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MINUTES

LOCAL INFRASTRUCTURE NEEDS STUDY COMMITTEE

November 26, 1996 - First Meeting of Two

MEMBERS PRESENT

MEETING IN BRIEF

Minutes prepared by Mike Kuehn, Legal Counsel
Organizational staffing by Susan Crowley, Legal Counsel

  1. Procedural Business.
  2. Legislative Fiscal Bureau - State Infrastructure Funding.
  3. Iowa Association of Regional Councils.
  4. Iowa League of Cities.
  5. Associated Builders and Contractors of Iowa.
  6. Municipal Bond Lawyer - Bond Financing.
  7. Master Builders of Iowa.
  8. Committee Discussion.
  9. Written Materials Filed with the Legislative Service Bureau.

COMMITTEE BUSINESS

1. Procedural Business.
Call to Order. The first meeting of the Local Infrastructure Needs Study Committee was called to order by temporary Co-chairperson Murphy at 10:19 a.m., Tuesday, November 26, 1996, in Room 22 of the Capitol.
Election of Co-chairpersons and Adoption of Rules. Temporary Co-chairpersons Senator Murphy and Representative Brauns were unanimously elected permanent Co-chairpersons and the Committee adopted rules, a copy of which is attached to these minutes.
Next Meeting. The Committee agreed to hold the next meeting on Tuesday, December 17, 1996, at 10:00 a.m.
Adjournment. The meeting was adjourned at 2:35 p.m.
2. Legislative Fiscal Bureau - State Infrastructure Funding.
Mr. David Reynolds, a fiscal analyst with the Legislative Fiscal Bureau, provided the Committee with an issue review of the Rebuild Iowa Infrastructure Fund. The Fund had approximately $120 million in revenues for Fiscal Year 1995-1996. Most projects funded with Fiscal Year 1995-1996 revenue are multiyear projects and 65 percent of the total Fiscal Year 1995-1996 funds have been obligated.
Seventy-one million dollars of Fiscal Year 1995-1996 moneys was carried forward to Fiscal Year 1996-1997. One hundred fifty-one million dollars in total revenues are projected for the Fund in Fiscal Year 1996-1997. To date $136.7 million has been obligated from the Fiscal Year 1996-1997 revenues.
For Fiscal Year 1997-1998, it is estimated that $99.4 million will be available to the Fund, with some moneys for that fiscal year already committed for projects. The estimated amount remaining available for commitment to other projects in Fiscal Year 1997-1998 is $45 million. For Fiscal Year 1998-1999, $32 million in funds are already committed to projects and it is estimated that $52 million remain available for future commitments.
Mr. Reynolds discussed with the Committee the Fund's primary sources of income, which are interest from the State's surplus and reserve funds and gaming income. Interest income fluctuates and is expected to drop slightly over the next few years.
3. Iowa Association of Regional Councils.
Mr. Tim Ostroski, Southern Iowa Councils of Governments, made a presentation to the Committee on behalf of the Iowa Association of Regional Councils. Mr. Ostroski stated that the Association works with both vertical and horizontal infrastructure issues. He noted that many smaller communities have aging horizontal infrastructure, particularly water and sewer facilities. Cooperation and sharing are increasing between communities in rural areas due to the high cost to repair and replace these facilities.
Mr. Ostroski identified several problem areas facing local governments. Increased federal and state regulations regarding wastewater treatment add to the costs of upgrades. The regulations often seem aimed at larger communities yet are imposed on smaller ones which do not have the same problems. Mr. Ostroski noted that many communities do not have the resources to do things like repair roofs of government buildings or pay for the infrastructure necessary to bring in new housing. Also, the financing mechanisms available today do not meet the needs of communities. The Association has developed a program to assist smaller communities to repair their vertical infrastructure. The program is a community reinvestment revolving fund and is operated in partnership with the federal government and local lenders.
Transportation and telecommunications infrastructure also needs attention, according to Mr. Ostroski, but a lot of these areas are controlled by federal regulations or the private sector. This makes it more difficult for communities to upgrade local infrastructure on their own.
Mr. Ostroski told the Committee that for communities, having the ability to repay bonds is more critical than what the vote requirement is for approving the bonds. He also said that it is usually harder to reach the 60 percent threshold for vertical infrastructure than it is for horizontal infrastructure.
