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Wrangell voters will be asked to weigh in on two bond proposals during the local election, scheduled for October 4.
Proposition No. 1 would issue a bond for $3.5 million for a major renovation of Wrangell’s three public school buildings. Wrangell officials say the school bond would not require an increase in local property taxes.
Proposition No. 2 would issue an $8.5 million bond to begin major renovations on the community’s Public Safety Building, which houses Wrangell Police, the volunteer fire department, court offices, DMV office, and jail. Officials say the bond debt service would require an estimated 8.5% increase in local property taxes.
KSTK’s Sage Smiley interviewed Mason Villarma, finance director for the City and Borough of Wrangell, and Tammy Stromberg, business office manager for Wrangell Public Schools about the bond proposals, what they’d accomplish, and how taking on debt might impact the community.
KSTK (Sage Smiley): Thank you both very much for meeting with me over Zoom today, I really appreciate that. If you could start out by maybe one at a time explaining your position and your relation to these two bond measures because it’s not just one big bond, it’s two separate bonds, and you both have some oversight over one or both of them. So maybe starting with Mason…
MASON VILLARMA: Yeah, absolutely. So relationship, obviously, the city controls any general obligation bond issuance. So that’s kind of in our court, and certainly mine as finance director. The debt issuances are something that are carried on the city’s balance sheet, so we’d move those forward. And then anything school-related, they’d certainly have a say in how those funds are used. And they are our facilities, the buildings themselves, so although we’re doing a $3.5 million school bond proposal, facilities are our responsibility. And Tammy [Stromberg] is kind of co-chairing this bond commission with me just because her insight is invaluable in doing that. There’s also a relationship with the DEED CIP major maintenance program that she’s very, very knowledgeable about. So we’re trying to leverage some additional cash through that and her experience and working with that. So yeah, go ahead, Tammy.
TAMMY STROMBERG: Okay, so as Mason explained, I’m the finance person for the school district. As such, we do have input on the budget, the budget for these programs, and what actually gets done on them. Because the state law has certain requirements as to what we can approve on borough projects and what we can’t. But mainly my job here is to thank the borough for all their hard work, because I know Mason has put a lot of effort into this, as well as the assembly, and also to provide some information about what this funding will do for the school district. So we have several deficiencies in our buildings that need to be corrected, and if we don’t take care of them, they will just cost more later.
VILLARMA: And kind of collectively, our job is just to brainstorm and put our heads together: What’s the best funding package we can come up with in this environment to address the deferred maintenance, and just the fact that these buildings have reached their useful life? And what can we do? You know, a debt issuance is always considered as a last resort. If there was access to grant funding and bond debt reimbursement, certainly, those would be options that we would be pursuing and something that we can still pursue moving forward. There’s no prepayment clauses that inhibit us from paying down our debt quicker, because we received a grant down the road three years from now, or we received the bond debt reimbursement retroactively. So certainly still considering those, but bond issuance is really a last resort, and I just wanna make that clear.
KSTK: So you’ve both alluded to this, but can we talk about what these bonds are and why they’re needed? Maybe starting with the school bond, and then going to the public safety bond?
VILLARMA: Tammy, want to start with the school?
STROMBERG: Okay. So what we’re hoping to do is to leverage some state money with the local funding from the bond. So at $3.5 million, that would give us a 35% local share, for a project totaling $10 million. So if we’re successful in the grant application process and the funding process through the legislature, that would bring in $6.5 million to the community to help renovate the school. Now, submitting an application doesn’t guarantee the funding, there are a lot of hoops to jump through with this program. But it’s our best shot, and the only program that’s actually available right now, for funding from the state for this sort of project. In recent history, the district has been working with the borough to fund school projects, more school projects, on a piecemeal basis. And if we grouped them all into one project, we save money on mob(ilisation) and demob(ilisation). And with those monies, we can make improvements to the buildings that would take care of things that are past their useful life like heating systems, roofing systems, envelope systems for siding, and windows. Those are all things that if we fix them, we prolong the life of the structure, and also improve our operating efficiency.
