Here’s what’s about to happen: When the city of Kokomo sells bonds to raise money for a new baseball stadium and flood control projects, it will be taking on $11 million in new debt.
Kokomo Mayor Greg Goodnight’s plan is to retire about $6 million of existing debt when the bonds sell, spending down part of the city’s $13.3 million cash balance, leaving just the baseball stadium/flood control bonds to be repaid over the next 15 years.
In inflation-adjusted dollars, the amount of new debt is about the same as what the city took on in 2001, when it bonded to build Kokomo Beach.
The critics are starting to speak up about the plans, led by Kokomo resident Greg Finley, who wrote last week that: “I am sick and tired of your pet projects that continue to spring up all over Kokomo.”
The mayor has plenty of fans as well, led by the head of Ball State’s Center for Economic and Business Research, Michael Hicks, who has written extensively about the need for communities to improve “quality of life” amenities.
“Places with better amenities do tend to have higher income households, and of course all the benefits that accrue to them,” Hicks wrote in a March column. “But for a business looking for workers, the nice place will offer a wage advantage over less attractive locations.
“This result has great meaning, for it means improving quality of place reduces business costs on the most costly of inputs; human capital. So, as we think about attracting business to Indiana, we ought to get better at thinking through these simple models.”
Cost of debt
Judged on revenue, Kokomo can more than afford to bond for $11 million.
The bonds haven’t been sold yet, but when they do, they’ll probably cost the city around 2.5 percent interest, meaning an annual payment of about $900,000, conservatively.
The bonds will be repaid through the city’s economic development income tax revenue. The city received about $1.6 million in EDIT last year, meaning there shouldn’t be any problem making the payments, so long as city officials set aside the required funds each year.
Property taxes won’t be used to pay off the debt.
A novel position
On the larger issue of taking on debt, Kokomo is hardly in a novel position.
As of last year, with Kokomo Beach paid off, the city’s government had no debt. The city’s wastewater utility, which is funded solely through sewer rates, still has around $26 million in debt, but property taxes can’t be used to repay those bonds.
The fact the city was debt-free for a brief period, was, in fact, somewhat novel. No other city Kokomo’s size was without general obligation debt in that period.
But Goodnight has definitely been on a project spree, starting with the Foster Park pavilion early in his first term, and continuing with numerous trails improvements, the pedestrian bridge over the Wildcat Creek, the demolition of the frequently flooded homes on Carter and Murden streets.
“There is a cost to doing nothing,” Goodnight said.
On taking on debt, Goodnight notes that the city’s annual budget is $63 million, not counting the EDIT funds which will be used to repay the baseball/flood bonds.
“It’s always easier, politically, to do nothing. We can leave a hole down on Carter and Murden streets. We can let the [Highland Park CFD Investments] baseball stadium, which hasn’t been upgraded in 30 years, continue to deteriorate. Or, we can make a nice community for the people who live here,” he said.
Even using the city’s pre-annexation population, the overall level of Kokomo’s obligations, on a per capita basis, was among the lowest in the state, about $963 per resident. For comparison, the city of Carmel, with $976 million in obligations, has a per capita debt ratio of $12,335 per resident.
The interest rate charged on bonds is an indication of how investors perceive the city’s ability to repay. The last time the city’s wastewater utility had a bond series rated, in 2011, Standard & Poor’s rated it AA+.
Jim Merten, vice chairman of City Securities, Indianapolis, said Friday he’s certain Kokomo will attract a similar, “investment grade” bond rating when the bonds sell later this year.
“[$11 million] is not much for a city the size of Kokomo; they’re not heavily indebted,” Merten said.
More importantly for local taxpayers, Kokomo School Corp. and the Kokomo-Howard County Public Library aren’t heavily indebted either, he noted.
“I’d say the community in general is in good shape,” he said.
Even Carmel, with its seemingly massive debt load, still attracts good interest rates on new debt, thanks to the strong local economy, and its large tax base, Merten said.
Hamilton County has about 3.5 times the population of Howard County, but around six times as much tax base.
The real savings
This past week, Goodnight made a presentation to city employees, detailing how public and private wages in Kokomo compare to other cities and surrounding counties.
The reason for the presentation was mainly to get buy-in from the employees, who have, apart from police officers, seen their wages frozen during Goodnight’s tenure, Goodnight and his key staff included.
The city has about 100 fewer employees – about 20 percent of the workforce – than when Goodnight arrived.
The cost savings from the wage freezes and attrition have been massive, and are the main reason the city’s operating balance has increased every year since Goodnight took office.
The percent of the city budget spent on wages and benefits has dropped from 76 percent to 72 percent in that period.
Instead of spending money on wages and benefits for 100 city employees, the money has been either saved or spent on projects.
“If you look at what we’ve spent, the difference is we have something to show for it,” Goodnight said.