I don’t quite have the heart to write a post summing up where we stand on MAC zoning. Which is how I should start the new year.
So, in the meantime, I’m revisiting a few old issues, mostly those that I find puzzling or annoying. Today’s issue is both. Today’s post is about the Town’s forthcoming $28M — or-is-it-$35M? –2020 bond issue.
Mostly, I’m revisiting this because, upon reflection, what the Town said about the $35M borrowing authorization simply reeks of baloney.* They said that the last $7M of borrowings was added with no purpose in mind, and it would be used to add to the reserves in the capital fund.
* I realize baloney does not reek, but my wife made me change this from the original wording.
The sole point of this post is to point that out, as clearly as possible, that this is nonsense. And then to take a pure guess as to what’s actually going on. The Powers That Be in Vienna will or will not inform the peasantry of the true reason for the additional loan (i.e., the spending of the peasantry’s tax dollars), at some point, as they deign. Or not. All I can do is point out that what they said in that meeting about the additional $7M in borrowings isn’t plausible.
I’ve already written up a nice intro to the Town’s usual borrowing habits, and the unusual nature of the proposed 2020 bond issue in Post #488. If you’re too lazy to read that, here it is an a single graphic nutshell:
We’re borrowing a shit-ton of money this time. (Graphic, get it?) Even with the greatly stepped up water and sewer replacements, courtesy of your greatly stepped-up water and sewer bills (Post #448), that’s still a huge borrowing relative to historical averages. And, as I lay out in detail in that cited post, we are pretty much maxing out our borrowing ability at that level, absent an increase in the meals tax or some other such radical measure.
But that’s not the weirdest thing that was revealed at the fun-fest that was the 12/9/2019 Town Council meeting. The weirdest thing is that Town staff were ambiguous about how much money they planned to borrow. Which you’d think would be kind of an important detail. Ambiguous to the point where a citizen speaker had to ask them to clarify it.
And so, as it turns out, the Town modeled what would happen if they borrowed about $28M. Again, if you want to understand just how close to the limit that $28M borrowing is, read my prior post as cited above.
But Town staff were actually asking for authority to borrow up to $35M. To put that in perspective, the uncertainty in the 2020 amount is about as large as most prior Town bond issues (borrowings), period. So we have our accountants and financial officers — people who tend to be fairly persnickety about numbers, when it comes to keeping track of dollars — just casually dropping in an error term, for this borrowing, that’s larger than our typical annual borrowing, period.
I hope that a) you realize that’s unusual and b) with the Town of Vienna, it’s a pretty good guess that somebody’s up to something. If I had to read the tea leaves, that looks like a clue that something has been worked out in secret. And at some point, the Town might decide to let us in on it.
Now, I of course worked through what would happen if the Town borrowed and spent the full $35M, and the answer is, they’d soon eat through all the capital fund reserves. That’s the graph at the top of the posting, repeated here. The graph itself is the Town’s model of eating through the fund reserves with $28M in borrowing. With $28M (green line, Town’s calculation), the reserves stay above the critical minimum level of $2M. But my little red Xs show what would happen to reserves if the Town borrowed and spent $35M. As you can see, reserves fall below $2M sometime around 2025 (the formerly-agreed-upon safe level of reserves), and fall below $0 around 2027. In short, if nothing else changes, the capital fund goes bankrupt.
So, in summary, Town staff modeled what would happen with $28M in borrowings. But Town staff actually asked for and got authority to borrow up to $35M. But using their economic model, borrowing and spending $35M, with no other changes in the capital plan, will bankrupt the Town’s capital fund and require some type of bailout.
So, what’s the additional $7M for? Town staff’s answer, at that Town Council meeting: Additional reserves for the capital fund!
That makes no sense
Yeah, I know, if you don’t do finance, that last sentence doesn’t seem quite dramatic enough to deserve an exclamation point. Let me explain to you why that answer by Town staff is almost certainly … a prevarication, shall we say.
First, if you aren’t planning to spend the $7M, you don’t need an additional $7M in reserves. Town staff already modeled spending the $28M for which the Town has explicit plans in its capital plan. They never go below the agreed-upon safe level of $2M in reserves. (Although, in light of the higher level of borrowing, they might prudently raise the safe reserve level modestly.)