Mr. Ostroski would like to see more federal and state government involvement in infrastructure programs in partnership with the communities and would like to see more private involvement in solving infrastructure problems. He reiterated that communities have been doing a lot more cooperating and coordinating over the last five years to make available money go farther, and that he would like more money to be appropriated to the councils of governments so they can expand activities.
4. Iowa League of Cities.
The Honorable Ann Hutchinson, Mayor of Bettendorf, made a presentation to the Committee on behalf of the Iowa League of Cities. She told the Committee that the city of Bettendorf issues $3 to $4 million in bonds each year just for street and sewer needs. The city has improved its infrastructure by building the learning campus, a combination of library, Internet access and Iowa Communications Network connections, a cultural center, and a museum. The project was approved by referendum several years ago and the city used a local option sales tax to fund the infrastructure improvements.
League's Priorities. The League of Cities wants to preserve the local option sales tax as a funding mechanism, wants continued attention paid to mandates on cities and for the state to provide funding for those mandates which do exist, and to continue the ability of cities to issue essential corporate purpose general obligation bonds without requiring approval by referendum.
5. Associated Builders and Contractors of Iowa.
Ms. Lori Elliott, Executive Vice President, Associated Builders and Contractors of Iowa, made a presentation to the Committee. Ms. Elliott told the Committee that Associated Builders and Contractors of Iowa is an affiliate of a national construction management association whose members build primarily commercial and industrial facilities. Ms. Elliott also stressed the commitment of Associated Builders and Contractors of Iowa to workforce training and education.
Ms. Elliott noted that the study by Iowa State University Professor James Rowings found over $8 billion in vertical infrastructure needs in Iowa over the next 10 years. This study of local public infrastructure needs was performed on behalf of the Legislative Council. In order to meet these needs, Ms. Elliott told the Committee that a strict definition of vertical infrastructure must be used; basically buildings, land for buildings, and renovation of buildings. Associated Builders and Contractors of Iowa is also recommending creating a rebuild Iowa infrastructure board to prioritize expenditures from the Rebuild Iowa Infrastructure Fund, reducing the approval requirement for issuance of local bonds from 60 percent to 50 percent, finding a way to reduce reliance on property taxes to fund vertical infrastructure, and creating a dedicated funding stream for vertical infrastructure.
6. Municipal Bond Lawyer - Bond Financing.
General Comments. Mr. Ken Haynie, Ahlers, Cooney, Dorweiler, Haynie, Smith, and Allbee, P.C., made a presentation to the Committee regarding the fundamentals of financing public infrastructure. In his opinion, the state needs to put local government units in a position to meet their infrastructure needs, rather than meeting those needs for them. In doing this, the state must recognize its limitations, one of which is a low population density in most areas of the state. Infrastructure is more easily funded in high density areas, he said. Mr. Haynie told the Committee that the current bonding approval mechanism is designed to make it more difficult to obtain approval of a bond issuance and this can be counterproductive if costs escalate during delay. He also noted that infrastructure must be maintained once it is put in place and recommended the development of a funding mechanism to finance maintenance and upkeep of current infrastructure because lack of maintenance is counterproductive and increases costs over time.
Mr. Haynie discussed how a functional distinction regarding infrastructure may be more appropriate than the current distinction based on whether the infrastructure is vertical or horizontal in nature. He noted that utility infrastructure is generally not hard to finance except in the smallest communities. Utilities are fairly easy to define and recognize, and are recognized as an essential need.
Financing Challenges. The biggest crunch in infrastructure funding, according to Mr. Haynie, has been due to the property tax rollback on residential property and the limitation on property taxes. The rollback is politically sensitive, since to repeal it will increase someone's taxes, which is rarely popular. Mr. Haynie observed that the rollback has slowed growth in local revenues over time, often to below the rate of inflation, with the result that less money is available to maintain infrastructure.
