The financial services firm of Davenport & Company recently concluded a comprehensive fiscal review of the town’s budget, cash reserves, and debt obligations.
The report relied on the Town’s annual Audited Financial reports and debt documentation provided by the Town, as well as meetings and direct discussion with Town Staff.
Davenport has prepared peer comparisons in order to provide the Town with perspective regarding the Town’s financial position in comparison to other Virginia and Regional Peers, analyzed the Town’s Debt Portfolio in an effort to identify potential refunding candidates that would provide
the Town with cash flow savings, identified strengths, and weaknesses within the Town’s annual cash-flow and budgets through multi-year trend analysis.
According to the report, Key Economic Statistics compare favorably with other Virginia and Regional Peers:
– Real Estate Tax Rate is in-line with its Virginia and Regional Peers.
General Fund Operations
– Unassigned Fund Balance is healthy at $2.9 Million as of FYE 2018. This equates to roughly 1 Year’s worth of the General
Fund Operating Budget.
– Davenport recommends that the Town put in place an Unassigned Fund Balance policy of 100% of annual expenditures.
The rationale is as follows:
– A substantial Unassigned Fund Balance provides a margin of safety in the event of a natural disaster or other unforeseen emergency expenditure.
– A higher Unassigned Fund Balance helps to counterbalance the fact that the Utility Enterprise Fund has lower cash/reserve levels and higher debt levels.
– A strong Unassigned Fund Balance is an industry best practice and helps to make the Town more attractive to outside lenders and investors.
– After adjusting for One-time revenues and expenditures, the Town has generated approximately $225,000 in annual surpluses on average (over the past 5 Years).
– The Town could consider utilizing a portion of this approximate annual surplus to help enhance its debt capacity.
The Debt burden is relatively low, which means the Town has Debt Capacity:
– FY2020 debt service is approximately $150,000.
– Including a portion of the apparent annual General Fund surplus ($100,000 or the $225,000 noted above) would enhance the Town’s debt capacity and provide a debt service budget of approximately $250,000.
– If the Town were to continue budgeting at this level, the future decline in debt service could be set aside to offset future CIP needs or the related debt service.
– Based upon the analyses reflected herein, the Town’s Debt Affordability ranges between $1.4 Million to $2.8 Million.
The report also noted that based on a review of the Town’s outstanding debt portfolio there appears to be an opportunity to refinance for savings purposes.
– Refinancing the Town’s 2010 RZED has the potential to produce savings of roughly $100,000 over the remaining life of the loan.
– Approximately 80% of these savings would be captured in the Utility Enterprise Fund with the additional savings in the General Fund.
– Refinancing could be accomplished via a Direct Bank Loan which would allow the Town to see the results of the savings (if any) prior to deciding whether to move forward with the transaction.
Next Steps – Timetable for Action
1. Amend Capital Funding Scenarios per input from the Town Council, as appropriate.
2. Once the preferred Capital Funding Scenario is selected, Davenport would develop a timetable to implement the Multi-Year Plan of Finance.
3.Davenport to work with Town to execute the Multi-Year Plan of Finance, which will include:
-Analysis of alternative Capital Sources (i.e. Direct Bank Loan, State Funding Programs, or some combination thereof); and
– Presentation of recommended Multi-Year Plan of Finance to the Town Council for Approval, including legal notices, etc.
5.Davenport coordinates with Town staff to undertake the necessary steps to move forward.
The full report was presented at the October 3rd special meeting and can be found on the town website and Facebook page. Data from the report will be used to guide future financial decisions including capital project commitments.