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How much debt is too much for Kingsport?

April 28th, 2007 12:51 am by Matthew Lane



KINGSPORT - Over the past five months, the Board of Mayor and Aldermen has approved two sets of bond issuances for nearly $35 million on projects such as a new elementary school in Rock Springs, renovations to the V.O. Dobbins Center and Bays Mountain Park, and the replacement of Legion Pool.


At the end of the fiscal year June 30, the Model City is projected to have $129 million in debt. Candidates for the upcoming city election weigh in on the debt and whether the amount is appropriate.


On May 15 Model City voters will go to the polls to elect three people to the Board of Mayor and Aldermen. Their choices are two incumbents - Vice Mayor Larry Munsey and Alderman Ken Marsh - and four challengers - Ray Cain, Bill Hillman, Richard Samples and Jantry Shupe.


The Times-News recently asked the candidates a series of questions addressing issues facing the Model City, including annexation, education and the proposed higher education center in downtown Kingsport.


This story is part seven of the series and will highlight the answers to the following question:


Q: Kingsport's charter allows the city to have debt up to 20 percent of its assessed value. The BMA has a policy where debt would not go above 10 percent. With the recent bond issuances, the city is now just over 5 percent. What are your thoughts about the city's debt and how much debt do you think is appropriate?


Cain: Our city debt is high and is still rising. The problem is twofold. First is the debt that is occurring with annexation and the growth in town, particularly Stone Drive and the higher education center. Second, and most alarming, is the debt that is happening due to very poor maintenance procedures or none at all.


This list includes the sewer plant upgrades mandated by the state, the Legion Pool money which went to other projects, the V.O. Dobbins Center which needed work at least 10 years ago. In my opinion we will have to increase our debt load because of all of these and other things that have been neglected.


But through all of this I do think we can cover the cost with the extra sales tax revenue the retail market is producing by the people wanting to shop in Kingsport.


Hillman: From what I've talked to the mayor and other people, I'm fairly satisfied with it. It's very manageable debt, and it still allows room for other projects. Right now, it would be nice to be a little lower, but I'm pretty satisfied with it. We want to get the debt down, but it's a very manageable debt. I don't see any problems with it.


Marsh: Government should live within its means. It has taken 12 long years to get our debt under control so that we can move forward.


Debt is a worthy vehicle for many situations, but we should prioritize our projects, pay for most with cash balances and cash flow. Debt makes sense in cases where the need exceeds the ability to fund in cash at the time. The BMA is simply piling on the debt with no consideration for the future.


We are heading for record debt and debt repayments. In addition the administration is now stretching repayment over 20 instead of 15 years. This frequently has the effect of paying back $2 for each $1 borrowed. It mortgages our future and those in the next generation that must repay it. We are moving from the era of "tax and spend" to one of "borrow and spend." I find that very shortsighted and financially dangerous.


Munsey: Within the last couple of months, we have touched base with numerous experts, both in the public sector and the private sector, on the subject of "debt." Included in those with whom we have talked are MTAS (the state agency which offers all types of advisory services to cities in Tennessee), several financial advisers of the city, our credit rating agency and numerous financial executives in corporate America.


All of those with whom we have talked agree that the key element in determining an appropriate level of debt is the ability to repay the debt, not the actual dollar amount of the debt itself. While the total dollars of debt do go up modestly over the next five years in the capital budget proposed by City Manager Campbell, our ability to repay the debt outstrips the amount of new debt itself. Therefore, we will remain very solid financially while having greatly enhanced our quality of life and significantly improved our economic development capabilities.


Samples: The question should be what is the debt for, not how much we have. We have to use common sense and run government like we do our own home. If we have the money to buy what we need, then go ahead, but if we don't have the money and can't afford the debt, don't buy. City debt for infrastructure is one thing, but debt for CIP projects is not. CIP projects should be on a priority list and completed as the money becomes available, as other things get paid off. Taxes should not be raised or debt incurred for things not needed to operate the city (infrastructure).


Going into debt for CIP projects is not a wise idea nor is it in the best interest of the city or the citizens who have to pay that debt back. Let's take a novel approach to government and be smart and use some common sense, which means staying out of debt when it's not necessary.


Shupe: Our board consists of the former (treasurer) of Eastman who has explained that issue in great detail, and our mayor is a former commissioner of banking and has explained that issue in great detail. If I would be given the chance to serve on the BMA, I would heed to their knowledge and encourage other board members to be open minded and listen to their plans.


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