To improve local governments' ability to deal with infrastructure needs, he said, the state needs to deal with the issue of unfunded property tax credits, since the existence of the unfunded credits affects the bond rating of communities. Bond raters do not understand the state's refusal to fund the credits. They like to see a tax structure that makes sense and a reliable source of funding to maintain older infrastructure.
Regarding the issue of securing bonds, the bond community will always want to use property tax to secure bonds, he explained. Even if the community goes bankrupt, the property is still there to be taxed. In evaluating communities, according to Mr. Haynie, bond rating services look at the community, its school district, and other governmental entities within the community and ask if the community can meet its financial commitments regarding providing services and meeting infrastructure needs. The better the infrastructure, the better the community looks to the bond rater. Mr. Haynie told the Committee that at some point the lack of local infrastructure becomes a negative rating factor at the state level, particularly given the current surplus in state coffers. Eventually, local infrastructure problems will affect the state's financial rating.
Mr. Haynie stated that repaying bonds with income tax has not been found to be workable given the mobility of income taxpayers, both corporate and individual. Mr. Haynie asserted that requiring 60 percent voter approval for bond issuance is too high to encourage infrastructure funding, but using income tax to pay off bonds is not a good idea as a trade to reduce the approval requirement. He stated that it might be better to allow different revenue streams to be used to secure bonds and to pay them off.
7. Master Builders of Iowa.
Mr. Scott Norvell, Executive Vice President, and Mr. James Obradovich, both of Master Builders of Iowa (MBI), made a presentation to the Committee. They showed the Committee a video entitled "The Last Piece of the Puzzle" and provided slides indicating some of the infrastructure needs that are currently unmet in schools and government buildings. MBI agrees with the Rowings Study that local infrastructure needs are several billion dollars, including $3.4 billion over 10 years for schools and $1 billion for maintenance of roofs and windows in government buildings. Mr. Norvell focused on the threat to safety from existing life-safety violations in schools.
MBI believes taxes should remain competitive but that spending money to build and maintain buildings can improve communities' economic development efforts and can save money over the long run. Mr. Norvell noted that each one million dollars spent on new construction translates to 36.7 new jobs, which means more taxes paid to local governments and the state.
Recommendations. MBI is recommending the elimination of the supermajority (60 percent) voter approval requirement for issuance of general obligation bonds which use both property and sales taxes for repayment; that the state establish a revolving fund program for local infrastructure to provide local infrastructure grants and loans; and that there be direct state involvement in local funding through direct loans to local communities. Mr. Norvell noted that the Coalition would likely oppose any broadening of the current definition of vertical infrastructure in statutory provisions for the Rebuild Iowa Infrastructure Fund.
8. Committee Discussion.
The Committee recommended inviting Professor Rowings, a representative of the Iowa Finance Authority, a representative from the Iowa Association of School Boards and from the Farm Bureau, the Auditor of State, the State Fire Marshal, and a representative from the Governor's Committee on Government Spending Reform (Fisher Commission) to talk to the Committee at its next meeting. The Committee agreed to consider motions regarding changing the current definition of infrastructure in the Rebuild Iowa Infrastructure Fund to eliminate trails and the Iowa Communications Network.
9. Written Materials Filed With the Legislative Service Bureau.
a. Issue Review, Rebuild Iowa Infrastructure Fund - Iowa Legislative Fiscal Bureau.
b. Associated Builders and Contractors of Iowa - Summary of Testimony.
c. Iowa League of Cities - Summary of Testimony.
d. Master Builders of Iowa - Packet of Information, including a description of Master Builders of Iowa, Inc.; a list of members of the Rebuild Iowa Coalition; Iowa's vertical infrastructure; an inventory of construction needs, by Professor James Rowings, Iowa State University; and an article from the September 26, 1995, issue of FW Magazine entitled "State of the States 1995."

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