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OFFICE OF THE ALBANY CITY TREASURER DATE: OCTOBER 7, 2020 TO: MEMBERS OF THE COMMON COUNCIL FROM: HON. DARIUS SHAHINFAR RE: 2020 DEBT REPORT The following provides information on the City’s debt service and current outstanding debt. The 2020 and 2021 information was provided from the adopted 2020 budget and the proposed 2021 budget. This report is made up of five sections. The first compares total General Fund expenses to total debt service expenses and landfill debt from 2017 to 2021 and the second shows debt issued and retired from 2017 to 2021. The third part provides a listing of outstanding debt by year for general obligation bonds with landfill general obligation bonds shown separately, and annual debt service from 2021 to 2034. The next section provides information on the estimated overlapping indebtedness. The last part provides information on the City’s credit rating from Standard and Poor’s. ---PAGE BREAK--- 2 Total General Fund Expenses compared to Debt Service (Thousands) The chart above compares the actual General Fund expenses to actual Debt Service expenses (including paydown on the BANs and the portion of landfill debt) by year from 2017 to 2021.* *For 2020 and 2021 this report includes the total budgeted General Fund expenses During 2017 the City issued $44,596,417 in Bond Anticipation Notes at a net interest rate of 1.19% not reoffered. The BANs included 2014 – 2017 capital projects. BANs are considered a short-term liability since they mature in 1 year from the date of issue. The BANs required a paydown of $3.7 million and interest expense of $530,698 when they matured in June 2018. In 2018 the City issued $33,310,417 in General Obligation Serial Bonds with a maturity of 10 years. The total interest expense on these bonds will be $7,535,102. During 2018 the City also issued $18,854,100 in Bond Anticipation Notes at a net interest rate of 1.65%. The BANs included 2015 – 2018 capital projects. The BANs required a paydown of $205,000 and interest expense of $518,488 when they matured in June 2019. In 2019 the City issued $26,000,000 in General Obligation Serial Bonds for the purchase of street lights, with a maturity of 15 years. The total interest expense on these bonds will be $6,765,650. During 2019 the City also issued $29,799,600 in Bond Anticipation Notes at a net interest rate of 1.40%. The BANs included 2015 – 2019 capital projects. The $172,250 $172,502 $172,804 $179,584 $180,840 $15,894 $15,222 $12,713 $17,281 $16,528 $5,428 $5,957 $5,957 $5,971 $1,015 2017 2018 2019 2020 2021 Total Debt Service and Landfill Debt to Total GF Expenses (In Thousands) GF Expenses Debt Service Landfill Debt ---PAGE BREAK--- 3 BANs required a paydown of $2.4 million and interest expense of $744,990 when they matured in March 2020. During 2020 the City also issued $44,672,719 in Bond Anticipation Notes in two parts. The first part totaling $8,500,000 at a net interest rate of 1.29% not reoffered. The second part totaling $36,172,719 at a net interest rate of 2.25% not reoffered. The BANs included 2015 – 2020 capital projects. The BANs require a paydown of $3.0 million and interest expense of $923,537 when they mature in March 2021, depending on whether we elect to issue BANs for another year or if we issue bonds. Debt Issued and Retired The chart above shows the amount of debt issued on the left side bar and debt retired on the right side bar by year from 2017– 2021. This chart includes principal and interest expense (including the BAN paydowns and interest). In these 5 years, the City retired, or will retire, $102M in debt and issued $73.6M in new bonded debt thus far (or only $47.6m if the $26m street light debt, which pays for itself, is excluded). What is not included is the 2021 borrowing which is slated to be in the neighborhood of $60-$65m and will likely be mostly bonded, and partially BANned. BANs are generally authorized to be renewed or “rolled over” for up to five years after the original date of issuance. The State due to the pandemic now allows renewals of BANs originally issued during calendar years 2015 through 2021 to extend up to seven years after the original date of issuance. The advantage of utilizing BANs rather than bonds is the extremely low applicable interest rates ---PAGE BREAK--- 4 and the flexibility that can be provided for debt issuance if funds become available from debt service or operating revenue to pay some or all of the BANs before bonding. The Percentage of Debt Service to General Fund Expenses The chart above demonstrates the percentage of Debt Service expense ($17.5M including the BAN pay down and interest) to total budgeted General Fund expenses ($180.8M) for 2021. 90% 10% 2021 Proposed Budget GF Expenses compared to Total Debt Service GF Expenses Debt Service ---PAGE BREAK--- 5 The Percentage of Debt Service less Landfill Debt to General Fund Expenses The chart above demonstrates the percentage of Debt Service less landfill debt ($16.5M) to total budgeted General Fund expenses ($180.8M) for 2021. From 2017 to 2021 the percentage of debt service has remained relatively consistent at between 10% to 12.5% of total general fund expenses. When landfill debt is deducted the percentage falls to 7% to 10%. 