Mayor Jason Shelton ran his campaign in part on a platform that included fiscal conservatism, and his plan-under-development to use part of the city’s strongly funded reserves to reduce bond debt by paying for some capital spending in cash has captured the attention of at least part of the City Council.
Shelton’s idea has several points:
• Use part of the city’s $18.5 million “rainy day” fund to pay down some of the city’s $30 million bond debt.
• Use the money saved on bond interest and apply it to capital purchases, items like firetrucks or tornado sirens and similar legitimate needs for the long term.
Tupelo has historically been financially conservative. Its spending for major capital projects has generally benefited from low interest rates because of the city’s strong credit ratings (Aa2 Moody’s) and acting when markets are advantageous.
At the same time, city councils have put money into the rainy day fund in case of emergencies (a weather crisis with heavy damage would fall into that category) and other compelling needs. A practice of placing unexpended funds in the reserve could come before the council today for reconsideration.
The $18.5 million in the fund is reassuring, but a lesser amount might be sufficient.
Chief Financial Officer Lynn Norris said during the City Council’s annual retreat in August the city should keep at least 25 percent of its operating budget in reserves, about $8.5 million. Norris has been consistent over time in citing a lower figure than the $18.5 million as adequate.
If the council agreed to systematically spend $5 million of the reserves to reduce bond debt, the reserves still would have $13.5 million, and some funds would be freed for capital spending because some interest would be eliminated.
As with other complex and innovative ideas, this idea from the mayor has appeal, and it also needs much fuller detail and discussion.
We would hope that moving forward consideration would be given to some of the freed money going to capital investment in neighborhood rebuilding, which would help Tupelo strengthen its revenue base in the long term with new residential and commercial development.
It seems likely, too, that Tupelo, as Ward 3 Councilman Jim Newell noted, would want to continue issuing some bonds for long-term projects when interest rates are to the city’s advantage.
A full discussion of all the options for a portion of the city’s reserves is merited.