Lexington’s debt payments will top $47 million in 2020. Why some are concerned.
Years of borrowing to pay for big-ticket projects, such as renovating the old Fayette County Courthouse and expanding the Lexington Convention Center, means the city will have to spend at least $47.3 million on debt payments next year, according to figures released Tuesday.
That’s more than 12 percent of the city’s projected revenue of $382 million and the most the city has spent on debt payments since at least 2014, officials told the Lexington-Fayette Urban County Council’s Budget, Finance and Economic Development Committee.
Those figures include no new borrowing in the fiscal year that begins July 1.
Councilman Fred Brown said a 2014 ordinance set a goal of keeping debt payments below 10 percent of the city’s revenue.
“If we go much higher than this, it will affect our bond rating,” Brown said during Tuesday’s meeting.
Brown said he recognizes the city still must borrow to pay for certain items, such as paving roads or purchasing fire trucks.
If the city decides to borrow at least $20 million next year, debt payments would creep up to $47.8 million, or roughly 12.5 percent of the city’s revenue. But if the city only borrows $20 million over the next five years, debt payments would dip under the 10 percent threshold by 2025. If it borrows no additional money, the city will reach the 10 percent threshold by 2024.
The city started borrowing more in 2014 to address pent-up capital needs after years of declining revenue and budget cuts.
In 2013, the city borrowed $3.5 million. In 2016, borrowing jumped to $59.2 million. In the current year, the city borrowed $40.3 million.
Some of that borrowing was for police cars, fire trucks and new fire stations. The city also borrowed as much as $10 million each year to pave local roads and spent big on downtown projects — $22 million for the renovation of the old Fayette County Courthouse, $11.8 million for the more than 2-mile downtown Town Branch Trail, and $30 million for the expansion and overhaul of the Lexington Convention Center.
The city now has $375.8 million in outstanding debt to pay off.
Councilman Richard Moloney said Brown was right. The city needs to cut back on its borrowing as other costs continue to rise.
“We now have 55 percent of our budget going to public safety,” Moloney said. “And then we have 12 percent going to debt.”
The city’s pension payments to the state will also increase by $3 million in the next fiscal year. That means nearly 70 percent of the city’s budget is already spent, he said.
Chief Administrative Officer Sally Hamilton said there will be very little borrowing in the upcoming budget.
Lexington Mayor Linda Gorton, who took office in January, will unveil her budget proposal in early April.
“We will not have any large projects,” Hamilton said of the upcoming budget.
She said the city is already projecting an additional $6 million in pension costs and debt payments that it does not have in the current year.
Since taking office, Gorton has repeatedly warned the city’s finances were strained after years of record revenue growth. In early February, Gorton ordered a nearly $2 million cut as the city’s taxes and other fees continue to fall below expectations in the current fiscal year, which ends June 30.
Gorton also asked city departments to prepare for an up to 15 percent cut in the fiscal year that begins July 1. To date, revenue is $6.7 million below what was budgeted this fiscal year.
Other cities of similar size or larger have more debt than Lexington, according to figures unveiled Tuesday.
In 2017, the city’s debt payments equaled 10.5 percent of its budget, well below Louisville’s 21.6 percent and Cincinnati’s 17 percent. Greensboro, N.C. had a debt ratio of 8.1 percent, according to numbers provided by the city.
Still, Louisville and other cities with higher debt have better bond ratings than Lexington, which means they pay lower interest rates.
Wes Holbrook, who is with the city’s finance department, said there are other factors that goes into a bond rating. Louisville, for example, owns its water company, which means it has a source of revenue that Lexington does not.
Managing debt should be a priority but “we shouldn’t be driven by it,” said Vice Mayor Steve Kay. “We have to look at a whole variety of factors.”
This story was originally published February 26, 2019 at 4:14 PM.
