Mesa council reviews CIP, explains difference between GO bonds and utility revenue bonds

Mesa City Council members discussed the city's five-year capital improvement program and the difference between general obligation bonds and utility revenue bonds at a June 2 study session, with staff saying rate forecasts adopted earlier this year will be revisited in the fall.

The distinction matters for how projects are paid for: "the GO bonds, the general obligation bonds, those are paid for through the secondary property tax," a finance staff member said. "The revenue obligation bonds, the utility revenue obligation bonds, those are paid through the rates of the utility themselves." The comments came during a review of the regular and special meeting agendas and the proposed CIP items attached to a special council meeting.

Why it matters: GO bonds and utility revenue bonds are separate debt obligations that carry different revenue sources and voter requirements. Mike Kennington, the chief financial officer, told the council that Mesa is well below the statutory constitutional limit on GO bond capacity: "Mesa is sitting at about 13% of our statutory constitutional limit of how much GO bonds we can issue." Kennington said the state issues an annual report that monitors that limit.

Most important facts: Staff said the utility rate forecast that influenced proposed rate adjustments was prepared last November and that rates adopted in December went into effect in February. "Those rates will then be either effective either February for the fiscal year and then the next fiscal year," the finance staff member said, describing the rolling schedule. Staff added they will return to the council to begin the rate adjustment review process in about a month and again in the September'November period to discuss future rate adjustments.

Discussion highlights and limits on city authority: Councilmembers asked whether adopting the budget or the CIP tonight would bind future decisions about utility rates. "You're not locking yourself in to any utility rates over the 5-year forecast," the city manager-designate, Mr. Butler, said, clarifying that adoption of budget documents does not preclude later changes to rate decisions.

Context and background: The council and staff noted that GO bonds typically require voter approval. A councilmember observed that voters approve about "65 to 70% of the time" when GO bond measures go before the electorate. Kennington and staff also described how the Office of Management and Budget forecasts utility revenues, operations and maintenance costs, and capital projects in order to model needed rate adjustments.

Next steps: Staff will return to council with a formal rate review and any proposed adjustments as part of the normal fall rate-setting process. No formal motion or vote on the CIP, bond issuance, or rate changes was taken during the study session; the CIP projects and any bond issuances will come back to council individually for approval.