Q&A - FINANCE

Will impact fees pay for the water plants and roads?
At the same time we did the utility rate study, we did the development fee study and calculated all of our capital costs, and we calculated the fees it that would take for any one person to pay their share of that cost. The $3.7 million in savings came from historical impact fees. We have budgeted to receive continued impact fees, but it is not simple as that paying for the water plant directly from those fees.

There is a budget for the entire system including both capital needs and operating needs. Revenues included in the budget are from the system and from impact fees. These total revenues must cover both the operating costs and the capital costs including the debt service obligations. The current rates are programmed to pay the debt service on the water plant. The regulatory and the reliability piece of the plant expansion serves the entire existing customer base as well as new customers. That portion should not come from impact fees, but should be included in the rates.

How are impact fees calculated?
When we calculated our development fees, we calculated the entire costs of all of our capital costs. We took those total costs of increased capacity that the expansion would generate, divided it by the capacity that an average home would require, and that’s the impact fee. Every home that comes on line is paying its share of those capital costs.

So we’re collecting 100% of the cost?
Yes, that’s how the impact fees were calculated.

How are impact fees for roads calculated?
The same process happens. You look at the total costs of the roads, what capacity does it generate, what’s the impact to the new home on those roads, you divide that capacity by what one home would take and that’s how the impact fees were calculated.

Did you ever consider selling those bonds to the citizens?
Yes, these are citizen bonds and are available on the market. A bank takes the loan and then markets it. Generally, insurance companies and mutual funds buy the bonds, but you can get one from your local broker.

Wouldn’t it be less expensive to sell the bonds directly to the citizens?
It has been done in the State of North Carolina. It’s actually very expensive to administer, and is ultimately not cost effective.

Won’t the Town be overextending itself by taking on this much debt?
No, we are in excellent shape and in a very good financial position.

Have we calculated our debt capacity? How much debt can we afford without affecting our interest rate?
That is exactly the questions what the bond raters do. They decide what our debt capacity is. [Two credit rating agencies, Fitch IBCA and Moody's, recently gave Cary the highest possible rating -- AAA.]

What effect could the threat of the slowed economic growth have on the bond rating?
I think it could be a concern for our future economic health. We’re obviously working to assure the bond raters that we are managing growth, not being managed by it.

Is that calculation of debt capacity based on an assumption of future growth?
Our estimate is based on very conservative estimates of future growth.

If the bond referendum is turned down and it is still necessary to make regulatory and reliability upgrades, will municipal services have to be cut in order to pay for them?
If the Council is forced to make these regulatory and reliability upgrades or felt it prudent to make the capacity expansion, they could resort to revenue bonds or asset-backed bonds, which are non-voted bonds. The Council can make those pledges to repay on their own in keeping with their responsibilities as leaders of the Town. Being able to issue this type of debt would protect the Town’s ability to maintain Town services.