Not enough money in this tax to pay for promised projects?

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Here we go again. Tulsa County Commissioner Fred Perry in this morning's Whirled:

Q: How will additional costs be covered if the projected $282 million price tag for the public projects goes up?

A: As one of nine future "river trustees," if the Oct. 9th river plan/tax vote passes, I have been asked to answer this question. The short answer is that there won't be any additional costs to cover. For one thing, we're told that the engineers factored in some projected inflationary costs. Also, there is a contingency amount of $25 million in the plan. It is doubtful that costs would rise enough to consume that contingency.

Also, the commissioners, prior to passing the resolution, were committed to not exceeding the $282.25, which is in the resolution and on the ballot. There are also protections in the resolution regarding the limit.

In my opinion, and I think the other future trustees will agree, if the costs exceed the estimate and the contingency, something would be dropped off the plan or projects would be scaled down.

Let's compare that with what Perry's predecessor said a month or so before the Vision 2025 sales tax vote. Bob Dick, promised voters that every project would get built:

Dick said the Vision 2025 package also was designed to ensure no project gets left behind due to a lack of funding.

"I think the worst thing you could do is promise you are going to build something and then not have enough money to build it," Dick said.

Vision proponents concede room for error is built into some project cost estimates.

"I don't know specifically what it is really going to cost to build a low-water dam," Dick said.

It looks to me like this plan is set up, just like the low-water dams in promised Vision 2025, to overpromise and underdeliver.

We've been told that the rule of thumb these days is that a county-wide one cent sales tax will raise $100 million per year. A 0.4 cent tax over seven years would raise $40 million x 7 = $280 million -- not quite enough to cover the $282.25 million in total estimated project costs, and no provision whatsoever for fees and interest costs for debt.

I get about the same number -- $280.6 million -- if I take actual county receipts for FY 2007, adjust for the tax rate, assume a growth rate of 2.5%, and figure the numbers out over calendar years 2008 through 2014.

That's right: No provision for finance costs. Since they're telling us the need for pedestrian bridges and low-water dams is too urgent to pay for them on a pay-as-you-go basis, the Tulsa County Commission will once again hire a bond adviser and sell revenue bonds to get the money up front. That means we're borrowing against future sales tax revenues so we can spend the money right away. The designated amount for each project represents the amount of cash needed to build each piece and doesn't include the project's share of fees and interest.

This is why projected sales tax receipts of about $750 million over the life of the Vision 2025 sales tax will be barely enough to pay for $580.5 million worth of projects. According to county financial adviser John Piercey's numbers, combined with PMg's Vision 2025 project report, that $580.5 million will have cost us $674,387,714.81 in sales tax revenues. That's $93.9 million in finance costs.

In Vision 2025, finance costs were not included in the announced project amounts. This is apparent in the way the funds have been managed. If a project's cost was listed as, say, $1 million, the project's sponsor (city, town, university, or non-profit) has $1 million to spend on construction, with no deduction for the project's share of finance costs.

If somehow we got the same effective interest rate, the $25 million contingency amount would be entirely consumed by finance costs, leaving no margin for error should costs increase, and making it quite likely that a few years from now, county commissioners will be telling us once again, "Sorry, but if you want us to finish this project we promised, you'll have to vote for another tax increase."

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7 Comments

XonOFF said:

Though the County has never stated so, it's been said they intend to fund river tax projects out of revenues (cash-flow), so bonding supposedly is not a factor. At least, I heard that somewhere. It's not included in any of the published materials.

They could do this due simply to the fact that they intend to collect the tax for around two years (or more) before actual dam construction can begin due to the lengthly required approval process of these dams (Corps/EPA/OWMC et al).

So, the County would have over $100 million in cash reserves before the dam construction begins, and drawing interest for two years (add about $2 Million in interest earnings).

Since the dams (as stated by the County) would cost about $25 Million each, then that $50 Million could easily be handled, with the $90 Million channelization held to cash-flow constraints.

Anyway, it could work out without bonding, so long as voters don't mind giving their tax for two years ahead of the need.

The more proper discussion is whether or not the dams were to be included in V2025 as was stated, and promised by the County at the time.

XonOFF said:

Don't ya love paying 16.18% interest costs on V2025 project, though?

David S. Author Profile Page said:

I thought the contingency fund was dedicated to fund upkeep of the area in the coming years?

Does the resolution really state the tax will end in 7 years or once everything is paid for br it 10 or 15 years?

s said:

It will be interesing to see how the T.W. news reports on the Monday Hardesty Library meeting. Please read T.W. Sunday's news and bring the rest of the story on what they left out at the meeting with Ken Yazel. Hopefully, channel 6 will do a news story on it.

Yes, it does seem to some that river development is quite fantastic but if the River Tax passes, crime in that area will go way up making Bixby hire a lot more police officers and guess where they get their money for that? And you should look into past bond tax votes and see if they overspent and if some projects did not get done as suggeted to voters it would or started at all.

Bixby used to have a roller skating rink that brought in all kinds of trouble with the type of people that went there at night. The roller skating rink went out of business due to extreme lack of interest in roller skating and that area looks 100% much better now due to a professional looking business area.

s said:

I know a developer that builds in other states. They don't go to the voters to help them with their investments such as the October River Tax increase.

Instead they get incentives to develop in other ways that are very lucrative just as I am sure all of the developers here are well aware.

Bixby is a great little place and all those run down empty Bixby downtown buildings near 151st and empty houses with high grass allowed to grow all around with many run down homes, Bixby will get investors and developers to develop there no matter if the River Tax is passed or not.

sbtulsa Author Profile Page said:

it seems those who attend the vote yes meetings should be asking how the rojects are going to be financed. i'd like to see randi miller answer that one.

XonOFF said:

Of course, if the County does collect $27.5 Million to build a $9 Million dam, then cash flow is affected in a very positive way.

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This page contains a single entry by Michael Bates published on September 23, 2007 8:08 AM.

Tulsa County Assessor hosts forum exposing river tax problems was the previous entry in this blog.

A Thrifty warning is the next entry in this blog.

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