At the end of the fiscal year 2021, the City has projected total long-term debt outstanding, in the amount of $17,338,865, which represents a net decrease of $1,388,667 from fiscal year 2020. Debt decreased, due to timely principal payments. No new debt was issued during the fiscal year 2020 or projected for 2021.
General Fund has long-term debt outstanding in the amount of $3,220,007, which represents a net decrease of $152,667 from fiscal year 2020. Debt per capita is $644.
Proprietary Funds have long-term debt outstanding in the amount of $15,507,525, which represents a decrease of $1,236,000 from fiscal year 2020.
Other long-term debt obligations of the governmental and business-type activities, totaling $150,949 and $27,623, respectively, represent accrued compensated absences. The City’s governmental activities also recognized a net pension liability, associated with its defined benefit pension plan, in the amount of $1,902,798.
STATUTORY & CONSTITUTIONAL DEBT PROVISIONS
Section 21 of Article VII of the Michigan Constitution establishes the authority, subject to statutory and constitutional limitations, for municipalities to incur debt for public purposes:
The legislature shall provide by general laws for the incorporation of cities and villages. Such laws shall limit their rate of ad valorem property taxation for municipal purposes and restrict the powers of cities and villages to borrow money and contract debts. Each city and village is granted power to levy other taxes for public purposes, subject to limitations and prohibitions provided by this constitution or by law.
In accordance with the foregoing authority granted to the State Legislature, the Home Rule Cities Act limits the amount of debt a city may have outstanding at any time. Section 4(a) of this Act provides:
"... the net indebtedness incurred for all public purpose may be as much as, but shall not exceed, the greater of the following:
(a) Ten percent of the assessed value of all real and personal property in the City.
(b) Fifteen percent of the assessed value of all real and personal property in the City if that portion of the total amount of indebtedness incurred, which exceeds ten percent, is or has been used solely for the construction or renovation of hospital facilities."
Significant exceptions to the debt limitation have been permitted by the Home Rule Cities Act for certain types of indebtedness, which include: special assessment bonds and Michigan transportation fund bonds (formerly, motor vehicle highway fund bonds), even though they are a general obligation of the City; revenue bonds payable from revenues only, whether secured by a mortgage or not; bonds issued or contract obligations assessments incurred to comply with an order of the Water Resources Commission of the State of Michigan or a court of competent jurisdiction,
CITY OF ALLEGAN, MICHIGAN ANNUAL BUDGET FY 2020-2021 FINANCIAL SUMMARY and obligations incurred for water supply, sewage, drainage, or refuse disposal or resource recovery projects necessary to protect the public health by abating pollution.
LEGAL DEBT MARGIN
Pursuant to the statutory and constitutional debt provisions set forth herein, the following schedule reflects the amount of additional debt the City may legally incur as of June 30, 2019.
Debt Limit (1) $ 16,230,778
Debt Outstanding $ 16,189,284
Less: Exempt Debt $ 14,029,284 2,160,000
Legal Debt Margin $ 14,070,778
EXPENDITURE ASSUMPTIONS
Insurances – 5-20% Increase, Personnel – 2.5% Increase, Other Operating Expenses – 0-3% EXPENDITURE OVERVIEW
Estimated General fund expenditures - $5,441,992, a decrease of 2.2% from the projected 2020 budget. All funds – 13,426,098, a decrease of 13.3% from the projected 2020 budget.
DEBT MANAGEMENT
Bond Rating - The City will make every attempt to maintain a high bond rating, for the purpose
of minimizing borrowing costs and preserve access to credit.
Debt Capacity – An analysis showing the new issue combined with current debt impacts the City’s
debt capacity will accompany every future bond issue proposal.
General Obligation Debt – General Obligation Debt, which is supported by property tax revenues
that grow in proportion to the City’s assessed valuation and/or property tax increases, will be utilized to make the principal and interest payments on the bonds. Other types of debt may be issued when it is supported by a dedicated revenue source (i.e. revenue bonds paid by utility rates).
Defeasance of Bonds - The City shall review potential cost savings that may be achieved through
refunding of existing debt at lower interest rates.
Inter-fund Loans – The City will consider loans from one fund to another as an alternative to
installment loans and/or bond issuance. When evaluating inter-fund borrowing the financial health of the lending fund will be closely reviewed, as well as the future cash flow projections for the fund borrowing the money.
CITY OF ALLEGAN, MICHIGAN ANNUAL BUDGET FY 2020-2021 FINANCIAL SUMMARY
CITY OF ALLEGAN
CITY CHARTER
CHAPTER XII
BORROWING AUTHORITY GENERAL BORROWINGSection 12.1 Subject to applicable provisions of law and this charter, the council may by ordinance or resolution authorize the borrowing of money for any purpose within the scope of powers vested in the city and permitted by law and may authorize the issuance of bonds or other evidences of indebtedness therefore. Such bonds or other evidences of indebtedness shall include, but not be limited to the following types:
(a) General obligation bonds which pledge the full faith, credit and resources of the city for payment of such obligations.
