I support the General Obligation (GO) bond referendum as it is likely to be the cheapest way to fund the projects needed to fortify our island against sea level rise.
The referendum is an authorization to issue debt if projects are approved. It requires no spending and will result in no budget expense line item. It simply gives us a cheaper alternative to fund resilience expenditures if we decide to catch up with other local communities who have already begun this journey. That said, since there is a lot of controversy about this referendum, we should take a look at the alternatives. I think there are three.
The first alternative is to say ‘no’ to the referendum and ignore the threat to our island. Enjoy it while we can turn a blind eye to street flooding, beach erosion, fish kills and scientific studies that predict a 10 to 17 inch sea level rise in the next 20 years.
Under this scenario, it would be instructive to look at the shrinking island of Tangier, Virginia to see our potential future. Located in the Chesapeake Bay, Tangier Island has done little over the decades to forestall rising seas. It is expected to be among the first domestic island casualties with an estimated 30 to 50 years before it sinks beneath the waves. While there are significant geological and socio-economic differences between us and them -- they live on a sandy island ridge, we are close to a major city and are a much wealthier community -- we will face the same issues of infrastructure degradation, and population, property and economic depletion, including the loss of protective environmental safeguards.
For us, the cost to maintain infrastructure will be higher as the salty sea water gurgling up through our porous limestone exacerbates erosion. With this option we may be kicking the can down the road for future residents to pay for infrastructure maintenance, but we will all pay a cost in declining property values. The integrated resiliency projects currently on the table (beach defense, road elevation and infrastructure hardening) could be cheaper in the long run. The World Bank has said that the net benefit on average of investing in more resilient infrastructure results in $4 in benefit for each $1 invested.
Another alternative advocated by some current and prospective councilmembers is to spend time, effort and money to lay out each project with full budgets and plans before we pass a bond authorization. There are two considerations here. First, if we as a community are likely to support any of the projects under consideration, we should be voting “Yes” on the referendum. We can’t finance any single project from the annual budget and GO’s are a cheaper funding source than the alternatives. Furthermore, the number of municipalities that have subsequently passed a GO referendum after a recent failure is minuscule.
Few municipalities would even attempt a second referendum owing to the cost associated with a GO campaign. So, in essence, saying ‘no’ to this referendum virtually guarantees that we will have higher project cost. Secondly, the referendum request is based on good ballpark figures for these projects. There is abundant data for this analysis. Other municipalities, many very close to us, have already completed similar initiatives. The village is using these approximations because we are voting on an authorization not a issuance.
There is no reason to sharpen the pencil before we have preliminary buyin on a given project. In fact, it would be wasteful to do so. Whatever budgeted costs determined in 2020 probably wouldn’t remain valid when we ultimately finance the project in 2022 or 2023.
Finally, and most importantly, specific cost analysis ignores the very thing that most people are (rightfully) clamoring for -- the potential for public comments to change the cost and scope of the projects under consideration.
Let’s look at other potential financing options. Is a GO the cheaper alternative or the only alternative to pursue an integrated comprehensive infrastructure program? Benjamin Nussbaum, the village Chief Financial Officer, has laid out three possible financing alternatives:
A Special Assessment would apportion project costs to property owners based on their ‘special benefit’. The problem with this method is that developing a fair formula to divvy up costs is fraught with complications and its implementation requires the approval of property owners. The Special Assessment strategy has been tried unsuccessfully in the past and frankly it is hard to imagine the council opening up this can of worms again.
A Special Revenue Bond pledges the revenue from a specific income stream to pay debt service for a bond issue. A good example is a toll road. Unless we plan to implement a toll for driving on the Village’s upgraded dry roads or charge a fee for going to our local beaches, there is no dedicated revenue source for the Village to tap to raise money in this way. It’s not an option.
A Covenant to Budget and Appropriate (CBA) bond pledges all legally available non ad valorem revenue to pay debt service for the bond issue. These revenues (excess utility taxes, franchise fees, community center revenue, and our state sales tax revenue share) currently fund approximately 25% of the village’s annual budget. Thus, the debt service cost of these bonds would either have to be reimbursed by increased property taxes (probable) or annual village spending would have to be slashed by 25%, a gnarly task given the village’s contractual obligations. For these more expensive bonds there are limits on the amount of debt that can be issued relative to the collateral. A reasonable estimate for issuance would be $50M. That is about half the projected cost of the proposed projects.
So to summarize, a Special Assessment strategy is electorally untenable, there is no dedicatable income source for a Special Revenue Bond, and a CBA bond could not definitively fund much more than half of the projects.
After taking a clear eyed view at our alternatives, I am more convinced than ever that we, as a community, need to approve the GO referendum. It is only one step in a very long process to implement a comprehensive infrastructure program that will help strengthen our island home from the very real threats of hurricanes, flooding, beach erosion and power failures. The problem with obfuscating and delaying is that waiting will only make the costs more expensive in the long run as will using a funding strategy other than a GO.
Patching holes and implementing ad hoc temporary and uncoordinated solutions to the actual, tangible problems that we face will ultimately cost us more and be less effective. Opponents to the general obligation bond argue that they are being fiscally conservative and point to an increased annual budget. Everyone is in favor of cutting superfluous spending. But, there is a difference between spending and investing. Approving the GO bond will allow us to invest in our island in the hope and expectation of greater rewards in the future.
Please join me in voting yes on the GO referendum on November 3. For more information please visit https://www.protectkbparadise.org/.