By Amanda Estes
Staff Writer
With a $56 million bond referendum less than a month away, the South Portland High School renovation and construction project continues to be a hot topic in the city. Acting City Manager Jim Gailey, however, wants to turn attention to a dozen public improvement projects lingering on the city’s agenda, that will require funding and taxpayers’ support.
The Oct. 10 city council workshop was the first of several “brainstorming sessions” to prioritize the projects and “allow us to move forward and strategically plan for these improvements to become reality,” Gailey said in a position paper to the council. The discussion was held in conjunction with a finance session regarding municipal and school debt and tax increment financing districts (TIF) – the first of two such workshops leading into the 2009 budget preparations.  
Armed with reports from department heads, the council struggled to assign the projects into a hierarchal structure without information about the proposed funding mechanisms.
“Each one of them has the tentacles out there that are involved in some funding already,” said Councilor Jim Soule. He advocated it might be more effective to assign councilors to different projects, but didn’t receive support for the idea.
Projects on the city’s agenda include the creation of an east-west connector road between Main Street and Highland Avenue, construction of a consolidated bus complex, creation of a southbound onramp to I-295 at Exit 4, renovations to city hall, expansion of the Wainwright Recreation Complex, renovations and expansions at the city’s main library, construction of a new parks and public works complex, completion of the combined sewer overflows (CSO) separation project, renovation of the armory building, upgrades to Mill Creek Park and Spring Point Shoreway and an expansion and renovations to the fire department’s Willard Hose House on Pillsbury Street.
“There are 12 items, but are there things that have been forgotten?” asked Councilor Linda Boudreau. She proposed adding improvements to the Highland Avenue and Cottage Road intersection to the list.
Boudreau said she was concerned the more vocal advocates will eat up the city’s money and push their project ahead of others.
“The importance of this to me is to be sure we spend taxpayers’ money in the wisest possible manner we can,” Boudreau said.
Mayor Claude Morgan suggested removing the Exit 4 project from the list, as the projected $6 million project seems to be eligible for federal funds. Councilor Jim Hughes and Boudreau, however, were against relying too heavily on federal money.
“I think it’s great if we can get it through the Feds,” Hughes said. “Chances are we’ll have to go through the PACTS [Portland Area Comprehensive Transportation Committee] process and contribute some funds.”
The council’s discussion moved to finances as Finance Director Rob Coombs reported on debt and the city’s TIF districts.
Coombs said two of the TIFs – National Semiconductor and Fairchild Semiconductor – have essentially stopped growing. A law, enacted in the spring, which makes business equipment and some real estate tax exempt, could adversely affect valuation, Coombs said.
The majority of municipalities will be reimbursed for the lost property taxes, 100 percent in the first year with a 10 percent reduction each subsequent year, until it reaches 50 percent.
There is some uncertainty about the law’s effects when it comes to the depreciation of “high-tech” equipment owned by National Semiconductor and Fairchild Semiconductor, Coombs said.
“We never know how much a business is going to be reinvesting in its personal property,” Coombs said. “We’re hoping they will reinvest enough so valuation continues to go up.”
Coombs said assuming the city is reimbursed 100 percent, there shouldn’t be a huge impact in the first year. He added the personal property declaration in June will reveal how the law will affect the city in terms of the property tax reduction law, LD 1.
Looking ahead to next year’s municipal budget, Coombs said assuming tax evaluation doesn’t change, the city’s needs from taxes could increase by as much as 5.28 percent before going over the LD 1 limit. That translates to a $45.40 increase on a median tax bill for a home assessed at $212,000. At 5.28 percent, the municipal and school budgets combined could increase the median tax bill by $136.88.
With the $56 million bond for the high school, which will cost $29.4 million in interest payments, going before the voters next month, Coombs said the city’s ability to manage its debt will be a significant factor in maintaining its credit rating, which is based on debt as a percent of equalized value and per capita debt. Moody’s Investors Service has given the city an Aa1 rating, while Standard & Poor’s gave it an AA rating.
As of June 30, 2007, Coombs determined the city’s total debt balance was roughly $29.8 million.
If the school bond passes, Coombs said the city’s debt as a percent of equalized value – assuming there is no change in valuation – could increase from 0.52 percent to 1.88 percent, more than double Moody’s median of 0.9 percent.
In a memo to Coombs from Joe Cuetara, of Moors & Cabot Investments, which serves as the city’s financial advisor, Cuetara stated, “Moody’s believes significant increases in the city’s debt burden without such attention to fund balance could impact credit quality.”
Relative to other municipalities with Aa1 ratings, Coombs said South Portland’s fund balance levels are low. He suggested creating a debt policy to set a limit on the percent of equalized value and generate expectations for when bonds will be issued.  When it comes to fund balances, the city has a target to carry an excess of 8.3 percent of the total annual budgeted expenditures, according to Cuetara’s memo.
“Rating firms like to see it,” Coombs said of the debt policy. “It removes uncertainty.”
Coombs said Moody’s is not guaranteeing a drop in the city’s credit rating, but is warning it might happen.