Monday, October 25, 2010

North Canton Increases Debt While City Leaders Stockpile Cash

Prepared Comments Made to
October 25, 2010

On tonight’s agenda are five pieces of legislation dealing with the issuance and sale of bonds on behalf of the City of North Canton. Three of the five proposed bond issues will increase North Canton indebtedness by $2.4 million. The remaining two proposed bond issues seek to convert existing debt, totaling $1.6 million, from short-term notes to long-term bonds.

The proposal to convert the $700,000 short-term note of indebtedness on the former Arrowhead Golf Course property to a long-term bond is the purpose of my remarks tonight. It is titled on tonight’s agenda as Ordinance No. 78-10.

The City of North Canton paid a total of $4.2 million for the Arrowhead property in 2003. Two million dollars was taken from the city’s reserves and $2.2 million was rolled into a short-term note. North Canton made annual payments of $300,000 on this note but found itself unable to make those payments without subsidies from the City’s General Fund. This practice forced the city to divert funds that could have been used for city services to make the annual note payments.

Per recommendations of the 2008 Performance Audit by the State (R2.11), the City reduced its annual payments on the Arrowhead note to $100,000 per year. The present balance on the note is $700,000 which is the amount of the proposed bond on the agenda tonight.

If passed tonight, the annual bond payments will further reduce the annual payments on the Arrowhead indebtedness. Recommendation 2.11of the Performance Audit cautions that, “by prolonging the debt, the City will incur additional interest and issuance cost, and the note will not be paid off until 2015 or 2016.” In discussions, some council members have also made this point regarding the increased interest expense if the debt is extended further into the future.

Doesn’t this sound like someone who is overextended on his credit cards and can’t make his credit card payment so he only makes the minimum payment each month?

Paralleling, what I believe to be, the ill-fated decision to purchase the Arrowhead Golf course property was a decision in 2005 to remove $1.5 million from the City’s General Fund and begin making $100,000 per year payments to the North Canton Community Improvement Corporation (CIC).

Of the original $1.5 million removed from the General Fund, $757,000 remains in an escrow account controlled by the City.

To date, $743,000, or about one half of the original $1.5 million has been given to two businesses with no requirement to repay those funds back to the North Canton CIC. City leaders promised in 2005 when the $1.5 million was removed from the City’s General Fund that the CIC would operate as a revolving loan fund.

Sadly, that has not been the case.

The North Canton CIC currently has a balance of approximately $190,000 and can ask for the balance of the $1.5 million at any time. As I noted earlier, $757,000, currently sits in an escrow account controlled by the City.
City leaders are waiting for the next opportunity to hand out the remaining nearly one million dollars with no obligations for repayment while the city struggles to pay its expenses.

Should North Canton pay its bills with money it has on hand or should the city borrow and increase its indebtedness?

At this time, North Canton has cash funds available to wipe out, entirely, the $700,000 note owed on the Arrowhead property. There is no need to issue and sell long-term bonds.

If this council and the Held Administration are truly serious about the fiscal plight of the City of North Canton, it would use those escrow funds and extinguish that indebtedness.

North Canton’s fiscal future continues to hang by a thread and North Canton increases debt while city leaders stockpile cash.

There is no logic in continuing to hand $100,000 per year to the CIC through the year 2017 while the city faces fiscal crisis. As it is, this council is borrowing $1.3 million to replace the very roof over our heads here at City Hall and at the Civic Center along with another $1.1 million for other infrastructure improvements in the city.

This $2.4 million in new debt is in addition to the more than $16.0 million of debt the city already has on its books. Whether the debt is enterprise debt or general obligation debt makes no difference.

Debt is debt and it all must be paid back.

The purchase of Arrowhead Golf Course property for $4.2 million in 2003 along with the removal of $1.5 million dollars from the City General Fund in 2005 constituted nearly one third of the $18.0 million dollars the city had in reserves in 2003. With spending decisions such as these, it does not take long to blow through $18.0 million. And that is what has happened before our very eyes.

Economic conditions are not good and economic prospects are not bright, locally or nationally. If this council and the administration are remotely interested in fiscal stewardship for the City of North Canton, it is time
it demonstrated its beliefs in actions instead of letting business and politics continue as usual.

Thank you,
Chuck Osborne
Resident, City of North Canton