The city of Wichita may not be able to borrow money to build a new $30million library downtown because it is too deeply in debt.
If the library project begins as planned in 2015, the city’s debt payments will spiral well above accepted city benchmarks, according to a new internal city finance report. It would struggle to make payments because of lower-than-expected property tax revenue that reflects the slow economic recovery.
In essence, the city’s credit card would be maxed out by the $30million central library project. In addition the city is facing equally problematic expenses for acquiring a new city water supply, upgrading treatment plants and pipes for both water and sewer systems and maintaining deteriorating streets, council member Jeff Longwell said.
So the focus of council members is shifting — to a second delay or elimination of the library project, or to alternative financing methods, like a citywide sales tax increase or a lease-purchase deal with a developer.
“We may just have to face the fact that we cannot do the central library at this point,” Longwell said. “I can tell you for sure that the people in my DAB (district advisory board) want it. But they also want better streets, a new west-side library, and there’s a lot of interest in a new water source for Wichita, too, like El Dorado Lake or even Kaw Lake in northern Oklahoma.
“We’re going to have to sort through the entire capital improvements program and look for alternatives,” Longwell said. “I can tell you this: We are not going to raise taxes.”
The library’s fate could come to a head as early as Tuesday, when the council considers paying for more architectural services for the new facility.
The sudden shift in the new central library’s fate was prompted by an internal city finance report, titled “City Debt Levels and the Impact of the Library Project,” that was provided to council members last week.
The report outlines a significant seven-year debt bubble for the city if it proceeds with the new library at Second and McLean in 2015. That debt would peak in 2018 and 2019 when the cost of the library would push the city to 92 percent of its credit limit.
That 92 percent is far too high, Vice Mayor Pete Meitzner said.
“We can’t do that,” Longwell said. “It would put us in a dangerous position financially if we had some kind of major emergency.”
Steve Roberts, president of the city’s library board, said a delay would require spending millions to shore up the existing 40-year-old concrete facility near Century II and expose any new library project to even higher building costs.
“We sympathize with the city's current budget difficulties, but we see no way to avoid major expenditures on the library system without major erosion of library service levels,” he said in a prepared statement. “We feel that these expenditures should be intelligent ones that produce tangible gains for the citizens, not millions spent to solve nothing and that fail to prevent erosion in public services. For these reasons the Library Board considers the ‘ongoing delay’ path on the central project to be poor fiscal stewardship of public funds.”
The new central library has been planned for city land at Second and McLean, after a renovation study at the current main library at 223 S. Main put an $8million to $10million price tag on remodeling. Construction on the new library was initially scheduled to start this year, but was delayed last spring by the council because of concerns over whether the city could afford it, even after the project was scaled back from about $40million to $30million.
Behind the debt bubble
When council members signed off on the 10-year capital improvements plan last spring, city finance officials projected commercial and residential property values would grow 1.7 percent in 2013 and 4 percent each year through 2020. That growth would have produced property tax revenue peaking at almost $35million in 2020.
But according to the internal city finance report, the Wichita economy is not bouncing back. Instead, values are projected to grow 0.8 percent in 2013, 1.5 percent in 2014 and 3 percent each year through 2022 — producing a projected $4million less in tax revenues — $31million —in 2020.
The city already carries significant general obligation bond debt — almost $263.2 million on an assessed tangible valuation of $3.1 billion, according to the Kansas Tax Rate & Fiscal Data Book, published by the League of Kansas Municipalities. That debt is considered high by city officials. General obligation bonds allow a city to borrow money by pledging to pay back the loan from the property tax and other money it collects from taxpayers.
“No question about it,” Longwell said. “The Wichita economy is recovering, but it’s recovering far more slowly than any of us anticipated.”
The city’s internal finance department report proposes moving the library project back, somewhere between 2018 and 2020.
But even delaying the library project to 2020 will drive the city’s debt above two-thirds of its credit limit, a benchmark that the city has established. Keeping the debt below the two-thirds mark would allow the city to borrow money for emergencies or other major projects.
Benchmarks for city debt are relatively new in Wichita and are evolving, according to City Manager Robert Layton and city staff.
Prior to Layton’s arrival five years ago, the city had no formal benchmarks limiting or encouraging debt load management.
“It was a rude awakening,” Layton said. “There was no real context for evaluating our debt load.”
The amount of debt the city took on in previous years is haunting the current council, council member Lavonta Williams said.
“We’re dealing with the Kolb era, the interim era and, I suppose, the Cherches era,” Williams said, referring to previous city managers George Kolb and Chris Cherches.
Several council members told The Eagle that the entire 10-year capital improvements program — the plan to finance long-term, costly public projects — will go back under the microscope this summer for “re-prioritization.”
Translated: Expect cuts in some planned projects and a spirited battle over the future of the central library.
Other high-profile projects include the $13.7 million Heartland Preparedness Center at I-135 and K-96; the $180million East Kellogg extension that includes about $66million in local sales tax funding; and the 13th Street flyover at the Big Ditch, a $50million project funded by local sales taxes. Also included is funding to enhance the city’s street maintenance program – $8million in 2012, $9million in 2013 and at least $10million in 2014.
Some other projects — such as the new $200million airport terminal or potential projects to address $2.1 billion in deferred city sewer and water system maintenance — are funded differently, through self-supporting budget funds that provide services to taxpayers for a fee. However, the city’s needed water and sewer projects are so costly that the city may have trouble borrowing that much money.
Council member Janet Miller said she wants to keep the new central library off the chopping block.
“We need a new library,” she said. “The public wants it, the library board has worked hard preparing for it, and we need to do it.”
But Williams acknowledged that the city may have to get creative to save it. One alternative she wants to examine is a public-private partnership to build the library, essentially a lease-purchase arrangement for a developer-financed building that would eventually be acquired by the city.
Longwell is skeptical about any lease-purchase deal.
“All you’re doing there is going to a different lender, really, at a higher interest rate,” he said.
Meitzner and Miller said they’d be willing to consider asking voters to approve a slight sales tax increase for the library.
“Maybe what we should do is put this in the hands of the voters,” Meitzner said.
Miller will urge her colleagues — and city voters — to keep an open mind about the future of the new library.
“It’s one of the most significant projects of this period,” she said. “But it’s a very challenging issue for us, as have been our annual operating budgets in this economic climate.”