(b)Notes issued in anticipation of the collection of taxes, but the proceeds of such notes may be spent only in accordance with appropriations as provided in Section 9.6.
(c) In case of fire, flood, windstorm, or other calamity, emergency loans due in not more than five (5) years for the relief of inhabitants of the city and for the preservation of municipal property.
(d) Special assessment bonds issued in anticipation of the payment of special assessment made for the purpose of defraying the cost of any public improvement, or in anticipation of payment of any combination of such special assessments; such special assessment bonds may be an obligation of the special assessment district or districts alone, or may be both an obligation of the special assessment district or districts, and general obligation of the city.
(e) Mortgage bonds for the acquiring, owning, purchasing, construction, improving, or operating of any public utility which the city is authorized by this charter or by law to acquire or operate.
(f) Bonds for the refunding of the funded indebtedness of the city.
(g) Revenue bonds as authorized by law which are secured only by the revenues from a public improvement or public utility and do not constitute a general obligation of the city.
(h) bonds issued in anticipation of future payments from the Motor Vehicle Highway fund or any other fund of the state or federal government which the city may be permitted by law to pledge for the payment of principal and interest thereof.
(i) Budget bonds, which pledge the full faith, credit, and resources of the city, in an amount which, in any year together with the taxes levied for the same year, will not exceed the limit of taxation authorized by this charter.
(j) Bonds which the city, by any general law of the state, authorized to issue, now or hereafter, which shall pledge the full faith, credit, and resources of the city or be otherwise secured or payable as provided by law.
LIMITS OF BORROWING AUTHORITY
Section 12.2 The net bonded indebtedness incurred for all public purposes shall not at any time exceed the maximum amount permitted by law, provided that in computing such bonded indebtedness there shall be excluded:
(a) Money borrowed on notes issued in the anticipation of the collection of taxes, (b) Special assessment bonds, even though they are a general obligation of the city,
CITY OF ALLEGAN, MICHIGAN ANNUAL BUDGET FY 2020-2021 FINANCIAL SUMMARY (c) Mortgage bonds, revenue bonds, bonds in anticipation of state-returned revenues to the extent permitted by law, and
(d) Any other bonds or indebtedness excluded by law from such limitation. The amount of funds accumulated for the retirement of any outstanding bonds shall also be deducted for then amount of bonded indebtedness.
(e) The amount of emergency loans which may be made under the provisions of this charter may not exceed the maximum amount permitted by law, and such loans may be made even if it causes the indebtedness of the city to exceed the limit of the net bonded indebtedness fixed in this charter, or by law.
(f) No bonds shall be sold to obtain funds for any purpose other than that for which they were specifically authorized, and if such bonds are not sold within the time limited by law, such authorization shall be null and void.
(g) The issuance of any bonds not requiring the approval of the electorate shall be subject to applicable requirements of law with reference to public notice in advance of authorization of such issues, filing of petitions for a referendum on such issuance, holding such referendum, and other applicable procedural requirements.
PREPERATION AND RECORD OF BONDS
Section 12.3 Each bond or other evidence of indebtedness shall contain on its face a statement specifying the purpose for which it is issued, and it shall be unlawful for any officer of the city to use the proceeds thereof for any other purpose. Any officer who shall violate this provision shall be deemed guilty of a violation of this charter, except that, whenever the proceeds of any bond issue or parts thereof shall remain unexpended and unencumbered for the purpose for which said bond issue was made, the council may authorize the use of said funds for the retirement of bonds of such issue or for any other purpose permitted by law. All bonds or other evidence of indebtedness, issued by the city shall be signed by the mayor and countersigned by the clerk, under the seal of the city. The signatures of the mayor and the clerk, and the seal of the city may be facsimiles in the case of fully registered bonds. Interest coupons may be executed with the facsimile signature of the mayor and the clerk. A complete and detailed record of all bonds and other evidences of indebtedness issued by the city shall be kept by the clerk or other designated officer. Upon the payment of any bond or other evidence of indebtedness, the same shall be canceled.
DEFERRED PAYMENT CONTRACTS
Section 12.4 The city may enter into installment contracts for the purchase of property or capital equipment. Each such contract shall not extend over a period greater than, nor shall the total amounts of principal payable under all such contracts exceed a sum permitted by law. All such deferred payments shall be included in the budget for the year in which the installment is payable.
‐$100,000 $400,000 $900,000 $1,400,000 $1,900,000
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