VILLARMA: Absolutely. And just to comment, the way I think about it is – I just bought a house, right? It’s an older house built in 1980. Same situation as these buildings like we have. We have to come from the mentality of: we’re taking care of our own house here. And the reality of it is, even if we’ve maintained a roof for 40 years, it’s still going to have to get overhauled at some point, right? There’s no denying that there is deferred maintenance, maintenance wasn’t addressed properly over the lives of these buildings, but they’re also just old buildings, and it is necessary to revitalize the structural components to preserve the integrity of these buildings. The fact of matter – and Tammy alluded to this – is if we don’t do it now, it’s just going to cost people more later. One of the biggest questions I get is, ‘Well, the city’s got full coffers, how come they can’t do it all themselves? Why are they placing the burden on the taxpayers?’ Well, the reality is: yeah, we do have a decent-sized balance sheet. But when you put all the projects on our capital improvements list together, we’re in excess of $200-some-odd million in projects, and $35 million doesn’t go very far when you spend it all on one project. So this is an opportunity to leverage us a little bit, leverage some state money through the Department of Education major maintenance program, and possibly some grant funding down the road for the Public Safety Building, if we can. But the point is, this is an urgent request and something that we want to get the ball rolling on, so these roofs don’t start leaking and more damage occurs and then the project becomes a full-scale new build.
STROMBERG: I’d also say interest rates right now are as good as they’re going to be for a while. So this is a good opportunity to take advantage of those and also keep the costs as low as we can.
KSTK: Just to be clear, there are two bonds. There’s one for $3.5 million, which would be part in theory, or hopefully, part of a match with a state program that would fund a larger maintenance project, a number of you know, smaller maintenance projects grouped together at the schools. Then the Public Safety Building one that’s for $8.5 million, and that would… Can we talk a bit about the details of what would be done for the Public Safety Building?
VILLARMA: You bet. So it’s going to mirror the same thing as a school. It’s going to address the roof, it’s going to address the siding, any any framing that’s rotten, or any components underneath the siding that’s rotten, rehabbing that, the backside – that shoring wall that was developed to protect the building and preserve it for a few more years, that would be addressed through this process – the mechanical components, so the HVAC systems, the boilers, things that affect that life, health and safety of people actually in the building. So those would be the main components that are addressed in this bond issuance, and that $8.5 million, if there’s an excess, then we start doing more things like the windows, the doors. It’s not a complete overhaul of the building, but it’s the necessary components that are going to preserve the life of the building, and then we can go to Phase Two after that. We’d like to meet our bond amortization, which basically means the maturity of the bond towards the life expectancy of these improvements. We think that this bond is going to be a 20-year preservation of that building. So kind of the same thing: the bond has to mature in 20 years. So that’s the goal.
KSTK: What is known and what isn’t known with these two bonds, right now? I know there’s been a fair amount of discussion at the borough assembly level about the fact that there is a complete assessment of properties going on in town. What is known about the potential effect on taxpayers, what is known about the potential for the borough to receive that state portion of the funding for the school bond – what is established, what is known and what isn’t yet known about these bonds and their potential effects?
VILLARMA: Yeah, that’s a great question. I mean, I can kick it over to Tammy first, but I’ll start by saying that we don’t know that we can get the DEED CIP major maintenance grant successfully. I mean, we’re gonna have a couple of tries at it.
