Debt, Mistrust and Economic Instability in Cape Coral (Lee: sales, foreclosures)

[yoko]

Cape Coral has a total of $835 million in outstanding principal on dozens of bonds:

• The city owes $199 million in general government debt. That’s for some road improvements, city buildings and equipment. Your property taxes and gas taxes pay this debt.

• There is $230 million outstanding for utility expansions. This is all paid through utility assessments. If you’re paying for water, sewer and irrigation pipes, you’re paying down this debt.

• Cape Coral has $404 million outstanding for water and sewage treatment plant expansions. If you’re paying a monthly utility bill, a sizeable chunk of that bill pays down this debt.

• $1.6 million is outstanding in the stormwater fund. Most people pay $75 a year for a stormwater fee. A piece of that is paying down this loan.

http://www.news-press.com/article/20...mors-incorrect



Assessments for new water and sewer lines were going to pay off the $404 million loan, but the bursting housing bubble blew that plan away. The system had no growth throughout 2009, and the extension program was suspended."
Meanwhile, the $18 million-a-year payments on the debt still have to be made."

May/17/2010
http://www.news-press.com/article/20...roposals-ready



The city has more than $404 million in utility system loans to cover. A rate increase was approved to help meet payments. But council members want to soften the blow to ratepayers, who will see a 92% increase in their bills over the next five years if the increase isn’t modified.

May/17/2010
http://www.news-press.com/article/20...-rates-changes



Several Cape Coral City Council members seem to be leaning toward a general obligation bond to reduce interest on municipal utility system debt to mitigate rate increases for existing water and sewer customers.
Councilmember Kevin McGrail: "If we let the rates keep jumping, we will be a community no one wants to move to, and we will lose residents."

May/20/2010
http://www.cape-coral-daily-breeze.c...id/516747.html


The city could issue a bond worth $332.5 million and lower the rate increase impact to 2.4 percent over five years.

http://www.news-press.com/article/20...-rates-changes





Repeated History:

“Due to the public hearing process, the city of Cape Coral learned a valuable lesson about accurate forecasting. The 1991 rate study produced a false target resulting in overspending by city government and the need for a utility hike in 1994. Inaccurate data and the inability to explain the deficiencies, led to mistrust of government staff and the voting down of the 1994 rate study.

During the public hearings, citizens were blaming everything from expensive supplies to government corruption as the problem. Laubach (1995) wrote an article titled "city Utilities Losing $200,000 a Month" in which a quote from then Public Service Director places the blame for the losses with the predictions made for the 1991 utility rate study and delays in the wastewater project. The debate over utility rates resulted in demands by City Council members for audits of the entire system. City Council voted to delay any rate increase until a determination of cause could be established. Overall, pitfalls in forecasting brought budget deficits, audits, citizen committees, and criticism from the city Council and the public. Along the way, resignations were tenured, thousands of dollars were spent, and trust in city staff was diminished. Following good management principles in the forecasting of utility rates would have precluded or minimized this problem.”




Comparative Analysis of Utility Rate Forecasting: The Cape Coral Experience

Professorforrer.com

[yoko]

Where is Cape Coral heading to?
State bailout.

With a shrinking tax base:
1. Sales tax revenue
Sales Tax Receipts in Lee County Take a Massive Dive
May/09/2010
http://www.news-press.com/article/20...e-massive-dive

2. Property tax revenue
Property taxes account for about 68 percent of the money the city gets each year
The present budget is $119.7 million. The 2011 budget would be about $111.6 million if values fall 10 percent.
Cape Coral's taxable property value could drop 10 percent and reduce the city's income by $8.1 million, if preliminary 2011 budget forecasts hold true.

http://www.news-press.com/article/20...balance-budget

Also in:

http://www.news-press.com/article/20...udget-strategy

[movetoflorida]

Originally Posted by yoko

Where is Cape Coral heading to?
State bailout.

Where is the State headed to?
State income tax?

[rikoshaprl]

An increase in median prices of homes in Cape Coral will lead to an increase in property tax revenue.

[yoko]

Originally Posted by yoko

Where is Cape Coral heading to?
State bailout.

With a shrinking tax base:
1. Sales tax revenue
Sales Tax Receipts in Lee County Take a Massive Dive
May/09/2010
http://www.news-press.com/article/20...e-massive-dive

2. Property tax revenue
Property taxes account for about 68 percent of the money the city gets each year
The present budget is $119.7 million. The 2011 budget would be about $111.6 million if values fall 10 percent.
Cape Coral's taxable property value could drop 10 percent and reduce the city's income by $8.1 million, if preliminary 2011 budget forecasts hold true.

http://www.news-press.com/article/20...balance-budget

Also in:

http://www.news-press.com/article/20...udget-strategy

To stop people from leaving Cape Coral cuts one of its own arteries.

[yoko]

" As defaults and foreclosures bleed into the high end of the market, buyers gain the upper hand in price negotiations as sellers become desperate.

These forced sales will turn illiquid markets liquid as buyers that have been locked out of these expensive markets begin to scour the landscape for opportunities.

