To the Mail-Sun
In the last year, I became concerned about the direction of the Sheldon City Council concerning the spending for capital items.
The city has taken the approach of borrowing to fund items such as the event center, swimming pool, fire truck and recently looked at borrowing up to $9 million for a park, using a program originally designed to promote business growth to increase property tax base. The effect is to defer the cost to future tax years instead of “living within their means” on things that aren’t essential: The use of tax increment financing to build items that will never produce tax revenue, only increases the debt service required to be covered by real estate taxes or fees.
As recently as the 2017-18 budget year Sheldon was at 94.40 percent of the legal debet capacity for a city to borrow, so a decision was made to use most of the cash reserves to pay down debt, so the debt capacity ratio would improve and not restrict the borrowing capacity.
The city also raised the real estate tax levy for this budget year by approximately 11 percent to finance the debt service as well as the budget for city employees.
The city’s costs of the debt service, and the additional cost of employees has increased well over the rate of inflation and resulted in a tax rate that is noncompetitive with towns like Sioux Center, and the current council seems to think that more tax increases are fine. They have no plans to reduce the tax rates in the future.
At meetings I have attended, it is obvious that the big picture of the level of financing isn’t a concern to the current city council, because they believe “Sheldon is growing fast” and the city has “assets on the balance sheet” to show for our spending. Yet, the population of Sheldon is essentially the same as it was in 1975.
In addition to the tax increases, the city fees for sewer and water have been increasing, and future increases are already approved by the city council as a financial agreement to finance the cost of the water treatment plant financed for 30 years This bond, of $7.89 million was left out of the city’s debt balance sheet, because it is to be paid from future water/sewer fee collections, but the city will be forced to tax to pay the bond if the collections aren’t realized. This borrowing occurred without the city attempting to obtain a grant to help pay for the water treatment plant.
The event center is a current example of an “asset” financed by city borrowing that requires an annual subsidy from the taxpayers. The debt service alone is $280,000 per year for the next 10 years. The cash flow for the last two years reflects a loss of approximately $15,000 revenue annually, without the debt service included, and includes $75,000 of donations to the center which may or may not be repeatable. This leads to a conservative estimate of an operating cash flow shortfall of $3 million over the next 10 years for the event center alone to be paid by real estate taxes. In addition, the current budget projections make no provision for replacement of the building and improvements, and as major repairs are needed, tax dollars will need to be spent.
Adding to the problem is the Lewis & Clark Regional Water System. In 2007 Sheldon borrowed $1.9 million to fund a small share of a water project from South Dakota to solve our “water problem.” This plan has been flawed from the start, underfunded, plagued with cost overruns and delayed many times. The state of Iowa has refused to fund any of the project or lend it money. Now the city plans a second water tower to facilitate a future plan to bring this water to the city, which will require additional water/sewer rate increases and real estate tax increases. The major problem I see is that this system will only provide a percentage of the water needed, and the water to be purchased will still need treatment.
The council largely is underfunding the repair and replacement of existing streets and sewers. The conservative estimate of the needed upgrades to sewer alone to avoid major problems is $9.8 million. This expense may increase as the storm sewer capacity isn’t adequate to handle the runoff we have had the last three years.
In conclusion, we have a large commitment of city resources for spending already done or committed, but not paid for. I urge city leaders to consider all tax rates and fee structures when looking at the cost of living in Sheldon and doing business in Sheldon. I feel we are overcommitted now and need a plan to retire debt, reduce costs and live within our means. The city needs a plan to reduce real estate tax rates to the levels of 2012-15 to at least become competitively priced with surrounding communities that are growing. I would urge taxpayers to attend a city council meeting and observe the workings of the city government. I have been disappointed in the lack of concern for the condition of existing streets and sewer/water lines compared to the willingness to spend on new items and increased city staffing levels and costs.
The city manager and the city council owe the taxpayers of the city a complete trend analysis of city borrowing, including all borrowing for sewer/water and Lewis & Clark, and a trend analysis of city employee costs. This should also include the future borrowing needed for major sewer repairs anticipated and costs to connect to the Lewis & Clark Regional Water System. All capital spending should be documented and the method of paying for the item clearly identified. The trend analysis should include all tax and fee collections. This will reveal a spending problem, not an income problem.
This trend analysis should then be used to provide information to be used as a basis to project the city budget for the next 3-5 years, and reflect the tax rates and fees needed to fund existing commitments and the future planned capital spending. I feel this will reveal the level of financial risk that is the result of the council’s willingness to spend with borrowed funds. I hope the study will provide a plan of action to reverse the course of higher real estate tax levies and fees for sewer/water services by the city of Sheldon.