STROMBERG: But if that doesn’t occur, then our next situation or next or next try and getting any funding would be through bonded debt reimbursement. So basically, we would have to spend the money and see if we could get reimbursed for some portion of it through the bond debt reimbursement program. And that would require the moratorium to be lifted in 2025, with some retroactive provisions for prior years. That’s a possibility, but there’s no guarantee of that happening, either. We do know that there are some large municipalities in the state who are very interested in using that program. So the moratorium will likely be lifted at some point. But we we don’t have a crystal ball to tell us exactly when,
VILLARMA: Yeah, and then thinking through mechanically there are a lot of variables and people should pay attention to that. We know for a fact that all properties in the borough are going to be reassessed. So instead of a third of properties – our historical norm is a third of the town being reassessed each year – the whole town will be assessed, and as a result, there’ll be some big shifts in the mill rate. Most people think that the mill rate equals property tax bill. Well mill rate times the assessed value of the house actually equals the property tax bill. We can’t tell you what the mill rate will be after assessments, but what I can tell you is it will be lower compared to what it is now. If assessments go up twice, twice as much value, then your mill rate roughly is going to drop in half. So that’s kind of mechanically how it works. Of course, I can’t say that, ‘Oh, the mill rate is going to be, you know, 7.3, after assessments if we’re in the in-service network,’ I don’t know. The assessors are a standalone job, they act as an independent firm, so they have their own processes. And we certainly can inform the citizens and members of this community on how assessments are developed. I think that’d be a great idea to bring our assessment team and share some of those details – that’s something for a later date. Another thing is, we can’t confirm for sure the interest rate on this debt. We know we have a really good projection: I work with the bond bank almost weekly [to get] updates regarding these bonds and the financial applications for these bonds. So we know that roughly it’s going to be four to 4.5% interest from municipal debt, which is really historically great. But I can’t say for certain what the interest rate will be. And as Tammy said, we don’t know if the state will honor a grant, if we actually received the grant funding for the DEED CIP major maintenance program. So there’s a lot of variables, but I think no matter what, we’re poised to address deferred maintenance, and take care of the structural components of these buildings in some capacity. Say the school bond passes, we get the $3.5 million – we know for a fact we’re going to be able to do $3.5 million worth of work. We might not be able to do the $10 million, but at least we can cover up on the roof, and the most critical, deteriorated siding components, those kinds of things. And same goes for the Public Safety Building. We also know that property taxes from right now have to increase 8.5% to be able to cover the debt service. That’s taking in several different subsidization mechanisms, different revenue streams in our general fund to address and reduce the impact [to] the tax base. And so 8.5% is the minimal increase we would need to be able to address the Public Safety Building debt service. We also know that the school [bond] does not require any tax increase to voters at all, that can be something that’s absorbed through our Secure Rural Schools fund. So in terms of impact to taxpayers for the school bond, there is none. We do know that. So those are the knowns and the unknowns. Of course, I wish I could tell you that we know absolutely everything, but these things are complex and trying to break them down is important.
KSTK: Totally. How does an 8.5% [tax increase] break down in terms of a dollar amount? What dollar amount do taxes need to increase to cover that projected bond debt?
VILLARMA: Absolutely, let me pull up my spreadsheet here. So current property tax revenue for the borough for FY23 is $1.780 million, and then it needs to increase $151,000, up to $1.931 million to be able to sustain this level of debt service. Overall, that’s 24% of the debt service for the Public Safety Building [bond], the rest of that remaining residual debt service would be covered through a combination of excess revenue received from the jail contract, Permanent Fund investment income, those sorts of revenue streams.
KSTK: And I know that was a part of the discussion, and has been a part of the discussion with the borough assembly trying to find that balance of, you have to pay off the debt somehow, but to lessen that burden on local taxpayers as well.
VILLARMA: And I know that the assembly is really committed to reduce the burden down as much as possible. So we are going to look at different revenue streams – and this scenario might change over the next nine months, the whole scheme of things. Overall, we’re above budget on revenues, entirely across the board in our general fund revenues. So maybe there’s some other variables that come in, and we can subsidize it that way. We just don’t know all the way. But that’ll be confirmed in the budget cycle and after assessments have been re-evaluated.
KSTK: So we’ve sort of alluded to this, but why are the bonds necessary in the estimation of the borough administration, the assembly and the school district?
STROMBERG: I would say, for one thing, financing is a useful tool in many projects because it’s a big burden to carry all that money at once to get a project done cost-efficiently. If you have enough money to do a roof, you can bring in a crew to do a roof. But if you have enough money to do three roofs, you can bring in a crew to do three roofs at once, save money on your materials, save money on your crew and save money on the travel. So that’s the kind of maximizing of savings we’re trying to strive for, and that’s why we need the financing to get that much money, in order to do a cost-effective job on our building.
VILLARMA: And Tammy, it also helps our scoring on our DEED CIP major maintenance application, doesn’t it?
