Streets and Roads

We are not alone in our struggles

Each year in the United States, governmental agencies (federal, state, and local) spend around $416 billion dollars to build and maintain the road system. This is a never-ending cycle that every state, county, and municipality struggles with, striving to adequately fund and maintain a quality road system. There are several things that municipalities can do to mitigate the cost of roads and help to ensure long-term sustainability:

  1. Ensure the road(s) is adequately engineered and designed; this includes looking at the use, the soil, and sub-surface of the road.
  2. Ensure the construction of the road(s) is done well, utilizing inspection and testing that ensures best practices are in use.
  3. Develop a maintenance plan for the roads from the first day the municipality takes ownership.
  4. Don’t try to save money on deferred maintenance by “kicking the can down the road.” A dollar saved today may cost you 10 times that amount down the road.
  5. Be agile, even if we do everything right, we will have issues and early failures that need to be handled in a timely manner.

If you look at the pavement condition over time chart below, you will see that the quality of the road deteriorates quickly at a certain point and the cost to repair increases exponentially. Pavement Preservation (PP) or mitigation efforts are relatively inexpensive compared to reactive maintenance or total rehabilitation.

Quantifying Quality: The Pavement Condition Index | CAG

Background and History

Almost one-year-ago the City Council asked our consulting engineering firm, Pacheco Koch (PK), to conduct a review of the streets and come up with scenarios for repair, as well as the estimated cost. PK came back to the Council with four possible solutions. Each of these solutions involved issuing small amounts of debt over three-to-four-years, depending upon the plan, and completing small sections of work each year.

In July 2020, the City Council hired a full-time City Administrator that recommended an alternative path that allowed for a single debt issue and focused approach, providing additional value in the streets project. The Council approved moving forward in this direction and asked for a budget to be developed that would allow for us to utilize this new strategy. The following list of bullet points provides a high-level overview of what has been happening at city hall to try and get the roads fixed. (The red items in the list below are part of the critical path, meaning that subsequent parts of the project are dependent upon prior outcomes.)

March 2020

  • Engagement of PK to provide engineering and repair estimates for the roads

April 2020

  • Implemented an interim road maintenance and repair program, to mitigate the worst of the potholes and failing roads; approximately 30 tons of asphalt was used to patch the worst sections of the road (still in progress; lost contract employee but have another starting early February 2021)
  • Engagement of an auditor for the last five-years financials; required for the city to consider issuing debt as the funding source

May 2020

  • PK provides engineering and repair estimates for the roads

July 2020

  • Budget development that provides the funding necessary for the operations of the city as well as payment of debt for a potential bond issue to fix the roads
  • Initiated a Pavement Condition Index (PCI) of all the City-owned roads and create a GIS layer, containing information on each road section
  • Development of a plan to complete the maintenance and reconstruction of the City’s roads in a short time-frame to minimize further road degradation

August 2020

  • Budget development and work with Council
  • Completed a Pavement Condition Index (PCI) of all the City-owned roads and developed a GIS layer, containing information on each road section
  • Renegotiated the fee schedule of the city’s Financial Advisor (Hilltop Securities), saving the city 15% in the fee structure
  • Renegotiated the fee schedule for the professional service providers (i.e. city attorney, planner, etc.)

September 2020

  • Budget development and work with Council
  • Council approves and adopts a budget with a supporting tax rate that funds city operations as well as the debt payment for the streets repair project
  • Received final audit reports for the last five fiscal years; the audit “presented fairly”, meaning there were no material deficiencies in the financial records of the city
  • Engagement of an auditor for the fiscal year ending September 30, 2020; this is the first fiscal-year showing property tax revenue and a strong fund-balance
  • Began working with Financial Advisor and Bond Counsel on the potential sale of bonds to fund the streets project

October 2020

  • Work on drainage and water flow issues, an underlying cause of the escalating failure of existing roads in the city, and something that must be repaired prior to installation of new roads (still in progress)
  • Requested proposals from engineering firms for the streets improvement project; received quotes from PK, Gresham & Smith, and discussion with Freeman-Millican, Inc.

