City should proceed with caution when taking on debt
Though there was some dissent among officials, the Marquette City Commission recently approved a pretty sizable contract for infrastructure and energy upgrades which contractors say will save the city millions of dollars over the next two decades.
Whether it’s gasoline for the family car or electricity to keep the lights on, the cost of energy seems to constantly be on the rise.
It’s smart to look at ways to reduce energy waste and allow yourself to save a few bucks down the road; and from a city’s perspective, it’s always wise to be prudent with taxpayer money, so finding ways to make energy upgrades without raising taxes or financially relying on residents’ bank accounts is something we at The Mining Journal can appreciate.
That seemed to be the reasoning behind the city of Marquette’s recent move with Johnson Controls Inc., a company headquartered in Milwaukee, Wisconsin, that produces heating, ventilation and air conditioning equipment for buildings, among other services.
Early this month the commission by two 5-2 votes approved an energy performance contract with Johnson Controls, along with the financing needed for the $27.9 million project, which will come through a tax-exempt lease purchase, or TELP, agreement.
Under those terms, the city will lease the various equipment from Johnson Controls and take ownership at the end of the contract. Moreover, the $28 million, in the form of a loan through Bank of America, won’t register as debt, due to laws passed last year in Michigan that allow municipalities to use the TELP agreements instead of bonding to finance energy conservation improvements.
The big-dollar savings, to the tune of $42.4 million over the life of the 20-year contract, according to Johnson Controls, surely must have been an attractive incentive for the folks down at city hall.
But we have to question whether the $28 million price tag is entirely justified by the savings.
Commissioners Sarah Reynolds and Sara Cambensy were the two nay votes in the pact with Johnson Controls, and something that Cambensy seemed to bring up was why the Marquette Board of Light and Power wasn’t involved, considering part of Johnson’s proposal is to upgrade 2,500 street lights to LEDs.
“The (BLP) is a city entity, why are we not working with them?” Cambensy was quoted as saying in a recent Journal article. “We both work for the taxpayers, and I think what we need to do is work together to come up with a way to save the taxpayers money.”
It seems unclear whether that option was fully vetted, or if the BLP was consulted.
Another concern expressed during recent city meetings centered around borrowing money.
Earlier this year, the city nearly tripled its typical limit for issuing debt. In June, the commission unanimously authorized issuing a bond of up to $11 million for capital improvements.
Under an informal policy stretching back a few years, the city normally doesn’t take on more debt than it retires in a given year, which, for capital improvements, has been around $4 million.
Whether this new TELP agreement registers as debt with the state or not, it is borrowed money that needs to be repaid, as does the capital improvements bond. There’s also the roughly $30 million worth of work in transportation improvements and the new city service center related to UP Health System-Marquette’s new hospital. While those expenses are eligible for reimbursement under the hospital’s brownfield plan, the city won’t be made whole immediately.
Additionally, there’s the concern that the city’s property tax income will be hit, as the largest taxpayer in Marquette, We Energies and its Presque Isle Power Plant, is expected to be lost in the coming years, which will certainly impact the city’s coffers.
Hopefully, the city will still have enough money to pay off its debts, and that the residents don’t have to pull out their pocketbooks.