STROMBERG: Yes, DEED likes to see projects come in and take care of as many deficiencies as possible. If they’re going to hand over $6.5 million of state money, DEED is responsible for making sure that money is spent wisely. So they like to see that you’re bringing in your crew at once. If we got the whole $10 million – $3.5 from the city and the other $6.5 from the state – then they would say, ‘Okay, so you can do this in two construction seasons, that saves on mob and de-mob, you’re coming out to fix more than one school at a time.’ That makes financial sense to them. And we can also save money on the cost of materials because we’re buying in volume. And we’ll get a better bid because it’s a bigger project. So those are all the factors the DEED looks at, and part of the game with the CIP major maintenance fund is scoring well. So you need to do everything you can to get a high score when you go out to this process, because you’re going against everyone else in the state. It behooves you to go ahead and go for the best score you can get. That means condition surveys that provide all the information that DEED likes to see, that means going after all the deficiencies you can at once to show them that you’re making wise use of state dollars, and a well-prepared application so you can put together all the required information. And then if your application isn’t prepared, you won’t score high anyway, because you just didn’t check the right boxes. So it’s a process, but it’s doable. A lot of communities utilize it. And right now it’s the only shot we’ve got, so we might as well take it.
VILLARMA: Yeah, that’s a great statement, and it is really the only shot we have. And bonding is necessary for a variety of reasons, to go back to the house analogy, right? I might have the exact amount of cash I need to buy a house, maybe I can just buy it all with cash. But what happens when my pipes burst in the wintertime, what happens when the roof starts leaking? Well, you don’t have any cash to cover those kinds of projects. So kind of the same analogy applies to the city, right? If we expend all our savings on one particular project, the school, the Public Safety Building, we don’t have enough to address roads, the water treatment plant, the dam that we need repaired, the Inner Harbor that needs to be replaced. It kind of doesn’t end. Debt is a scary thing for a lot of people, but I think it’s because mechanically, they don’t always understand how powerful the tool debt is. By leveraging ourselves we open up opportunities to invest in other projects moving forward responsibly and sustainably. That’s something that is normal, bonding is normal in a lot of communities, Petersburg is the most like us, and they bond typically every three to five years. They carry about the same amount of debt we’re asking for currently on their balance sheets. So, you know, this is a normal thing. You see it with down south communities annually. So I don’t want to think that this is some abnormal ask for municipalities. We’re abnormal for not doing it recurringly.
STROMBERG: I very much agree with Mason with that statement. But it leaves us in a very good position to do what we would like to do.
KSTK: It sounds like when it boils down to it, it would 1) not be financially sustainable or wise to just use city money that exists right now for these projects. And 2) that that would hurt the borough down the road. Is that what’s being said here?
VILLARMA: Yep.
STROMBERG: It would cost more for us to do it piecemeal.
VILLARMA: Yep. As Tammy says, you’re not taking advantage of the economies of scale. If you start piecemealing projects, you’re paying for double the travel cost, you’re paying for double the materials and shipping and all those factor in the overall project cost. So yeah, she’s exactly right.
STROMBERG: It’s kind of like going to Costco.
VILLARMA: It is like going to Costco. It’s a great analogy. Another thing I’d say is: yeah, if you look at the city’s cash balance sheet this last fiscal year, we closed with about $35.8 million overall, but that’s really divided up into a bunch of different funds. So our general fund, we might have $8 million in the general fund. But that doesn’t even cover those costs of the Public Safety Building we’re asking for; the school is also, you know, a governmental activity. It’s not an enterprise fund that has its own revenue streams and stuff, so technically, it would have to be paid out of the general fund. So even though we have $35 million, they’re dedicated to different purposes. That’s the whole point of fund accounting is we can’t necessarily just, oh, transfer all our money to the general fund and execute these projects. No, they’re actually used for sustaining other operations. Light & Power has its own reserve, the Water and Sewer funds have their own, Ports & Harbors… So it’d be impossible to do it anyway and follow governmental principles of accounting.
KSTK: Basically, the borough could not do these projects without the – or at least not do these projects at this scale all at once without these bonds.
