surplus” of roughly $15,900 of revenue taken in beyond the debt service payment.
The $1.5 million loan would require $36,000 in new revenue for the 15year payback, and just over $12,000 for the 20-year payback, while the $2 million loan would require $72,000 in new revenue for a 15year payback and roughly $40,000 in new revenue for a 20-year payback.
“I think, being at $2 million, it’s maxing us out where we’re at right now, but it’s also being conservative. Money is very cheap right now,” Hart said, referring to the roughly one percent interest rates on all six options.
Where to find the other $40,000 needed to cover payments on the $2 million, 20-year loan? Hart said staff project an extra $39,000 could be raised by increasing the town’s debt service millage by .25 mills, and said the last borough tax increase was for a full 1 mill that resulted in an $80 to $100 annual increase for the average resident.
“If we’re going to do a $2 million loan, I would recommend that you do a .25 (mill) tax increase in 2021,” she said.
“If you were to only increase debt millage of .25 (mills), then you would be looking at each household, for the average assessed (value) of $100,000 to $150,000, would be paying $3 to $5 more per month on their borough taxes — which would equate to about $60 per year,” she said.
“The $2 million is not going to solve all of our problems going forward. We may need more money in the future, and we can certainly refinance or go for more loans. But we need to get started, or we’re not going to do anything with this plan,” Councilman Mark Tarlecki said.
Hart added that the payments could be further offset if interest rates rise again and investment income can be realized on short-term funds, and/or if the overall assessed value of the town’s properties goes up to produce more tax revenue.
“I don’t have a crystal ball to say what the future holds, but I’m giving you the worst-case scenarios now,” she said.
Councilwoman Sally Neiderhiser then made a motion to approve the recommendation of the $2 million loan with the 20-year payback period, saying “I think that’s the best one,” councilman Eion O’Neill seconded, and the rest of council unanimously approved. Borough council next meets at 7 p.m. on Sept. 8; for more information visit www.NorthWalesBorough.org.
“We have a whole plethora of things that are in the comprehensive plan. The $2 million would not be able to do all of them, but it’s a start.”
— borough Manager Christine Hart