A.G. Gancarski
Changes to the way the Jacksonville City Council handles its Banking Fund could be on the horizon. For those paying attention, this has been a long time coming.
Back in June, before the Lenny Curry administration came in, there was disquiet in the Finance Committee about the Banking Fund, which had become a loosely-accounted slush fund for projects that obscured best accounting practices.
The Banking Fund, brought into being in 2005, replaced traditional bond financing on certain projects. The idea was that it would benefit the city’s internal re-lending practices; however, what instead happened was that $540 million was borrowed via the fund in the next decade, thus de-emphasizing fiscal discipline.
An ordinance to deauthorize $55 million in borrowing was floated in the Summer of 2015, but tabled as the Curry administration’s CAO Sam Mousa and CFO Mike Weinstein settled in.
Now, however, there are moves afoot to revisit a restructuring of the Banking Fund, as a Monday meeting between Weinstein, Councilman Danny Becton, and Council VP Lori Boyer indicated.
Becton spotlighted a “concern with debt management policies,” specifically related to a lack of formal policy relative to paying off the principle on banking fund projects.
Just paying off the interest, Becton said is “kicking the can down the road” and “making the city’s finances look better than they really are,” creating the “temptation… to postpone payments on the principle.”
To rectify this, changes in both the debt affordability and debt management policies will likely be required, Boyer said.
The ordinance advanced last June, Boyer said, “took the slashing approach,” a reaction of the consequence-free ease of borrowing that the Banking Fund created.
The current structure, said Boyer, especially on stalled projects, is “deceptive as to how much debt service there is,” especially as it relates to authorized borrowing that has yet to be allocated formally for one reason or another.
One of the consequences: it creates the appearance of more real liquidity than the city has, which can complicate forecasting, both in terms of the fiscal health of the city and the city’s capacity to engage in new projects.
Solutions discussed included adding a provision to the municipal code to amortize the principle after one year after a short term loan, thus allowing initial flexibility, before demanding strict accounting via a fixed rate.
This would eliminate potential surprises in future budgets regarding the impact of debt.
There are potential caveats, Weinstein said, when making the decision to “go long.”
“You don’t want to go out earlier than you need to,” Weinstein said, since a “lot depends on the size of the project” and the pacing of other projects.
It was clear though that Weinstein recognized that Council has a need for a clear accounting of previous authorizations in order to shape future budgets. Meanwhile, his team will need what Treasurer Joey Greive called the “flexibility to manage along the interest rate curve.”
Happily for budget hawks, most major projects have been amortized; a notable exception would be the scoreboards for EverBank Field, secured in 2013. This amortization will be wrapped into future projects, spread out over the useful life of the scoreboards.
It looks very likely that tangible moves toward Banking Fund reform will be instituted as part of the Capital Improvement Project subcommittee, which resumes its regular meetings next month.
As VP Boyer prepares to become Council President in July, ahead of the next budget, it is clear that she and other core members of Council would relish resolution of this long-term issue. With a referendum on the pension sales tax looking likely for either August or November, the long-standing nuisance of the Banking Fund would be one all parties would prefer to have resolved.
“You spend a lot of time looking at the mayor’s proposed budget and the CIP book,” Boyer said about the budget process, “but not at the ordinance.”
This inhibits clean accounting.
“I don’t want to just rely on [a bond] rating agency as the door keeper,” Boyer said.
The Banking Fund, Boyer added, is “almost a hidden vote” in the budget process, facilitating an “inadequate review of the impact of borrowing on the budget.”
“There has to be a dedicated focus,” Boyer added, on the “decision to borrow” and “if we can afford to do it.”
Considering what the city can actually afford to borrow in the CIP process, Boyer said, could only help.
A potential solution advanced: a merging of the Banking Fund and the internal loan pool.
Weinstein noted that it’s “all a priority system.”
“You have total control,” the city’s CFO said to the Council members.
“Just know that it impacts every other decision out there.”
