THE VIRGINIAN-PILOT
Copyright (c) 1997, Landmark Communications, Inc.
DATE: Monday, February 17, 1997 TAG: 9702170038
SECTION: LOCAL PAGE: B4 EDITION: FINAL
SOURCE: BY JON GLASS, STAFF WRITER
DATELINE: NORFOLK LENGTH: 72 lines
Just like homeowners who take on too much debt, the city would risk its credit rating by overextending itself financially.
That's why city officials say they try to balance investment in such things as new schools and recreation centers with revenue-generating economic development - such as MacArthur Center downtown or the East Ocean View redevelopment project.
``Norfolk has a solid AA rating, the same rating as Virginia Beach, and is about as strong as any city our size can expect,'' Mayor Paul D. Fraim said.
If the rating dropped, to an A, for example, the interest rate on municipal bonds, which the city sells to finance capital projects, would increase.
That could cost the city literally millions of dollars, both in additional interest payments to investors who purchased the bonds and in potential lost business.
``Right now, Norfolk's bonds are very well accepted in the market,'' said Lloyd Chew, senior managing consultant with Public Financial Management Inc. of Philadelphia. ``If downgraded, investors shy away and it may lead to less interest by developers. There definitely is a ripple effect beyond just the dollars paid out.''
The $54.4 million in revenue bonds the city sold last week to build parking garages to support MacArthur Center mall, for example, were rated with an effective 30-year interest rate of just over 5.5 percent. The relatively low rate is proof that investors have confidence in the mall project, city officials say.
Norfolk currently is safely within its legal debt limit set by Virginia law, city finance officials say. The legal debt limit in Norfolk this fiscal year is $737.3 million, or 10 percent of the city's total assessed value of taxable real property, which is $7.3 billion.
As of Dec. 31, the city's gross debt and obligations stood at $533.7 million - 72.3 percent of the legal limit.
Gross debt includes debt that the city is carrying but that another party is responsible for paying, such as financial agreements made with Virginia Opera to issue bonds to renovate the Harrison Opera House.
Another indicator, however - Norfolk's estimated net debt - has exceeded, by more than $50 million, an internal target the city set for itself, documents show. Net debt includes debt that obligates the full faith and credit of the city's taxpayers.
The target is to keep net debt below 3.5 percent of taxable real property, about $262.7 million this fiscal year. It is based on credit rating agencies' views of the city's ability to pay its debt, according to city documents.
The city's net debt, estimated at $313.3 million, now stands at about 4.2 percent of taxable real property, documents show.
If every Norfolk resident forked over $1,352, the city could pay off its net bonded debt, records show. The city's internal target is to keep net debt below 7.5 percent of per capita income, or $1,435 this fiscal year.
Norfolk officials say they have maintained a conservative financial course. But some residents have grown more skeptical of downtown investment since the city took over Nauticus last month because the attraction couldn't pay its bills.
The $52 million downtown attraction was financed with general obligation bonds, which carry the full faith and credit of the city's taxpayers.
But residents shouldn't judge the city's financial performance based on Nauticus, Fraim said.
``If you throw the economic developments downtown into a pot and judged them as a whole, it's inescapable we've been very successful,'' Fraim said. Downtown now generates about $7 million more in taxes and revenue than the city pays to support the growth, records show.
``We have a strong portfolio,'' he added. ``One of the assets, Nauticus, is not performing as well as hoped, and we're dealing with that.''
KEYWORDS: DEBT RATIO