Are we borrowing to balance the budget?

During an interview with the SouthtownStar on Mar. 26th, (also attended by this author) the mayor denied that the village borrows to balance the budget, but the facts tell a different story.
The FY2009 budget includes two funds based on new G.O. Bonds [ 1 ]. The Capital Improvement Fund includes a new $7.7 Million bond and the 2007 Bond Project Fund lists a new $6.35 million Bond. That is $14,050,000 of borrowed money, that has to be paid back with interest. If you removed those two Bonds (loans) from the budget, then it is no longer balanced.
It is not just the FY2009 budget. Since 2000, the village has borrowed a total of $118,440,000 with a total still outstanding of $94,200,000 thru 2008, with millions of dollars paid in interest . These totals do not even include the previously mentioned $14 million for FY2009. If the mayor and board are not borrowing to balance the budget, then why has the outstanding debt risen from $19 million in 1999 to over $94 million thru 2008?
Do the math. The answer is, YES, the Mayor and Board are borrowing to show a balanced budget.

Gerald F. Maher, Candidate for Mayor of Orland Park, IL

Mayor and Village Manager confirm Village could double the debt...

The Village Manager was a guest speaker at the Chamber of Commerce meeting held Wednesday morning, March 25th. Orland Park Mayoral candidate Gerald F. Maher was also in attendance.
Speaking to the Chamber audience, the Manager confirmed the Village intends to move forward with the Main Street Triangle Project. When asked by a chamber member how the village planned on funding this project, the Manager stated the Village would borrow the money. He explained that the current (direct) debt is at 4% and the village could take the (direct) debt up to 8%. The Manager re-confirmed that the only way the village could move forward on this project was via borrowing.
In an interview the next morning, March 26th, with Gerald Maher
SouthtownStar, the mayor confirmed the village was comfortable with the current debt level, that he does not believe this is a “staggering” amount, and that he felt the current bond rating would allow the board to take the debt to 8%.
What does this mean? As we reported in our previous news letter, this would translate into a direct debt amount of $203,299,035 based on the villages EAV on Oct. 01, 2008. (See FY2009 budget pg. 49) Is this a “staggering” debt? This would translate into a yearly interest payment of @ $11,000,000 to 14,000,000 or more, assuming doubling the current debt service and depending on interest rates etc.
To put that into perspective, during his address to the Chamber of Commerce, the Village Manager advised that (some) Capital Improvements would have to be put on hold this year until funding becomes available. The entire Capital Improvement expenditures for FY2009 is $14,945,171. If we can’t afford to cover these expenses now, how will the village be able to afford $14,000,000 yearly interest payments?
One course of action the board has used in the past is to borrow more money to pay back previously borrowed money. With the series 2003 G.O. Bond (Oct. 29, 2003) the Board borrowed $14,570,000 to partially refund the outstanding Series 2000 bond. Then the board repeated this action with the series 2004 G.O. Bond (Dec. 2004) by borrowing $9,815,000 to partially refund the outstanding Series 1998 bond. (See FY2009 budget pg. 67)
You can see this is leading to an ever increasing percentage of the budget being devoted to debt service which is Interest Payments on Borrowed Money.
We can’t borrow our way out of debt. From 1999 thru 2008 the board has increased the debt from $19 million to $94 million with a proposed $14 million more in 2009. Now, they are contemplating taking the debt to $203 million. This is a burden that every resident and business will have to pay, in the form of increased taxes and increased fees, and at a time when the economy is stagnant or shrinking, not growing. This is not the path our village should be taking.

Orland Park G.O. Bond Debt will top $100 Million in 2009...

According to the Village’s FY2009 published budget, the outstanding G.O. Bond debt stands at $94,200,000.00, as of October 01, 2008. The same budget (pg 66) advises that Orland Park intends to issue another $14,050,000.00 more in 2009, which would bring the total to $108,250,000.00.
The stated Debt Policy in this budget (pg 48-49) advises that although the Village is not bound by State instituted debt limitations, the Village policy is to adhere to the non-home-rule debt policy of not exceeding a debt to asset ratio of 8.625% , which translates into a debt of $203,299.035.00. (up from $188,643,805.00 the previous year) This would imply 2 things,
· The Village is comfortable increasing their stated debt to $203,299,035.00
· The Village can exceed that amount if it so chooses.
Yet this budget states on the same page that, “… the Village will confine long-term borrowing to capital improvements and moral obligations and only if current revenue sources are not available.” which contradicts the Expenditure Policies listed on page 40, mainly;
· “The Village will consistently budget the minimum level of expenditures necessary to provide for the public well-being and safety of the residents and business of the community.”

· “Expenditures will be within the confines of generated revenues.”
On page 49, they state that, “as of October 1, 2008, the Village had a debt to EAV ratio of 3.99%.”
In fact, the Village commissioned Speer Financial, Inc. to prepare an Official Statement as part of the process for securing the 2008 G.O. Bond for $9,055,000.00. According to this Official Statement, last updated on July 2, 2008, not only is the Direct Bonded Debt $94,200,000.00 or $1,666.23 per every Man, Woman and Child in Orland Park, but also the Village’s Overlapping Bonded Debt totals $176,827,680.00, or $3,109.00 per person. Total Direct and Overlapping Debt: $271,027,680, or $4,765.24 per resident.
This means the combined Direct and Overlapping Debt is actually 12.39%. According to Moody’s rating methodology (Report Number: 81248) a Debt Burden (which includes Direct and Overlapping Debt) of 3% - 4% is average, and that a debt burden of 6% - 8% is high. Orland Park currently has a debt burden that is double what Moody would consider high.
This debt has resulted in millions of dollars per year spent on interest and fees. Also, because the Property Tax Fund is dedicated to repaying this debt, the village has imposed a cap on the total rebate amount. The Board also implemented a Property Tax increase for 2009, resulting in a 17% increase in the Taxes collected, but no increase in the amount rebated.
These are huge numbers, and in light of the overlapping debt, shouldn’t our Mayor and Board be extra vigilant in reducing our Direct Debt? Why do they continue to borrow more every year? Why are they using G.O. Bonds to fund projects like the Main Street Triangle? Is this project necessary for the well being and safety of the residents of Orland Park? Why does the Village continue to prepay other projects that really result in Orland Park financing I.D.O.T.? In light of our current Debt and the National economic situation, shouldn’t we make sure we have the funds secured before we spend the money?
The residents of Orland Park historically earn above average incomes. Is this how we manage our money? Why should the Mayor and Board be allowed to manage our tax dollars like this?