Posted 1:20 am Sunday, November 18, 2012
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Tyler leads the way on municipal debt
Tyler City Manager Mark McDaniel knows what he’s talking about. So when he wrote for Forbes magazine recently that cities will have to better manage their debt —either by choice or by necessity — officials in other municipalities should take heed.
“In this era of ballooning debt the long-term fiscal health of our country has become a kitchen table discussion. We worry how future generations will shoulder the burden and how we will manage to maintain our way of life without having to face a Greek-like implosion. But the national debt isn’t our only debt crisis – and this one can’t be blamed on Washington,” McDaniel wrote. “Towns, cities and even some states are awash in more debt today than ever before. The Securities and Exchange Commission reports that investors now hold $3.7 trillion of municipal debt. For the sake of comparison this figure is equivalent to what our national debt was in 1991 — or 20 percent of our national debt today.”
That debt, along with crushing pension obligations, has driven some cities to bankruptcy, he notes. Still, those are “outliers,” he says.
“Elected officials and taxpayers alike are coming around to the idea that before taking on new obligations that it would be prudent to develop a strategy to reduce the red ink already on the books,” McDaniel writes. “The solutions are surprisingly simple. There is a way to avoid living on borrowed dimes.”
Take Tyler, for example.
“And at one point, Tyler held $41 million in tax-supported debt,” he explains. “But Tyler is a different place today. It is a city that has been transformed since it ended its reliance upon tax-supported debt more than four years ago. In 1995, Tyler residents approved a half-cent sales tax to retire tax supported debt. In return, the city promised to reduce property tax rates by 15 percent and pay cash for capital improvement projects from that point forward.”
Sure, there was skepticism. But the city kept its promise.
“Elected officials and taxpayers alike are coming around to the idea that before taking on new obligations that it would be prudent to develop a strategy to reduce the red ink already on the books,” McDaniel writes. “The solutions are surprisingly simple. There is a way to avoid living on borrowed dimes.”
Take Tyler, for example.
“And at one point, Tyler held $41 million in tax-supported debt,” he explains. “But Tyler is a different place today. It is a city that has been transformed since it ended its reliance upon tax-supported debt more than four years ago. In 1995, Tyler residents approved a half-cent sales tax to retire tax supported debt. In return, the city promised to reduce property tax rates by 15 percent and pay cash for capital improvement projects from that point forward.”
Sure, there was skepticism. But the city kept its promise.
“Since adopting the additional half-cent sales tax, the city has indeed paid cash for capital improvements, including recreational centers, new streets, fire stations, police stations, parks, and improvements to the airport,” he notes. “Property taxes are more than 60 percent lower than they were in 1995, and the city just reduced its rate again, now at 20 cents per $100 of property value.”
That’s something to be proud of. Many of the efficiencies were found in the principles of “Lean Six Sigma,” a management concept more often found in the corporate and manufacturing worlds. But it can be adapted to cities, and Tyler has a AAA bond rating to show for its efforts.
“When debts are reduced or eliminated and governments fight inefficiencies, local leaders are put into a better position to keep taxes low, attract new residents and businesses, actually enhance the quality of services, and have their fiscal house declared safe and sound,” McDaniel says. “A change to the fiscal order will come to communities of all sizes in time. The only question is will it be done by choice or by necessity.”
That’s something to be proud of. Many of the efficiencies were found in the principles of “Lean Six Sigma,” a management concept more often found in the corporate and manufacturing worlds. But it can be adapted to cities, and Tyler has a AAA bond rating to show for its efforts.
“When debts are reduced or eliminated and governments fight inefficiencies, local leaders are put into a better position to keep taxes low, attract new residents and businesses, actually enhance the quality of services, and have their fiscal house declared safe and sound,” McDaniel says. “A change to the fiscal order will come to communities of all sizes in time. The only question is will it be done by choice or by necessity.”
