As opponents to the purchase of the aging El Conquistador Country Club for use as Oro Valley’s Town Community Center predicted, the increased sales tax will probably not cover the costs of repairs and operations. As a result, Town Manager Greg Canton is exploring the possibility of floating a bond to cover the expected overruns.
In a memo dated May 28, 2015, to Mayor Satish Hiremath and Councilmembers, Caton, and Stacey Lemons, the Town’s Finance Director discuss “CIP Funding Options for the Oro Valley Community & Recreation Center.”
The memo was created in response to purchase opponent Councilmember Burns’ comments from the May 20, 2015 regular Council meeting regarding his concerns that the Town did not plan appropriately and would need additional capital project funding for the Oro Valley Community & Recreation Center, specifically for golf course improvements and related facilities.
Burns, and Councilman Mike Zinkin have been arguing since before the deal was made that the Town’s costs projections and plan to cover them with a 1/2 cent sales tax were questionable.
A majority of residents opposed the scheme and as a result, recall efforts are underway. Recall organizers OVCOG (Oro Valley Citizens for Open Government) are unhappy with the seemingly secret actions of the Town and staff’s decision to proceed with the purchase despite the fact that the aging facility is not ADA compliant and will require expensive upgrades. Thousands of residents signed petitions to recall Vice-Mayor Lou Waters, and Councilmembers Mary Snider, Joe Hornat. Those petitions are expected to be approved by the Pima County Recorder soon. Recall petitions are also being circulated against Mayor Satish Hiremath.
The Memo reads:
The FY 2015/16 budget includes $1,115,000 for capital improvement project (CIP) funding; however, only $75,000 of that amount is identified for golf course improvements. Please see the Town Council Report dated May 18, 2015, which outlines the proposed Community & Recreation Center CIP expenditures for FY 2015/16.
The 5-year CIP total for the facility, including the FY 15/16 total noted above, is $5.2 million. A forecast of these improvements is also attached to this report and outlines estimated amounts designated for the building facilities and the golf course. The annual amounts in the attached forecast tie directly to the amounts shown in the proposed 15-Year CIP included in the Tentative Budget document. A significant project for the golf course during this timeframe is the replacement of the irrigation system on the Conquistador course, which totals nearly $1.6 million over FY 2016/17 and FY 2017/18.
This report outlines several funding options to provide upfront resources that may be used to accelerate some of the improvements shown in the attached forecast.
OPTION 1 – Issue $2.5 Million in Bonds to Fund Capital Needs
This option would include issuing $2.5 million in bonds to provide upfront resources to construct all improvements forecasted for FY 2016/17 and FY 2017/18. These bonds would be issued with a shorter-term payoff at 6 years due to the nature of the improvements. The average annual debt service payments would be approximately $472,000 for a total pay off amount of $2.83 million after the 6 years. The estimated annual interest rate on these bonds is
3%.
This annual debt service would be paid from the dedicated 0.5% sales tax revenues in the Community Center & Golf Fund. In addition to this debt service, the loan repayment to the General Fund of $120,000 per year would continue during the term of these bonds as well.
The dedicated sales tax revenues generate approximately $2 million per year; therefore, there would be approximately $1.4 million remaining out of these funds after paying debt service and the annual General Fund loan repayment to allocate to the operating subsidy of this fund, if necessary.
OPTION 2 – Use of General Fund Contingency Reserves
The Town currently has approximately $10 million in General Fund contingency reserves, and at 25% of our budgeted expenditures of $32 million for next year, the required reserve policy threshold is $8 million. This option would include allocating up to $1 million from these reserves to be used specifically for the irrigation system replacement on the Conquistador golf course. Accordingly, this project could be moved up to begin in the summer of 2016, rather than the summer of 2017, as it is currently programmed. Since the total estimated project cost for this replacement is $1.6 million, the remainder of the cost ($600,000) could be programmed in the FY 2016/17 and paid for out of the dedicated 0.5% sales tax revenues. This $600,000 cost to complete this system would replace the $775,000 amount that is currently programmed in the CIP for FY 2016/17 to begin the system replacement.
Either of these options can be accommodated within the projected expenditure cap set for the FY 2015/16 Tentative Budget of $119.7 million.
RECOMMENDATION / CONCLUSION
This report is for information only.
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