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Friday, Nov. 06, 2009

Lexington faces a financing crunch

Issuing bonds to help pay off $246 million in unfunded liability in the police and fire retirement fund is eating up about half of Lexington's bonding capacity, threatening city improvement projects.

The sobering picture was painted for Urban County Council members at a specially called bond meeting on Thursday.

"Compounding the problem is that city revenues are not expanding as they have in previous years," said Linda Rumpke, commissioner of finance and administration.

"So the city is facing difficult decisions about what projects it can finance in the future," said Bill O'Mara, director of revenue.

Over years, Lexington's police and fire pension system was chronically underfunded.

In January, Mayor Jim Newberry and the pension board reached an agreement to fully fund the system by 2015 through a combination of cash contributions and bonds.

To reach that goal, "it will take a series of bonds to catch us up," said councilman Kevin Stinnett, chairman of the Budget and Finance Committee.

The city made its first payment to the pension fund in fiscal year 2009 with a $70 million bond.

During the meeting, council members received a list of projects totalling $114 million that they have budgeted for bonding but the bonds have not been issued.

On the list were were $48 million in projects that have been started, but not bonded.

"We are literally paying cash out of our bank account for them right now," Stinnett said. "We need to sell bonds to repay ourselves."

Also, there are seven additional projects valued at $13 million on the list that have not started but that the mayor considers worthy to be included. These include a new security system for the Fayette County Detention Center, three downtown streetscape projects and money for the purchase of development rights program.

The city budgeted about $30 million to pay debt service on bonded projects for fiscal year 2010.

But bonding projects already underway, plus the mayor's seven high priority projects and the pension fund, would bring the city's debt payment to $41 million in fiscal year 2011.

Councilman Ed Lane suggested a way out of the financial dilemma might be a "dedicated revenue source to be paid into a police and fireman's retirement fund to retire the debt."

Otherwise, he said, "Making these payments will suck money from our general fund that could be used for other capital projects: the proposed public safety operations center, a new government center, parks, road re-surfacing and streetscape."

A second bond meeting is scheduled for Nov. 19 when council members must decide how much future debt service they want to take on.