Des Moines staff review $663.8M in outstanding debt, propose raising general fund reserve to 20%

Des Moines city staff outlined the city's long-term debt obligations and proposed raising the council-directed general fund unassigned reserve from 15% to 20% during a work session on Monday, April 7.

City Manager Scott Sanders and a staff presenter identified the most immediate items: approximately $663.84 million in outstanding long-term debt, a recent bond issuance in November 2024 (2024 A and B), and planned general obligation (GO) bond issuances tied to the capital improvement plan (CIP). Nick, a city staff member who led the presentation, said the proposed policy change would show a “commitment to a strong, unassigned fund balance.”

The recommendation matters because reserve policy and debt plans affect the city's ability to pay for capital projects, the tax levy used to service debt, and how rating agencies view Des Moines' fiscal position. Staff said the city has been using a combination of tools — local option sales tax earmarks, tax increment financing (TIF) abatements and other revenue sources — to keep annual GO issuance near a targeted $40 million and to limit upward pressure on the debt-service levy.

Staff summarized outstanding debt and payment schedules. The presentation showed roughly $663.84 million of principal outstanding across GO bonds, TIF- or revenue-backed issues, and State Revolving Fund (SRF) loans; some revenue debt (for example, sanitary sewer) has been retired, while stormwater and other revenue bonds remain. Staff said scheduled principal and interest payments extend into the 2040s. The city’s most recent combined issuance (2024 A and B) carried a true interest cost near the mid-3 percent range, while taxable short-term borrowings (for redevelopment) are commonly issued at higher rates and with shorter payoffs (for example, $5 million five‑year issues).

On legal limits, staff noted the state statutory debt limit is 5% of 100% valuation and the council’s policy ceiling is set at 80% of that statutory limit. Using 2023 assessed valuations cited in the bond-disclosure materials, staff said the city is using about 71% of the council policy ceiling and therefore remains below the 80% internal cap but must still ensure capacity to make scheduled payments.

Key policy proposals and budget context - Unassigned general fund balance: staff asked the council to update its policy floor from 15% to 20% of annual expenditures. The presentation said the city expects estimated unassigned fund balance near 27.5% under the proposed FY2026 budget, leaving a cushion above the proposed 20% floor even after limited planned use of reserves to balance FY2026. - Enterprise funds: the city’s working capital policy remains unchanged; staff said the working capital floor is not less than 20% at fiscal year-end. - CIP and GO issuance target: staff reiterated a multi-year goal to keep annual GO bond issuance under $40 million to preserve stability in the debt-service levy and to maintain the current rating profile.

Council members asked for additional context and modeling. Questions included requests for: a clearer schedule showing when outstanding series mature; sensitivity estimates modeling future $40 million annual issuances at sample interest rates; clarification about which projects in the CIP drive the larger 2026 issuance (staff cited Walnut Street and Southeast Connector as examples); and a request to explain when reserves could be used and for what types of emergencies or unanticipated needs. One council member summarized the policy trade-offs as layered: a minimum liquidity floor to cover cash-flow timing around property-tax receipts, a near-term cushion for contingent expenses, and an additional layer for a possible economic downturn.

Risks and dependencies cited by staff included changes in state law affecting property-tax or TIF rules, interest-rate movements that could increase borrowing costs, and commodity or tariff-driven price increases for construction materials. Staff said they are monitoring material-cost trends (steel, fly ash, concrete) and will revisit CIP project prioritization if costs rise materially.

Next steps City staff said the council will consider the fund-balance policy amendment and related budget approvals at the regular council meeting later the same day. Staff offered to provide additional charts: a fiscal-year schedule of principal and interest, true-interest-cost columns for past issuances, and sensitivity modeling that assumes continued $40 million annual GO issuance under several rate scenarios.

Ending The work session presentation closed with staff emphasizing continued annual review of refunding opportunities and capital priorities; formal adoption of the fund-balance change and any borrowing will occur at upcoming public council meetings.