Voters asked to OK charter change

Measure would use interest from bonds to fund priority capital improvement projects

Posted: Thursday, September 14, 2006

Voters will decide Oct. 3 if the city should be given greater flexibility using interest earned from bonds issued for construction projects.

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The Juneau Assembly unanimously approved on July 31 a proposed amendment to the city's charter, which requires all interest and profits from general obligation bonds to be used solely for the projects for which they were issued. The amendment would allow that revenue to be used for other capital improvement projects. A majority of voters must approve the amendment in the city's fall election before the charter is changed.

"What you have now is a restriction that states bond interest earnings must be spent on the project unless it is declared complete," Engineering Director Roger Healy said. "Basically, (Proposition 2) would remove that restriction on the use of those funds."

When bonds are issued for a capital improvement projects, the city invests the money, often several million dollars, and collects interest while construction is underway, Finance Director Craig Duncan said. When projects are nearing completion, there is often money generated by interest that is left over.

Under the present charter, the money cannot be spent on any other project and will end up sitting in banks unused until the building needs renovation work or repairs, Duncan said. The amendment would allow the city to shift that money to projects of high priority, such as road construction or work on other municipal buildings, he said.

"It doesn't change any of the restrictions of how we calculate interest and place it into capital projects," he said. "It just provides us flexibility to move into another capital project sooner."

State law restricts general obligation bonds to be issued only for capital improvement projects, such as roads and new schools, fire stations or libraries.

District 1 Assembly member Merrill Sanford said some cities around the state have taken similar action to provide more flexibility for generating funds for capital improvement projects.

"It doesn't spend any extra money," he said. "It just gives the administrator more ways to spend the money in the capital improvement projects."

While some projects important to the city might not begin construction because of a lack of funds, the city often has money from interest on bonds that is not being used, Sanford said.

"Right now what happens is we have a lot of dollars that are just sitting there," he said.

For instance, when the city issued bonds for the construction of new fire stations in the 1980s and had interest money left over, it sat in an account for years until repair work was needed. While the funds lay dormant, there are other needs of the community that could be addressed, he said.

"Any business would not do that at all," Sanford said. "They'd put it to the best use they could."

The amendment would not give the city administration the ultimate say on how the money is spent because it would still require a resolution before funds could be switched to another project, District 2 Assembly member Jonathan Anderson said.

"This will change how we can use money," he said. "It would still have to be appropriated. It will still have to go through the Assembly."

The charter requires the city to maintain a six-year Capital Improvement Plan, which is a wish list of projects, Healy said.

If voters pass Proposition 2, the city would be able to switch gears faster and get more projects completed from its wish list, he said.

"It's basically an ability to better manage our money so projects can get delivered more expediently," Healy said.

If the proposition passes, the interest funds also could be used for emergency repairs of existing capital projects, Duncan said. However, the funds are restricted to capital improvement projects under state law and cannot be used for city operations.

"It tends to be more of a housekeeping thing rather than some kind of material change in what the city does," he said.

Sanford described Proposition 2 as "one of those no-issue things" that should be passed to help the city run more efficiently.

"It's real straight forward," he said. "It's just changing that one little paragraph in the charter."

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