As sale volumes pick up, so too will the average price of the homes eventually sold, since this will shift the distribution of transactions included in the broad averages towards more expensive homes.


This isn't just some statistical anomaly: As broad measures of housing data show recovery, behind the curtain, individual submarkets will be telling a vastly different story. To be sure, the Jumbo market makes up less than 3% of the total housing market, but if it's your market, that makes it 100% of the housing market that matters. "


http://local.minyanville.com/Collaps..._Coral_FL.html (broken link)




Yup, jumping out a sinking boat despite having a super FICO score! Cutting the loss is already a gain!

To cut property taxes to stop them from jumping out and/or to attract new riders on a sinking boat does not make sense at all.
Because of cut in land taxes, two years ago, Cape Coral fell short of $12 000 000 in tax revenues. Now, to cut property taxes by 10%, the city will be in red again by $8.1 million.

Why are such incentives given when they do not matter to residents or to buyers in their decisions? Foreclosures are nullifying the effect of all such useless/costly incentives.

[yoko]

CREDIT SUMMARY, new from Fitch, May/27/2010:


" The city's water and sewer system serves approximately 60,000 accounts located entirely within city limits.

The pace of new customers connecting to the system dropped off substantially over the last two years.

A significant amount of debt was issued over the past five years to support both realized and future increases in customers, although the dramatic slowing in growth in recent years has left revenue growth insufficient to comfortably meet a rapidly rising debt burden.

With the current average monthly residential bill equal to 2.3% of the city's median household income, user charges exceed what Fitch considers to be affordable.

Fitch believes the system is highly leveraged, as the amount of currently outstanding debt is equal to slightly more than $3,500 per customer and equals 65% of system assets. "





May/27/2010
Fitch Affirms Cape Coral, FL's Outstanding Water & Sewer Revs, BANs & Special Assessment Debt | Earth Times News

[yoko]

CAPE CORAL FIRE DEPARTMENT

Chief Bill xxx said: "Over the past few years, about 30 vacant positions have been eliminated."

The department has 203 positions.

“My goal as fire chief is to not have to lay any firefighters off,” he said. “We haven’t had to substantially cut services yet, but it could happen this year.”

He said the department also is looking at ways to cut an additional $50,000 or more from its budget."


June/02/2010
http://www.news-press.com/article/20...ops-15-percent




wasteful spending:

" Unlike the centralized police force, the city’s fire department is scattered through nearly a dozen fire stations across the city.
The actual administrative branch requires little space, McGrail said.

The council approved $181,000 to design the $1.1 million addition to the EOC on Nicholas Parkway. The city will pay for the project using its All Hazards fund, which combines property taxes from both the city and Lee County. The fund can only be used on emergency preparedness projects.

But during a disaster, that small administrative group, headed by Fire Chief xxxx, is the heart of the city. "




Cape Coral emergency operations center getting emergency funds | news-press.com | The News-Press

[yoko]

Originally Posted by yoko

CAPE CORAL FIRE DEPARTMENT

Chief Bill xxx said: "Over the past few years, about 30 vacant positions have been eliminated."

The department has 203 positions.

“My goal as fire chief is to not have to lay any firefighters off,” he said. “We haven’t had to substantially cut services yet, but it could happen this year.”

He said the department also is looking at ways to cut an additional $50,000 or more from its budget."


June/02/2010
http://www.news-press.com/article/20...ops-15-percent




wasteful spending:

" Unlike the centralized police force, the city’s fire department is scattered through nearly a dozen fire stations across the city.
The actual administrative branch requires little space, McGrail said.

The council approved $181,000 to design the $1.1 million addition to the EOC on Nicholas Parkway. The city will pay for the project using its All Hazards fund, which combines property taxes from both the city and Lee County. The fund can only be used on emergency preparedness projects.

But during a disaster, that small administrative group, headed by Fire Chief xxxx, is the heart of the city. "




Cape Coral emergency operations center getting emergency funds | news-press.com | The News-Press

Please Google this. The News-Press has moved the site for the second link. Sorry!

[yoko]

Originally Posted by yoko

CREDIT SUMMARY, new from Fitch, May/27/2010:


" The city's water and sewer system serves approximately 60,000 accounts located entirely within city limits.

The pace of new customers connecting to the system dropped off substantially over the last two years.

A significant amount of debt was issued over the past five years to support both realized and future increases in customers, although the dramatic slowing in growth in recent years has left revenue growth insufficient to comfortably meet a rapidly rising debt burden.

With the current average monthly residential bill equal to 2.3% of the city's median household income, user charges exceed what Fitch considers to be affordable.

Fitch believes the system is highly leveraged, as the amount of currently outstanding debt is equal to slightly more than $3,500 per customer and equals 65% of system assets. "





May/27/2010
Fitch Affirms Cape Coral, FL's Outstanding Water & Sewer Revs, BANs & Special Assessment Debt | Earth Times News

One should never underestimate readers' intelligence.

Cape Coral has a small population for debt of $1.182 bn. 3 top people in the finance committe have already resigned because of "the direction" the City is taking.

Do your own Google research on all issues and on each number.