Jun 2, 2023 - News

Des Moines is approaching its debt ceiling

Illustration of a hundred dollar being built by construction vehicles. 

Illustration: Aïda Amer/Axios

A new system that estimates Des Moines' future public infrastructure costs shows a potential annual shortfall of tens of millions of dollars beyond a debt limit set by the City Council.

Why it matters: The city isn't facing an immediate budget emergency but the long-term outlook is necessary to avoid crises like the one in 2004, when it temporarily shut off streetlights, city manager Scott Sanders tells Axios.

What's happening: DSM's finance department and city manager is now calculating the lifespan, maintenance or replacement costs for hundreds of infrastructures like bridges, buildings, parks and sewers.

  • The outlook is intended to better reflect future expenses while helping the city assess and improve its overall infrastructure.

What they found: Annual costs to maintain existing infrastructure starting in 2030 will be around $80 million.

  • After accounting for other revenue sources, that number would create an annual $21 million debt capacity deficit.
  • That estimate does not calculate new or expanded projects added between now and then.

What they're saying: Some of the council members were taken aback by the projection. Joe Gatto, for example, said in a council meeting it appears that DSM wouldn't be able to pay its bills in 2030.

  • Mayor Frank Cownie responded by noting that the projection gives the city time to act.
  • The city can potentially seek new revenue sources and pair back future spending, Sanders added.

State of play: State law sets city debt limits to 5% of the value of its taxable property, which is around $16 billion in DSM.

  • The council's policy is stricter, setting its own debt ceiling at 4%.

Zoom in: In the fiscal year that ended in June 2022, DSM had nearly $600M of debt.

  • That's roughly $200M under the state's limit and $40 million under the city's self-imposed restriction, according to information that Nick Schaul, the city's finance director, presented to the City Council this week.

Of note: The city's costs associated with its debt is "approaching high levels" and taking on more could result in a lower credit rating, S&P Global Ratings warned in the city's latest analysis.

  • That would increase DSM's future borrowing costs.

The big picture: Cities like Johnston also recently received S&P's high-level debt warning.

  • Iowa cities took on nearly 15% more debt between 2020 and 2022 — from about $6.6 billion to just over $7.5 billion, according to the most recent state debt report.

What's next: Multiple city workshops about the issue are being planned, Sanders says.

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