City’s $2 billion debt comes to a head
With nearly $2 billion in long-term debt, the city can’t afford to borrow any more money. This is the message that the city treasurer will deliver to the Sacramento City Council at Tuesday’s meeting.
"The city’s tapped out," said City Treasurer Russell Fehr, who will be presenting an hour-long report on the topic. "We have very large, long-term liabilities and we have to be very cautious about assuming any new ones. That’s the essence of the message."
According to the report, the long-term debt and interest must be paid over the next 30 years, which passes the financial burden onto future generations. However, the debt is at a fixed rate, so it won’t increase and there are "no time bombs that will go off," Fehr said. "Because we had such a significant decline in revenue during the recession, our debt burden is too high. So we shouldn’t borrow any more."
Passing the buck onto future generations, however, poses a policy issue and concern over inter-generational equity, the report states. It went on to explain that the city will soon issue water revenue bonds to be repaid over 30 years, which will be used to rehabilitate the Sacramento Water Treatment Plant. However, the public employee retirement system – PERS – is spreading its investment losses from 2008-2009 over 30 years as well.
"In looking at inter-generational equity, the benefit to the future residents of clean, safe water from the Treatment Plant is clear; however, the benefit of paying on other liabilities is difficult to establish," the report states.
"As the economy starts to pick up, we’re going to want to borrow money for economic development," Fehr said. "If we don’t do something about this, it’s going to be a problem."
For a breakdown of where the debt comes from, read the full report.