City Council moved forward with a plan to refinance Meadville, Pa.'s debt burden at Wednesday's meeting following a gloomy discussion of current and upcoming infrastructure needs. Council will likely vote to on the refinancing plan at its July 19 meeting.
Even under the best-case scenario presented by Finance Manager Tim Groves, the city will see expenses for debt payments alone rise by an average of $163,000 per year for the next three years. The refinancing plan would allow the city to avoid even larger increases over the next three years. If no action is taken, expenses will balloon by more than $325,000 for each of the next two years and $205,000 in 2020 before leveling off.
Groves framed the choice facing council with a question:
"Can we afford to keep the same debt schedule we have now and raise taxes 2 or 3 mills or can we put it off a little bit and raise taxes maybe 1 mill -- or try to find $150,000 or $160,000 difference?"
"So, not good news," he added.
Mayor LeRoy Stearns immediately objected to the idea of raising taxes.
"The taxpayers can't take a big hit on the tax increase," he said. "They can't do that."
Each additional mill of taxes raises city revenues by approximately $150,000, according to Walker. Like Stearns, the other three council members present Wednesday expressed a reluctance to increase taxes. Councilman Bob Langley was absent.
"I think it's the practical thing to do," Councilman John Battaglia said of the refinancing plan. "I'd rather not do it, of course, but realistically that's probably the best advantage for the taxpayers."
Meadville's current municipal tax rate of 21.92 mills is second in the county only to Titusville at 24.713. By comparison, property owners in Vernon Township pay 2 mills while those in West Mead pay 4.25.
The city is nearing the end of the $7 million capital plan it established in 2015. Of the $570,000 that remains, all but $87,000 has been committed to unfinished projects and other capital needs.
If the city continues with the planned uses for the remaining funds, City Manager Andy Walker told the council, "We'll have run out of capital in the next year, essentially."
Not only will the city have run out of money for capital projects, but what money it does have may not be enough to pay for some of the designated purposes.
Walker pointed out, for instance, the $125,000 remaining to go toward replacing the fire department's ladder truck, which is nearing 20 years of service, and its pumper truck is far less than the likely cost of such equipment. In past discussions, Walker has estimated the combined cost of the equipment to be $1.1 to $1.5 million. Even if the city is able to win grants to cover the cost of new equipment, the remaining funds may not cover the cost of the city's required match for such grants.
Other major capital costs on the immediate horizon include the Market House electrical upgrade, the final cost of which has not yet been determined but which is likely to exceed $75,000, and $500,000 for the Market Square parking garage renovation. As Stearns pointed out, the garage renovation also likely means future maintenance costs of approximately $100,000 each year if the city intends to keep the garage in good shape after spending so much to fix it.
One possible answer to the infrastructure costs confronting the city is to continue doing what it has been doing in recent years -- borrowing more money. Because city tax revenue is generally only enough to pay for operating expenses, the city's practice has been to borrow money to pay for expenses such as paving. In May, council approved $320,000 for 2017 paving, but any future paving would likely have to be paid for with additional borrowed funds. Ideally, according to Walker, the city should be spending about $750,000 each year on paving.
"I don't like going out and borrowing more and more money, but this is only fixing the current debt," Stearns said of the proposed refinancing plan, "so what are we going to do about the paving and any other problems that come up?"
"It's important, if you're going to borrow money, that you do it when it's cheap," Battaglia said.
Given the current debt challenges, borrowing more may seem wrongheaded, but it makes sense in a lot of ways, according to Groves, particularly given interest rates that continue to remain low for the present.
"If you want to fix things now, that would probably be the way I would suggest you should go," Groves said of the prospect of borrowing as much as an additional $3 million.