Second, holding excess reserves is costly. Not hugely costly, in this era of low interest rates. But it’s a fair bet that that interest and fees that the Town pays in borrowing that money will likely exceed the interest income the Town can earn while holding that money as reserves. (Caveat: I have not done the detailed homework to root that out, but that’s a pretty good guess, at least in a more nearly normal economic climate.)
Third, financial officers typically consider it their duty to arrange these matters to be as efficient (least-cost) as possible. So I don’t buy the notion that the Town’s financial officer has, out of the blue, decided to borrow an additional $7M for the sole purpose of holding unnecessary reserves in the capital fund. And so cost the Town of Vienna unnecessary interest expense and loan origination fees.
So, taken as a whole, the Town’s explanation (reserves) just does not hold water. In all likelihood, the Town is planning to spend this taxpayer-financed money on something. They just haven’t bothered to tell us peasants what that is.
Now, if they change their mind and don’t spend it, then, sure, by default it will become reserves. But the idea that the Town is going out of its way, to waste money by borrowing to create unnecessarily high reserve balances — that’s got to be baloney. I have no doubt that our Director of Finance is competent, and no competent financial officer would, of their own volition, do that.
But if they do spend that money, the the capital budget is going to be pretty tight, here in Vienna, for the next decade or so. Might even require bailing out the capital fund in some way. So it’s hard to figure what the Town would consider to be so necessary that they’d risk that, based on the Town’s own economic model.
What other odd thing happened at that meeting?
Oh, yeah, the Mayor announced that she wasn’t going to run for re-election. Out of the blue. That was kind of weird.
So, spurious or not, let me try to put two and two together and offer a possible explanation. Pure speculation. Fact-free. Here goes.
Best guess, the Mayor has decided to buy some costly amenity for the Town. Some last hurrah that she hopes she’ll be remembered for.
But wait, there’s more. By buying this $7M-ish amenity, in light of the current capital budget, this has the added benefit of kneecapping her successor. The next person to hold office enters with the capital coffers bare, and possibly has to take the blame for (e.g.) raising meals taxes to keep the capital fund sound. That’s a classic strategy for either making the retiring incumbent look good by comparison, or dodging the blame for any fixes (e.g. tax increases) required.
What I can’t figure out is what the Town plans to buy? At this point, I think they’ve replaced or planned to replace every major municipal building other than Town Hall, and I don’t think $7M is enough to buy a shiny new Town Hall.
It doesn’t seem like it can be park land, despite some possible need and possible opportunity (Post #397), because we have repeatedly been told that the Town can’t act on new park land without a parks master plan. In the context of MAC. And the Town does not have a parks master plan.
But maybe that’s only if we’re asking builders to pay for it. If we’re asking builders to pay for it, we have to have a plan. But maybe if we’re asking the taxpayers to pay for it, what the heck, let’s just wing it? No plan needed in that case?
Edit: One final possibility is that they are hedging their bets, in case the Town’s planned fraud against the taxpayers falls through — conning the Northern Virginia Transportation Authority (NVTA) into funding the Town’s shopper-diner parking garage at the Patrick Henry Library (Post #446, Post #447). The Town included that garage in the capital budget for free, under the assumption that the NVTA will pay for it. If they don’t, the Town of Vienna is going to have to come up with another $5M or so, and if they’ve spent the full $35M of the proposed borrowing, they are going to have a very hard time finding that money.
Beats me. These days, nothing about Town of Vienna government actions would surprise me. All I know is, they modeled the borrowing of $28M, and that pretty much maxes out the credit card, so to speak. But they’ve asked for and been granted permission to borrow another $7M, which, using their own economic model, will put the capital fund in the red, ceteris paribus. To me, that suggests that whoever is behind this doesn’t plan to be around for the aftermath. And to make things just that much more confusing, the purpose the Town gave for the additional borrowing does not hold water, in my opinion.
If you can make sense out of all that, you’re smarter than I am. As I’ve said before on this website, I’m not confused because I’m stupid. I’m confused because I’m paying attention to what they say and do.
I’ll know the answer if, as, and when the Town decides to inform the general peasantry. Until then, it’s just business as usual in the Town of Vienna.
Addendum: If you don’t think the Town will just prevaricate like this, let me remind you of the house they bought on Beulah, for which they said they had no use in mind, at all, when they bought it. That’s briefly mentioned in a very old post I did on what was then described as the police station renovation. I hope you can see the parallel with the current situation.