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Financial News Many municipalities struggle with the decision of how to pay for various capital projects (roads, water and sewer improvements, drainage, etc.). When grants and capital outlay from the cities aren’t enough, there are usually three options: Pay-As-You-Go (“PAYGO”) - The municipality pays for the capital project with funds on hand. Usually this is over a number of years. Bond Financing - The municipality issues debt to provide monies upfront to complete the project. The bond is paid for over a set number of years. Usually, the time is matched with the useful life of the project / asset. Do Nothing - The municipality doesn’t budget any money for capital improvements or replacements. This is the costliest as infrastructure and capital assets deplete. PAYGO Most governments cannot generate enough revenues from their current budget to finance all of the infrastructure projects that they want. However, current revenues can finance a significant portion of most government’s capital needs and may include designated revenues that have been specifically collected to fund capital projects. Cities should ensure that the annual revenues are enough for capital projects as well as operation of current expenses. The main advantages of pay-as-you-go financing (relative to debt financing) are as follows: • Reduced interest expense - The savings in interest costs payable on outstanding debt can be used to finance additional capital projects, reduce taxes, or expand services. • Increased flexibility - The absence of fixed annual debt costs provided for greater flexibility during economic downturns. Future revenues are not designated for debt service and can be used for other purposes such as saving up for future projects. • Enhanced debt capacity - If a city has zero outstanding debt it may find that future ability to borrow for “greater” capital needs is enhanced. If a city borrows now, it may not be able to borrow as much in the future. GOVERNMENT CONSULTANTS, INC. Specializing in Bond Issues and Financing L. Gordon King Deatriz Riggins Nnamdi Thompson Shaun B. Toups James R. Ryan Jamie Holloway Benjamin Bankston (Consulting & Municipal Advisory Firm) OVERVIEW Modern day government has become a large financial enterprise, handling millions of dollars and facing service and revenue pressures. The governing authority and Administrator(s) face complex financial decisions ranging from the impact of property and sales taxes to the financing of capital improvements. As government finance has become more complex, the need for financial advice to base decisions upon has. The services of an expert Municipal Advisor are being used by more and more governmental units. A Municipal Advisor (or “MA”) serves as a consultant advising the governing authority on matters relating to the following: • Financial feasibility of projects; • Total cost analysis of financing alternatives; • Review of capital improvement financing programs; • Advice on the structuring and marketing of debt securities. The MA is an integral member of the governing authority’s management team, providing independent advice and analysis to assist in financial decision-making. ECONOMIC DEVELOPMENT FINANCE ANALYSIS • Analyzing available alternatives in relation to cost to the governing authority and providing financial guidance and recommendations; • Analyzing from a cost/benefit standpoint the use of incentives (free land, subsidy of bond issues, utility improvements) to attract industry; • Providing a detailed upfront and long-term financial analysis of costs to the governing authority versus benefits of the specific project; and • Serving as an economic development finance resource for the Governing Authority. 6767 Perkins Rd., Suite #250 Baton Rouge, LA 70808 (225) 344-2098 (Phone) gcla@gc-la.net (Email) We Have The Experience! Page 36 LMR | AUGUST/SEPTEMBER <strong>2023</strong>
The main disadvantages of pay-as-yougo financing (relative to bond financing) are as follows: • Insufficient funds - Current revenues are not likely to be sufficient to pay for significant capital outlays or infrastructure projects. • Higher cost of construction – Inflation may raise costs at a rate higher than the interest cost of borrowing. • Uncertainty of funding requirements - Unlike bond payments, the funds necessary for capital projects may be greatly inconsistent from year to year. • Depletion of reserves - Reserves may be reduced for other uses before they are sufficient to pay for the desired projects. Bond Financing Borrowing or bond financing is not a new source of revenue. Borrowing is a way of moving the completion of capital projects to the present and the payment for those projects into the future. However, the debt plus interest expense must be repaid from the current revenue sources. Nevertheless, the repayment of the bonds can be made over time as the project is used. Debt financing should not be viewed as a “last resort,” because it is often the best alternative available. The main advantages of bond financing (relative to pay-as-you-go) are as follows: • Acquisition as needed - Cities can enjoy prompt use and benefit of capital improvements. Immediate or rapid construction is limited with pay-as-you-go financing. • Repayment in cheaper dollars - With a positive inflation rate, repayment costs will be less burdensome than full payment at the time of acquisition. • Stability - Since debt service payments are known and predictable, wide fluctuations in required expenditures are avoided. • Reduced operating cost - Older, high-maintenance infrastructure is more quickly replaced by newer, low-maintenance projects. The main disadvantages of financing (relative to pay-as-you-go) are as follows: • Interest costs - The cost for the use of money must be added to the total cost of the capital project. • Encumbered future revenues - Potential revenues are dedicated to the repayment of debt and are thus not available for other uses. In summary, neither approach is inherently superior to the other. Usually, the best course of action is a combination of both approaches. For example: A municipality might utilize bond financing for the purchase, acquisition, or construction of a public building and PAYGO funding for the equipment and furnishings. The financing decision should be carefully considered as to which option the city is willing to embark. By Nnamdi Thompson Government Consultants, Inc. Government Consulting Inc, can be reached by emailing nthompson@gc-la.net. LMR | AUGUST/SEPTEMBER <strong>2023</strong> Page 37
Page 1 and 2: Aug-Sept.23 Louisiana MUNICIPAL REV
Page 3 and 4: LMR | AUGUST/SEPTEMBER 2023 Page 3
Page 5 and 6: PRESIDENT’S MESSAGE To My LMA Fam
Page 7 and 8: TREASURY NOTES LA Treasury Unclaime
Page 9 and 10: LEGAL BRIEFS Legislative Session Ex
Page 11 and 12: LaMATS and LPS Project Coordinator
Page 13 and 14: LMR | AUGUST/SEPTEMBER 2023 Page 13
Page 15 and 16: ALWAYS ON FOR YOU. JOHN M. SCHRODER
Page 17 and 18: innovative ideas coming from so man
Page 19 and 20: 86 TH ANNUAL CONVENTION LMR | AUGUS
Page 21 and 22: District Vice Presidents 2023-2024
Page 23 and 24: Lt. Governor Billy Nungesser was th
Page 25 and 26: Workshops We presented participants
Page 27 and 28: Singing, and dancing, and an air sh
Page 29 and 30: 86 TH ANNUAL CONVENTION Sarah Traha
Page 31 and 32: 86 TH ANNUAL CONVENTION BEST OF SHO
Page 33 and 34: At this year’s Board Meeting, Pas
Page 35: The Louisiana Municipal Association
Page 39 and 40: LOUISIANA ASSOCIATION OF MUNICIPAL

August/September 2023

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