VILLARMA: Correct. And not doing these projects at the scale would almost be pointless, because you wouldn’t be preserving the building entirely. And then you kind of have holes in your project, and maybe it only lasts for three years. And we’re right back to where we were.
KSTK: So what is the alternative? If there’s an alternative? I mean, that’s pretty stark terms you just put out there. But if these bonds weren’t passed – if one were not to pass, if both were not to pass – what is the alternative? How does the borough go about doing these projects or approaching these projects?
STROMBERG: We have to just keep on doing what we’ve been doing is trying to find pieces of funding, smaller pieces of funding, as we could to put out each fire as it came up. Say if you had your house and you had a hole in your roof, but you also needed a new furnace, but the rain started coming in on your dinner table, you might be inclined to go ahead and take care of that roof before you bought a new furnace. So that’s the kind of thing that we do when we can’t get large pieces of funding upfront.
VILLARMA: Yeah, that’s exactly right. Tammy hit the nail on the head. I mean, this is a last resort, like we said. Anything less is really not addressing the necessity, it’s not addressing what we actually need to preserve these buildings. And it’s kind of a Band-Aid until we can get the full package.
KSTK: Is there anything we haven’t hit on about these bonds, either separately or together that you think that voters should know when they go to the Nolan Center (or go to City Hall to vote early) on or before October 4?
VILLARMA: You know, I think the biggest thing is these are buildings that offer services that affect pretty much everybody in the community in some way. You know, for the Public Safety Building: [it] houses our police, our firemen, the court system, all of which are essential functions of the community. And if we can’t provide or perform those functions, because we don’t have the proper facilities to do it, then what are we? The same with the high school; I mean, enrollment historically is really low. I’ve had the privilege of coaching and being an athletic director at the high school, [and] we have 60-some-odd kids in the high school when back in the day there used to be four times that many. If we can’t provide families a good facility to educate their kids and get programming within that building, what can we offer the new family that moves into Wrangell or does somebody even want to move to Wrangell if those facilities aren’t in place? We want this place to be an attractive place for people to move into, and we want to see an economic boom over the next, 10, 20, 30 years. If citizens don’t buy in and make this investment, then it’s probably just going to be more of the same. Let’s patch it, Band-Aid it, hope for the best with grant funding, maybe we’ll get it, maybe we won’t. But it leaves the future pretty, pretty gray and uncertain. And I don’t think that’s what Wrangell has in mind for the future.
STROMBERG: I think Mason said that well.
KSTK: My one other question is to ask was where people should go for more information, or who they should be reaching out to if they have questions about the bonding process, what these bonds mean, what they don’t mean, because as much as we’ve tried to hit everything in this Q&A session, people may still have questions, so where should they go? Who should they go to? Who should they contact if they’re looking to get more information before they go and vote on these bond proposals?
VILLARMA: That’s a great question, appreciate that. So we will actually be hosting a Town Hall at the Nolan Center on September 28. So that’s Wednesday at 6:30 p.m. Me and Tammy are the co-chairs of the bond committee, so we will be there as well as the rest of the bond committee. Our capital facilities director Amber Al-Haddad will be there, as well as Josh Blatchley, the school’s maintenance director, Jeff Good our borough manager, [superintendent] Bill Burr will be out of town, and then assembly members and school board members have been invited to attend. So this is really a forum for us to inform. This isn’t a promotional exercise, we just have to remain neutral in this process. We’ll probably have a quick and dirty 20-minute rundown of the functions of these bonds and how they work and why they’re necessary and then we can open it up to the community for questions, and give them the answers that they want. Other than that, hopefully there’s enough information out there, and we just encourage people to ask questions; I’m happy to answer questions down here at City Hall if people are passing through, always happy to help, Tammy is too.
KSTK: Perfect. Thanks both for your time very much. I appreciate it.
VILLARMA: Thank you, Sage.
STROMBERG: Thank you.
Wrangell officials have scheduled a town meeting to discuss the two bond measures as well as a third ballot proposition that would give the borough permission to sell or lease the 6-Mile Old Mill Site. That meeting will take place starting at 6:30 p.m. on Wednesday (September 28) at the Nolan Center.
Get in touch with KSTK at news@kstk.org or (907) 874-2345.
