Shelton: Pay off debt with reserves

By Robbie Ward

Daily Journal

TUPELO – Under a working plan from Mayor Jason Shelton, the city’s $18.5 million rainy day fund could shrink by millions of dollars. And he said that would be a good thing.

SHELTON

SHELTON

A plan to accelerate paying off city debt could save an estimated $825,000 in interest costs during a seven-year period.

It also would allow the city to use annual savings from paying less in debt payments to use toward long-term city capital projects, which includes big-ticket items like fire trucks and tornado sirens.

Shelton intends to present a plan to the City Council that would pay off part of Tupelo’s $30 million in debt from general obligation bonds. He said this is part of a plan for the city to use more cash to buy larger capital items instead of issuing bonds to make the purchases.

“Most everybody agrees the capital plan is a good thing,” Shelton said. “We have to make investments in our community.”

Under former Mayor Jack Reed Jr., the city began a multiyear capital plan that required city department heads to plan major purchases in advance to allow the city’s financial team to better manage funding for the expensive items.

But Shelton wants to change the way the city pays for these expenses. His current plan would involve transferring about $5 million from reserves to pay off debt.

From fiscal years 2011 to 2013, the city spent $21.1 million in capital projects that include the $12.3 million aquatic center opening next month. The bulk of the expenses were paid through issuing bonds.

For the next four fiscal years, Shelton wants to pay cash to fund the capital budget, ranging from $1.4 million to $2 million annually. He envisions the city using savings from annual debt payments to help fund the capital plan.

“It’s sort of like buying a new automobile with cash,” Shelton said. “If you can do that, you save a lot of money from interest.”

He hasn’t shared details of the plan with the City Council yet, but some council members appear open to the proposal.

Councilman Lynn Bryan of Ward 2 said the city’s large reserves generate little in interest and don’t help taxpayers sitting in a bank account.

“I think we should first determine what an adequate reserve should be and use any surplus on capital funding and debt service,” Bryan said.

During the city retreat in August, Tupelo Chief Financial Officer Lynn Norris said the city should keep at least 25 percent of the city’s operation budget in reserves, about $8.5 million. If the city paid down debt by $5 million from the rainy day fund, about $13.5 million would remain in reserves.

However, not all council members appear ready to dip into city reserves. Councilman Jim Newell of Ward 3 said hadn’t been informed of Shelton’s plan but believes city reserves shouldn’t be reduced.

“I personally believe our reserve fund is where it needs to be,” he said.

With interest rates for municipal bonds still hovering in the 2 to 3 percent range, Newell said the city would be smart to consider issuing bonds for long-term projects.

Even as debate unfolds about what to do with some of the city’s reserves, the City Council will discuss this week a resolution supported by Shelton to stop adding leftover money into the reserves at the end of the fiscal year. If the council supports the idea, any taxpayer money left after paying the bills at the end of the year will funnel into the capital budget.

“I do agree that we need to develop a capital expenditures account,” said Ward 1 Councilman Markel Whittington.

While Shelton proposes creating a capital project fund using cash from annual tax dollars, the mayor said he’s not opposed to creating additional debt for large projects that benefit the community, such as a new police headquarters, a new library, expansion of the BancorpSouth Arena or support for economic development projects.

“I’m certainly not opposed to bonds or the bonding process,” he said. “I certainly won’t be opposed to bonds for economic development incentives.”

robbie.ward@journalinc.com

  • DoubleTalk

    Pay off debt early…good idea. Use reserves to pay debt down…..bad idea if you are going to replace it with new debt. Pay as you go….good idea.

    I may be misreading or understanding, but this sounds like refi the house, take the equity out to pay off credit cards only to run them up again.

  • aaron

    make improvements? the only improvements that Shelton wants to do is eliminate all the poor from tupelo. how about blacktopping north gloster. it looks like a snake had the runs. it’s not going to matter one way or another what the incompetent city council does, they fulfill whatever stupid hairbrained request is dropped in their lap. turn the runway over to the plane dismantlers and lease it to the city since there is practically no air service.
    i’m surprised tupelo hasn’t burned to the ground with the stupidity leading it. but in a few years we’ll see Shelton brought up on charges of fraud or embezzlement or something. sleaze doesn’t always get far, ask lawyer joey Langston.