Since Morris Madrid became city manager about 11 months ago, he has added over $3.4 million in long-term debt, which includes interest, to the City of Truth or Consequences’ already too-high debt ratio. Another $5.5-million loan is in the offing, which, with interest, will add nearly $8.2 million more debt.
According to the City’s 2018 year-end financial statement, the city had $19.2 million long-term debt, which includes all loans, with interest included, landfill closure debt, net pension liability and other post-employment benefits.
The city’s non-current assets–after depreciation was subtracted, for year-end 2018–were $33.2 million. If we look at the debt-to-asset ratio or 19.2 million divided by 33.2 million, it was 58 percent.
Madrid’s addition of $3.4-million debt made the debt-to-asset ratio $22.6 million to $33.2 million, which is a 68-percent debt ratio.
If the $5.5-million loan goes through, the city’s debt-to-asset ratio will be $30.8 million to $33.2 million, a nearly 93-percent debt ratio.
A good debt ratio is considered 40 percent and below. Above that there is the risk a private business will not be able to produce enough cash to pay off its debts, especially at 60 percent and above, according to Bizfluent and Investopedia.
But the City is not a business and it has captive water, wastewater, electric and solid-waste rate payers. The City can and has and is going to raise rates to pay off the debt. It has already increased sewer and solid-waste rates 5 percent a year in perpetuity.
Water rates will be examined by the U.S. Department of Agriculture before it gives the city a $4-million grant and $5.5-million loan, the $9.5 million to be used to fix the water pipes downtown and other failing water-system equipment. The City will tear up the streets and only fix the water pipes, leaving the sewer pipes for another year and another loan, which will have to pay for tearing up and repaving the streets again.
The City’s population was 5,948 in 2017, the most recent number available. Even when the City’s new pipes are added as assets, lowering the debt ratio, each person will still owe $5,174.46 in City debt, which will be paid for out of utilities and solid-waste service fees.