Strategy Session Tug of War

Grim pointed out that the residential portion of Vineyard Square (the John Chapman and Mark Nelis development on 21st Street) is 40 condos. “So we lost 39 availabilities, and that falls back to policy… that is 39 availabilities that we have lost. And that is approximately $2 million.”
– Council Member Kelli Grim

On February 22, the Purcellville Town Council held a second Special Financial Strategy Session meeting with their two consultants, David Rose of Davenport, and Eric Callocchia of Municipal and Financial Services Group. During the previous meeting, the Council asked the consultants to return with alternative scenarios, given the broad agreement that growth will not reduce the debt and utility rate burden.

However, the follow-up meeting was contentious, with the consultants backtracking on the assertion that you can’t grow out of debt, and pressing a familiar growth agenda. Members of the Town Council challenged the reversal, pressing the consultants to come up with innovative alternatives for reducing debt and utility rate burdens on citizens, by reducing costs and monetizing the Towns substantial assets.

This meeting was a follow-up with instructions from the Town Council to bring forward multiple concepts for utility rate structures and tiers, and debt finance and consolidation options to tackle the two large balloon payments due in 2020 and 2021. The previous Lazaro Town Council incurred, and then refinanced, most of its existing debt and repackaged it in restrictive nonprofit bonds.

The Town debt is currently just under $60 million. There are two types of debt: tax-supported debt consisting of the General Fund, and Parks and Recreation Fund, totaling $18.1 million; and the self-supported utility debt, consisting of the Water and Sewer Fund totaling $41.3 million. The current Town Council has not added to the debt, but instead has lowered it by well over $1 million.

The difference between the two debts is the tax-supported debt comes primarily from General Fund revenues, and the self-supporting utility debt comes from user fee rates and other charges.

Currently, the Fireman’s Field income is restricted by the nature of the nonprofit bonds and the way the current management contract is structured. If the debt is not refinanced, the other option is to change how the ball fields and the skating rink are managed. The Town could pay a firm a flat rate to manage the properties, allowing the Town to use the revenue for maintenance and debt reduction.

The recurring narrative of both consultants, along with Town Manager Rob Lohr, concentrated on growth as the primary means to paying down the Town debt. “You have a bunch of debt outstanding, no doubt about it,” said Rose.

Mayor Kwasi Fraser asked the consultants to consider a variety of operational efficiencies as part of a solution to manage the town’s high debt and utility rates.

Council Member Nedim Ogelman said, “So, you are saying if we grew a lot, that wouldn’t increase the infrastructure costs?” Rose replied, “We’ll talk about that later.” Ogelman continued, “I don’t think that you are necessarily capturing the whole variety of potential negative externalities … Did you look at other things, like cutting our government expenditures?” He pointed out that the Town has roughly 9,000 residents and, “maybe we are operating like a Town that serves 25,000 people instead of 9,000 people.” Ogelman was referring to a February statement made by Lohr who said he runs the Town as if it were a town of 25,000 residents.

Rose responded, “Whether you have one town manager or seven town managers, that wouldn’t have an impact on the Enterprise Fund.” Ogelman replied, “It will have an impact on the General Fund. But, these are all parts of our debt. Can we cut some of the expenses? Can we bring these costs down?”

“Let’s say you get additional houses, there are additional cars, there are additional other kinds of utilities that have to come in. There is additional wear and tear; there is additional stress on citizens, like traffic. You need additional staff to deal with the additional houses. I want to make sure that we are not looking at something as if there are no costs to it,” said Ogelman.

“The second thing I want to say is I am sensitive to this issue because there is a narrative politically in our town that tries to push the idea that there are no solutions other than significant additional growth … and I am not just willing to accept that on its face,” said Ogelman. Rose responded, “Maybe it does require one or two new policemen or another public works person, and those things have to be taken into account.”

Council Member Kelli Grim suggested using a portion of the Meals Tax to pay down the debt. “Two percent of the Meals Tax could be used for capital and maintenance, for example,” said Grim. Rose answered, “You don’t rob Peter to pay Paul.” However, Grim pointed out that the Lazaro Council used one percent of the Meals Tax to pay for legal fees.

Fraser echoed this point saying that the Meals Tax could be used for the General Fund and the Utility Fund as long as it does not create a deficit in another fund. “Right?” he asked. Rose confirmed that it can be used for any fund. But, for years Lohr had been saying that the funds could not be mixed.

“When you are talking about the Meals Tax and this is robbing Peter to pay Paul concept, what is the analogy for chargebacks? Is that also robbing Peter to pay Paul?” asked Ogelman. Rose said that he wasn’t “qualified enough to give an answer on that one.”

Chargebacks are a portion of expenditures, charged to different funds, for staff work, since staff members do multiple jobs in different departments. Since the Town has separate funds and they are supposed to be self-supporting, the Town bills that way. The Town currently charges each fund $500,000 (General and Sewer) for the chargebacks, which started in 20008.

Grim pointed out that the residential portion of Vineyard Square (the John Chapman and Mark Nelis development on 21st Street) is 40 condos. “So we lost 39 availabilities, and that falls back to policy… that is 39 availabilities that we have lost. And that is approximately $2 million. So if there is a policy that hurts us – there is a policy that allowed that.”

Grim was referring to managements recommendation of charging a single tap fee for the 40 condos, instead of separately metered taps for each of them. Lohr said, “We never really dealt with condominiums, same way with apartments. Condominiums are relatively new in western Loudoun.”

The growth scenario stuck throughout the whole meeting with Rose repeating that the Town has to grow. Ogelman said, “Of course, this all just assumes the closed system. That is to say your whole model is operating in the context of just water and sewer, not all other aspects of a town.” “Absolutely,” replied Callocchia.

“More houses bring additional service needs, and other infrastructure and capital improvement needs,” said Ogelman. “But so, the real challenge we are facing is not how to deal with this closed system that has capital improvement costs and has scale issues. To me, the real issue is how do you look at the costs and potential added revenue from the whole system, and how can we overcome the challenges of getting that potential revenue, and being able to invest it in our sewer and utility. That is the real challenge that we are facing,” said Ogelman.