As of June 30, 2019, the City’s outstanding principal amount of debt was $49,318,408. Of this total, $15,665,000 or 32% is from the Police and Fire Building Bonds. Other debt outstanding includes funding for the library building, improvements to streets, sewer, and storm water, removal of dangerous and dilapidated buildings in the community, major pieces of equipment, etc.
There are generally two kinds of debt financing the City uses to fund projects. The first is known as general obligation (G.O.) debt, which is borrowed money backed by the "full faith and credit" of the City's taxing authority. In other words, the taxpayers that own property are obligated to repay the debt, which is accomplished through the property tax levy and is included as part of your property tax bill. General obligation bonds usually have the lowest rate of interest and are typically considered the municipal debt with the least risk. There are two types of general obligation bonds: 1. “Essential” corporate purpose bonds are issued for basic or necessary city functions, such as for new or improved streets, bridges, sidewalks, parking lots, firetrucks, removal of dangerous and dilapidated buildings, etc. “Essential” corporate purpose bonds do not require voter approval, but do require a public hearing. 2. “General” corporate purpose bonds have been used by the city for public buildings (such as the Police & Fire Building and the Library). General corporate purpose bonds usually require voter approval and 60% of the voters casting ballots must approve. The Iowa Constitution restricts the overall general obligation debt limit to no more than 5% of the total assessed valuation of the city. Furthermore, the City Council through policy has put an additional limit that no more than 60% of the statutory limit shall be issued in general obligations.
A second kind of debt is known as revenue debt financing, which is borrowed money paid back through the payment of city service fees (i.e. storm water or sewer utility payments). This means part of the fees collected are set aside for major capital improvement repairs, such as to replace storm water or sewer pipes around town.
The Finance Department works with the bond attorney and financial consultant to have the Council approve any new debt and comply with all the rules and regulations. A bond rating of Aa2 has been issued by Moody’s Investors Service for our past bonds, which means the City has a high capacity to repay their debt. Having a healthy general fund balance, clean audits, and growing property tax valuations contributes to this high rating.
Diana Steiner, Finance Director, CIty of Marshalltown