Scottsdale urges project cuts, $230M in bonds

Scottsdale finance officials, citing an unexpectedly severe downturn in the economy, are recommending the city scale back funding for capital projects and issue $230 million in bonds in the next couple of months.

The city's revenue this year is expected to fall about $11 million short of expectations because of the economic slowdown, said Craig Clifford, city finance director. Clifford said he's recommending officials continue to fund capital projects already budgeted or under construction, but additional projects should be postponed for the foreseeable future.

"Basically, 2008 is a year you kind of want to forget because of the economy," he said. "Our economy is still growing. It's not regression, it's just more modest growth."

Fortunately, the city had an $11 million holdover from the previous year, roughly equal to the shortfall, he said. The city had budgeted for $294 million in revenue, but is now projected to realize only about $283 million. Sales tax collections, accounting for 41 percent of the city's General Fund, are expected to come in $7.5 million under previous projections.

Meanwhile, the surplus funds the city uses to finance many capital projects are in steep decline, from $61 million in fiscal year 2005-06 to a projected $15 million to $17 million in 2008-09.

"We won't have the same luxury or the same ability to do as much in future years," Clifford said.

The higher surplus figures in previous years reflect a booming economy now slowing, he said. Over the last 10 years, the city's average surplus has been about $25 million a year.

"It's a cycle of the economy. You shouldn't look at those years as if they were the 'average,'" Clifford said.

However, officials are considering issuing bonds that would help cover some capital projects over the next couple of years, he said. The first is a proposed $100 million general obligation bond issue, which breaks down into $36 million for libraries and parks, $14 million for scenic corridors and $50 million for transportation, he said.

The second is a $110 million issue for water and sewer improvements. Marshall Brown, acting water resources general manager, said $24 million in proceeds from that would go toward a 100-year lease of water rights from the Gila River Indian Community. The additional water would help cover Scottsdale's needs through 2035, Brown said.

"It's actually a large volume of water that we will treat," he said.

About $40 million would cover a major expansion to treat drinking water at the Scottsdale Water Campus, 8787 E. Hualapai Drive. The expansion would add 20 million gallons per day to the plant's existing 50 million gallon daily capacity, Brown said.

"Our demands have grown throughout the city because of growth and revitalization," he said.

The remainder breaks down into $11 million for a reservoir, pump stations and a pipe line in north Scottsdale; $10 million for sewer improvements on Miller Road in south Scottsdale; $15 million to expand a sewage treatment plant at 91st Avenue in Phoenix, where south Scottsdale sends its sewage; and $10 million for cost increases, Brown said.

The third $20 million bond issue is earmarked for the McDowell Sonoran Preserve. The money would pay Toll Bros. developers the balance of an unfavorable, $82 million jury verdict in a recent eminent domain trial.

Clifford said none of the proposed bonds would have to be approved by voters, since the general obligation and preserve bonds are part of larger, previously-approved bond issues and the water/sewer bond is a municipal corporation bond that only needs City Council approval. The council is to consider authorizing the three bonds on March 18.

Despite a recent report from the Arizona Tax Research Association that lists Scottsdale's debt as the state's fourth-highest, at $927.3 million, Clifford said the city retains the top bond rating, AAA. Rating agencies realize that young cities like Scottsdale carry more debt because they have to install infrastructure mature cities already have built, he said.

The bond financing will not require an increase in the property tax rate, expected to remain at 79 cents per $100 of assessed value, Clifford said.

"As long as we keep the rate where it's at, we can pay our bills," he said.

The council will hold six budget hearings in the coming months, beginning March 25 and culminating in the final adoption session on June 3.