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Campbell: Kingsport using debt to invest in future

June 9th, 2007 12:00 am by Matthew Lane

KINGSPORT - Over the past fiscal year, Kingsport's total debt increased nearly $20 million with the money earmarked for a variety of projects, including a new elementary school, a new fire station and renovations at the V.O. Dobbins Center and Legion Pool.

However, since Kingsport has the ability to pay down its debt, City Manager John Campbell said he does not see the city's debt level as too high.

"We're in a stage where we're really catching up for not doing some things over the past four, five or six years," Campbell said about some of the capital projects in the works. "While some of that was very prudent, some of it probably should have been attacked and taken care of to avoid how much you'll ultimately have to pay for some of those things."

The bulk of Kingsport's debt is essentially three parts - general fund, water fund and the sewer fund. The general fund covers everything from city administration to police and fire services to the parks and recreation department and is funded mainly by property and sales taxes. The sewer and water funds are enterprise funds and are by law supposed to be self-funded by the users.

As of June 30, 2006, Kingsport's total outstanding debt stood at $110 million. General fund debt was $44.4 million, water fund debt was $16.3 million, and sewer fund debt was $42.3 million. The remaining $7 million in debt is on the MeadowView Conference Resort and Convention Center and the Cattails Golf Course.

Fast forward one year and on June 30, 2007, Kingsport's total outstanding debt will be $129.6 million. General fund debt will be $70.7 million, water fund debt will be $14.9 million, and sewer fund debt will be $39 million. In the coming fiscal year city finance officials are estimating Kingsport's total debt will be $119.5 million with general fund debt dropping to $62.5 million.

The Board of Mayor and Aldermen approved several bond issuances during the past fiscal year, including:

•$22.8 million for the construction of a new 500-student elementary school and a new fire station in the Rock Springs community.

•$10 million for various capital improvement projects within the city - Gibson Mill Road realignment, improvements to the Bays Mountain Park planetarium, preliminary design work associated with the higher education center, and renovations to the V.O. Dobbins Center.

•$2 million for improvements to five city buildings, including the Civic Auditorium and City Hall, in an attempt to make them more comfortable and energy efficient.

"When we worked on the (capital improvement plan), there's a very minimal amount of projects that really is new thinking. It's all pent-up requests existing among the board and community before I came here," Campbell said. "We're taking care of things that have been talked about for years."

In addition to the general fund debt, Kingsport applied for and received two state revolving loans ($20 million and $2.8 million) to cover the cost of state-mandated improvements at the sewer plant and sewer work in west Kingsport. Payment on the $20 million loan will not begin until 90 percent of the project is complete, probably in 2009 or 2010, city finance officials said. Payment on the $2.8 million could begin this time next year.

While city leaders added $35 million in debt to the city's general fund, $9.5 million in principal and interest payments were made during the 2006 fiscal year, while $9.3 million was made in the 2007 fiscal year. Total debt service on all funds in 2006 was $21.6 million, in 2007 it will be $21.47 million, and next year the figure is projected to be around $20 million.

"I think our debt is going to be very manageable. You're talking about projects the BMA and past BMAs wanted to do, and we'll definitely have a return benefit to the community and enhance Kingsport's opportunity to attract more attractive jobs and more people to live here," Campbell said. "If you continually reinvest in your community and keep it attractive, you will have enough economic development to help you minimize any kind of tax increase. That's the ultimate goal."

And over the next three years, Campbell said nearly $6.3 million in debt service payments will roll off the books.

"Of that (the BMA) can do all that they want to do for approximately $4 million to $5 million and still have $1.3 million that's excess," Campbell said. "And this is all the time your budget is growing."

Under Kingsport's charter, the city can incur debt up to 20 percent of the assessed value of property within the city. Under a stricter BMA-adopted guideline, the city cannot go above 10 percent. With these bond issuances Kingsport's debt is around 5.5 percent, Campbell said.

"In public administration there's always been the philosophy that with some projects it's unfair to tax one year or one generation. A school is a three-generational, if not four-generational building. Good public buildings last many generations, and is it fair for one generation to be overtaxed?" Campbell asked. "I would suggest to you that if we're making the right kind of investments, the return on investment will be there and there will be more money. And it minimizes your chance you'll have a tax increase down the line."

And speaking of tax increases, Campbell said barring some dramatic change within the city, he does not see the need for a tax increase in the next five years.

"I really don't think these investments will cause that to happen," Campbell said. "Experience has shown the city that wisely invests in improvements, they'll get their return on investment back.

"It worked very well in Johnson City, and a lot of their success today is due to the fact that rapid investment was made in the '90s that basically ensured Johnson City would be the leading area of the region."

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