Decatur council poised to borrow $35 million for recreation projects

Apr. 15—Decatur City Council members are poised to return to the bond market for the second time in their term, this time to borrow $35 million for multiple recreation projects.

Chief Financial Officer Kyle Demeester proposed at Monday's council work session obtaining a second round of bond warrants that would result in a $55 million increase in the city's debt in the last 16 months.

Demeester said the 25-year bonds he proposes are structured to maintain a level debt service as it relates to total revenues.

"The plan is to hopefully not hinder future administrations or future development of our city," Demeester said.

Demeester said the $35 million would help finance the planned Wilson Morgan Recreation Center, a Southwest Decatur softball complex and a new Decatur Youth Services facility.

The city received $42 million in a 3M legal settlement meant to replace the Aquadome Recreation Center and its ballfields. This money is earmarked for the planned Wilson Morgan rec center and the planned softball complex on Modaus Road Southwest, but the cost of the rec center is now expected to be $20 million more than the $35 million in settlement money earmarked for the facility. The ballfields next to Austin High School now are expected to cost $17 million, which is $10 million more than the amount earmarked from the 3M settlement.

The council and Mayor Tab Bowling increased the original plan to issue $30 million in bonds by $5 million so the city could tackle several projects at Point Mallard Park, Council President Jacob Ladner said.

Ladner said they've discussed three Point Mallard projects with Parks and Recreation Director Jason Lake.

The first would be converting the Point Mallard Ice Complex into an event center. The Ice Complex is closed after a maintenance inspection found major problems with the ice rink almost four years ago.

He said the second project would be demolishing the old ice rink pavilion next door and replacing it with a pickleball facility. They considered just converting the pavilion to pickleball but the structure has roof and cement problems.

Ladner said they've also discussed dealing with T.C. Almon Recreation Center, an aging facility that he said is underutilized. He said pickleball is the only regular activity in the building.

Since the Jimmy Johns Tennis Complex at Point Mallard needs indoor courts and they plan to build a pickleball facility, Ladner said he favors replacing T.C. Almon with an indoor tennis building, especially since Jimmy Johns' two-court bubble also needs to be replaced.

Bowling also recently suggested replacing T.C. Almon with a lodge or hotel if the Tennessee Valley Authority agrees to allow either. The city leases the Point Mallard Park property from TVA, and the lease includes the requirement that the land can only be used for parks and recreational activities. Under the existing lease, it cannot be used for a revenue-generating private business.

The City Council is using the $20 million in bonds purchased in December 2021 to fund the ongoing construction of a downtown parking deck, the planned Sixth Avenue streetscape project and the city's share of a new Morgan County-Decatur Farmers Market facility.

Councilman Kyle Pike said $55 million is a lot of money but he said the city is in good shape financially with healthy reserves. He said they've known for a while that the city is underleveraged on debt.

Pike said none of the bond money will go to the city's incentives that are part of the new mixed-use development west of Ingalls Harbor.

"We've done a really good job fiscally," Pike said. "We've got a lot of significant projects coming up, stuff that needs to get done in Decatur. These are things that move the needle."

Councilman Billy Jackson said he is worried the new debt comes during an inflationary period and, while the city is collecting more revenue than ever, he believes that revenue is based on inflated numbers.

Jackson said he thinks it's important that the council "be really cautious and not overextend ourselves."

"If you look at the cost of a carton of eggs, a gallon of milk or a loaf of bread right now, they've basically doubled in cost since last year," Jackson said. "They (the council majority and mayor) act like they have a never-ending stream of tax revenues coming in and that's not necessarily the case. I would rather be more cautious than to go in and spend or borrow unnecessarily."

Councilman Carlton McMasters and Ladner said they're not concerned about the economy because the city's debt service, relative to revenue, is so low compared to other municipalities.

"Is there a potential the economy could turn and is that something we need to be cognizant of? Yes," Ladner said. "But we have no signs of that locally. You're still seeing growth across north Alabama. Residential growth is still the key, and we are seeing some growth."

McMasters said the city's comparatively low debt service and the $42 million from the 3M legal settlement give the City Council an opportunity to complete much-needed projects.

"I know we've been accused of acting like kids with a credit card, but the truth is it does no good to sit there and say look at all of this money we have and it's doing nothing for the citizens," McMasters said. "We're leveraging what we have with historically low rates and then we're going to make a lot of improvements for our citizens."

A group of city officials, including Demeester, went to New York last month to meet with representatives of Standard & Poor's and Moody's bond rating agencies.

Demeester said Moody's gave the city an Aa2 rating, the third-highest long-term credit rating.

He said the city received this Moody's rating because the city is in "a robust financial position that will continue to strengthen because of a manageable debt leverage, strong budget management" and favorable financial policies.

Standard & Poor's new rating for Decatur is AA+. This rating is high quality but falls below the AAA ranking. It comes with very low credit risk, even though long-term risks may affect these investments, according to S&P.

"They mentioned local economic growth, adequate management of standard financial policies, multi-year general fund surpluses and a strong general fund balance that exceeds the formal reserve policy and manageable debt," Demeester said.

Demeester called both ratings "very exceptional." He said there were no indications of downward rating pressure from a credit standpoint.

Both agencies noted the increase in the city's residential wealth and local incomes, he said.

"They said these factors could mean increased ratings in the future," Demeester said.

Jackson said the positive ratings "didn't come overnight," and they're not just a reflection of the work of this council or the previous council.

"It came about because of a continuum of conservative approaches to spending," Jackson said. "Just because we had good practices that put us in this position doesn't mean we can run out and buy the farm right now."

The ordinance to purchase the bonds is on Monday's agenda. Typically an ordinance requires two readings, at separate meetings, before adoption.

Demeester proposed introducing the ordinance at the council's Monday meeting and then approving it at the following May 1 meeting.

However, McMasters suggested introducing the ordinance Monday and approving it with unanimous consent in the same meeting. If they can't get all of the councilmen to agree on a vote, he suggested the council then schedule a called meeting so they can get the best possible rate on the bonds.

Pike said interest rates are higher than they were when the city got its last bond in December 2021, but he believes the city can still get favorable rates on the new bonds.

Ladner suggested the city could get between a 4% and 5% annual rate on the borrowed money, which he said is low in the 100-year history of bond loans.

Monday's meeting starts at 10 a.m. in the council chambers at Decatur City Hall.

— bayne.hughes@decaturdaily.com or 256-340-2432. Twitter @DD_BayneHughes.