By Amanda Estes

Staff Writer

With a $56 million bond referendum less than a month away, the South
Portland High School renovation and construction project continues to
be a hot topic in the city. Acting City Manager Jim Gailey, however,
wants to turn attention to a dozen public improvement projects
lingering on the city’s agenda, that will require funding and
taxpayers’ support.

The Oct. 10 city council workshop was the first of several
“brainstorming sessions” to prioritize the projects and “allow us to
move forward and strategically plan for these improvements to become
reality,” Gailey said in a position paper to the council. The
discussion was held in conjunction with a finance session regarding
municipal and school debt and tax increment financing districts (TIF) –
the first of two such workshops leading into the 2009 budget
preparations.  

Armed with reports from department heads, the council struggled to
assign the projects into a hierarchal structure without information
about the proposed funding mechanisms.

“Each one of them has the tentacles out there that are involved in some
funding already,” said Councilor Jim Soule. He advocated it might be
more effective to assign councilors to different projects, but didn’t
receive support for the idea.

Projects on the city’s agenda include the creation of an east-west
connector road between Main Street and Highland Avenue, construction of
a consolidated bus complex, creation of a southbound onramp to I-295 at
Exit 4, renovations to city hall, expansion of the Wainwright
Recreation Complex, renovations and expansions at the city’s main
library, construction of a new parks and public works complex,
completion of the combined sewer overflows (CSO) separation project,
renovation of the armory building, upgrades to Mill Creek Park and
Spring Point Shoreway and an expansion and renovations to the fire
department’s Willard Hose House on Pillsbury Street.

“There are 12 items, but are there things that have been forgotten?”
asked Councilor Linda Boudreau. She proposed adding improvements to the
Highland Avenue and Cottage Road intersection to the list.

Boudreau said she was concerned the more vocal advocates will eat up the city’s money and push their project ahead of others.

“The importance of this to me is to be sure we spend taxpayers’ money in the wisest possible manner we can,” Boudreau said.

Mayor Claude Morgan suggested removing the Exit 4 project from the
list, as the projected $6 million project seems to be eligible for
federal funds. Councilor Jim Hughes and Boudreau, however, were against
relying too heavily on federal money.

“I think it’s great if we can get it through the Feds,” Hughes said.
“Chances are we’ll have to go through the PACTS [Portland Area
Comprehensive Transportation Committee] process and contribute some
funds.”

The council’s discussion moved to finances as Finance Director Rob Coombs reported on debt and the city’s TIF districts.

Coombs said two of the TIFs – National Semiconductor and Fairchild
Semiconductor – have essentially stopped growing. A law, enacted in the
spring, which makes business equipment and some real estate tax exempt,
could adversely affect valuation, Coombs said.

The majority of municipalities will be reimbursed for the lost property
taxes, 100 percent in the first year with a 10 percent reduction each
subsequent year, until it reaches 50 percent.

There is some uncertainty about the law’s effects when it comes to the
depreciation of “high-tech” equipment owned by National Semiconductor
and Fairchild Semiconductor, Coombs said.

“We never know how much a business is going to be reinvesting in its
personal property,” Coombs said. “We’re hoping they will reinvest
enough so valuation continues to go up.”

Coombs said assuming the city is reimbursed 100 percent, there
shouldn’t be a huge impact in the first year. He added the personal
property declaration in June will reveal how the law will affect the
city in terms of the property tax reduction law, LD 1.

Looking ahead to next year’s municipal budget, Coombs said assuming tax
evaluation doesn’t change, the city’s needs from taxes could increase
by as much as 5.28 percent before going over the LD 1 limit. That
translates to a $45.40 increase on a median tax bill for a home
assessed at $212,000. At 5.28 percent, the municipal and school budgets
combined could increase the median tax bill by $136.88.

With the $56 million bond for the high school, which will cost $29.4
million in interest payments, going before the voters next month,
Coombs said the city’s ability to manage its debt will be a significant
factor in maintaining its credit rating, which is based on debt as a
percent of equalized value and per capita debt. Moody’s Investors
Service has given the city an Aa1 rating, while Standard & Poor’s
gave it an AA rating.

As of June 30, 2007, Coombs determined the city’s total debt balance was roughly $29.8 million.

If the school bond passes, Coombs said the city’s debt as a percent of
equalized value – assuming there is no change in valuation – could
increase from 0.52 percent to 1.88 percent, more than double Moody’s
median of 0.9 percent.

In a memo to Coombs from Joe Cuetara, of Moors & Cabot Investments,
which serves as the city’s financial advisor, Cuetara stated, “Moody’s
believes significant increases in the city’s debt burden without such
attention to fund balance could impact credit quality.”

Relative to other municipalities with Aa1 ratings, Coombs said South
Portland’s fund balance levels are low. He suggested creating a debt
policy to set a limit on the percent of equalized value and generate
expectations for when bonds will be issued.  When it comes to fund
balances, the city has a target to carry an excess of 8.3 percent of
the total annual budgeted expenditures, according to Cuetara’s memo.

“Rating firms like to see it,” Coombs said of the debt policy. “It removes uncertainty.”

Coombs said Moody’s is not guaranteeing a drop in the city’s credit rating, but is warning it might happen.