91% 9% 2021 Proposed Budget GF Expenses compared to Debt Service less Landfill and Other Debt GF Expenses Debt Service ---PAGE BREAK--- 6 OUTSTANDING DEBT SCHEDULE The total outstanding debt including Bond Anticipation Notes for 2021 totals $99.7M. (This figure presumes the issuance of a $15M RAN. However, no RANs have been issued since 2015, and their issuance is something the City strives to avoid at all costs. Without the RAN, the total outstanding debt is reduced to about $84.7M.) The General Obligation Bonds including Landfill total $80,720,112 with the last maturity in the year 2034. The total outstanding bonds by the end of the year will be $67.1M if no additional bonded debt is added to this total in 2021. This is the $80.7M less the current year debt expense of $13.6M. Schedule of Principal and Interest Payments Serial Bond Indebtedness as of January 2021 (Including Bond Anticipation Note) Principal (Landfill) Interest (Landfill) Total 2021 11,405,000 960,000 2,213,994 55,000 13,618,994 2022 8,950,000 990,000 1,830,468 23,850 10,780,468 2023 8,315,000 400,000 1,552,400 4,000 9,867,400 2024 6,295,000 1,285,550 7,580,550 2025 6,515,000 1,069,400 7,584,400 2026 5,165,000 858,725 6,023,725 2027 5,370,000 665,150 6,035,150 2028 5,525,000 464,950 5,989,950 2029 1,860,000 335,550 2,195,550 2030 1,920,000 278,850 2,198,850 2031 1,985,000 220,275 2,205,275 2032 2,050,000 159,750 2,209,750 2033 2,115,000 97,275 2,212,275 2034 2,185,000 32,775 2,217,775 Bonds $69,655,000 $11,065,112 $80,720,112 BAN Paydown BAN $3,000,000 $923,537 $3,923,537 RANs est. $15,000,000 $60,000 $15,060,000 Totals $87,655,000 $12,048,649 $99,703,649 ---PAGE BREAK--- 7 The last column shows the current annual debt by year. The paydown, interest due and total of the current bond anticipation notes is listed below the outstanding bonds total. It should also be noted that the above debt schedule includes approximately $2.2M per year in debt service for the street light purchase. This bonded debt is offset by cost savings above and beyond the cost of debt issuance, and should thus be treated as landfill debt is for the purposes of the City’s debt policy. Additionally, the City will either have to bond or reissue $44.7M in BAN debt in 2021 along with the sum total of the Capital Plan being considered for 2021 ($16.1M) and any outstanding authorizations to be borrowed upon (up to $4M). As a guide for your consideration, under current market conditions, depending on the length of borrowing, each $1M of bonded debt in 2021 would be expected to result in $75K-$115K in additional annual debt payments over a 10-15 year time frame. Therefore, were the City to issue bonds for all $65M in the current capital plans ($16M for 2020, $45M 2020 BAN, and $4M in existing net bond authorizations), the City can expect annual debt service payments in the range of approximately $4.8-7.2M in addition to the schedule above, beginning in 2022. As can be seen in the above chart, the debt service numbers drop precipitously after 2021 due to a decade of responsible debt management in the Treasurer’s Office. As a result, the City has many options to address capital needs over the next several years, including the ability to incur additional debt above and beyond the Capital Plan presented in the 2021 and outyear budgets if necessary. Estimated Overlapping Indebtedness* In addition to the City, the following political subdivisions have the power to issue bonds and to levy taxes or cause taxes to be levied on taxable real property in the City. Bonded indebtedness, including bond antic- ipation notes, is estimated as of the respective municipalities and is not adjusted to include subsequent bond issues, if any. (1)Outstanding bonds and bond anticipation notes. Not adjusted to include subsequent bond or note sales, if any (2)Water and sewer debt and appropriations. (3)Estimated State building aid. Source: County Official Statement dated September 10, 2019. School District Official Statement dated December 26, 2019. Status of Gross Estimated Net City Applicable Municipality Debt as of Indebtedness Exclusions Indebtedness Share Indebtedness County of: Albany 8/20/2019 311,663,690 $ 18,819,563 $ 292,844,127 $ 18.65% 54,615,430 $ School District: Albany 12/26/2019 20,211,899 171,231,326 29,980,573 100.00% 29,980,573 Total: 84,596,003 $ ---PAGE BREAK--- 8 Debt Ratios The following table sets forth certain ratios relating to the City's indebtedness. Debt Ratios As of March 2, 2020 Percentage(b) Amount Per of Full Indebtedness Capita(a) Valuation Net Indebtedness $ 96,945,660 $ 996.57 1.94% Net Indebtedness Plus Net Overlapping Indebtedness 181,541,663 1,866.20 3.63% The 2018 Census population of the City is 97,279. The City’s 2020 full value of taxable real estate is $4,998,573,856. Estimated net overlapping indebtedness is $84,596,003. *Fiscal Advisors & Marketing Inc. CITY BOND RATINGS Standard and Poor’s latest rating for the bonds is A+ (with a stable outlook). All outstanding debt is backed by insurance policies from municipal insurance companies. The biggest factor in our bond rating and our fiscal stress score is the status of our fund balance (about $14.4M in unassigned Fund Balance at the end of 2019). Best practice is that our unassigned fund balance should be at 10% of our expenses, or roughly $18.0M, and our total fund balance should be at 20% of expenses, or roughly $36m. It should also be noted that because of this increase in our fund balance, as well as the continued NYS commitment to Albany with Capital City Funding, the City’s bond rating has remained stable. Additionally, the fiscal stress score from the NYS Comptroller’s office, after being reduced for the previous 2 years from “Moderate Fiscal Stress” to “Susceptible” to fiscal stress was reduced further to “No Designation” placing the City out of “Fiscal Stress”. Our enthusiasm for this change will no doubt be short lived as the City manages around the pandemic for 2020 and beyond. So while this is a move in the right direction, more work on rebuilding the fund balance is still necessary, and without the continued assistance from NYS, the financial situation of the City would be dire and require deep cuts in employment and services.