November 2020

  • Election of new Council
  • Presented staff’s recommendation of PK to complete the survey, design, and engineering of the project; estimated time of completion is 90 to 120 days dependent upon weather
  • Council approves the agreement and PK is engaged to complete the survey, design, and engineering for the initial road project, approximately $300,000 

December 2020

  • Received final audit reports for the fiscal year ending September 30, 2020; the audit “presented fairly”, meaning there were no material deficiencies in the financial records of the city; this is the first audit showing financial strength and extremely important to our bond rating and ability to obtain the necessary funding
  • Financial Advisor presented a proposed timeline for the sale of bonds; Council approved the Notice of Intent to sell bonds to pay for the streets project; statutory timeline requirements for public notification and review of the proposed bond sale
  • Published the Notice of Intent to sell bonds in the Wise County Messenger; two-week requirement
  • Engagement of S&P to provide a bond rating for the city
  • Engagement of PK to complete the survey, design, and engineering for Graham Rd, City Administrator negotiated this work for no additional charge, approximately $40,000 of savings (December 2020 with estimated delivery of products by February 2021)
  • Engagement of PK to complete the survey, design, and engineering for Pioneer Rd, paid for by the Fairview Meadows development, a savings of $40,000 to $160,000 (est. February 2021)
  • Council adopted amended financial policies to strengthen our position for the S&P ratings call (December 2020)

January 2021

  • Completed the S&P interview and received an A+ bond rating; primarily due to the dedicated funding source (property tax), intentional management of the project (City Management), and adoption of financial policies (City Council) (January 2021)

February 2021

  • Council will receive the competitive bid for the bonds on February 1, 2021, and choose to accept or refuse the bids; read more about this below
  • If the Council accepts the bids, then we will complete the sale of the bonds and receive the funds in March 2021
  • PK provides the final drawings for the streets project and lets the plans out for competitive bids on the streets work (est. February/March 2021)

March 2021

  • Receive competitive bids from contractors for the streets project
  • If the Council refuses the bids in February, then we will look at a negotiated sale of the bonds and present the terms to the Council
  • If the Council refuses all offers for the bonds, the city will not have sufficient financial resources to complete the streets project
  • If the city has funding for the roads, we will review the bids, select the contractor and begin construction (est. March or April 2021)

April 2021

  • Receive funds from the negotiated bond sale, we will complete the sale of the bonds and receive the funds (est. April 2021)

Streets, bonds, and financial impacts

On December 28th, 2020, the City Council held a Special Meeting to discuss and amend the previously adopted financial policies to include a provision regarding a minimum reserve or savings in the city’s general fund of 25% of the general fund’s annual operating expenditures. This is a best practice for municipalities and adding this provision to our financial policy is simply putting our current system down on paper. Further, this will reduce our cost of borrowing money for fixing the roads.

During this meeting, several other items related to our financial policies were discussed by the Council and I was asked to briefly explain the process and consequences of issuing debt to repair the streets in New Fairview. The bonds will go on sale with a closing date of February 1st, 2021. At which time, the City Council will review the offers and vote to either accept or reject the proffered rates and terms of the sale.

  • If the Council decides to reject the bond sale, then the city will not have the financial resources needed to complete the streets project that has been under discussion for at least the last year.
  • If the Council approves the bond terms, the city will be responsible for their repayment. This means that the city may be compelled by the bondholders to maintain a tax rate high enough to ensure repayment of the bonds. The tax rate required to maintain current levels of service, as well as the streets project bond payments, is the current rate of $0.30 per $100 valuation.

Street Project Costs and Potential Savings

  1. When a city is borrowing money, the first $1 million dollars is the most expensive, as they have flat fees associated with each issue. These could be as much as $80,000 per issue for anything less than $1 million dollars. By breaking the $3 million dollar project into small issues each year, we pay the highest fees possible:
    $80,000 X 4 issues = $320,000 vs. $80,000 X 1 issue = $80,000

    By combining the work into one project, the city saves potentially $240,000 that can be put into street repair instead of being eaten up by fees.
  2. Each time a municipality contracts for street repairs, the contractor will charge a one-time flat rate mobilization fee, that costs around $75,000. This means four small projects will also incur four mobilization fees from the contractor:
    $75,000 X 4 projects = $300,000 vs. $75,000 X 1 project = $75,000

    Again, by combining the work into one project, the city saves potentially $225,000 that can be put into street repair instead of being eaten up by fees.
  3. Further, streets have a sharp decline curve, as shown in the Pavement Condition chart below. If nothing is done to mitigate the damage to the road, the cost of repair increases exponentially, costing as much as 10 times more than the initial cost to undertake appropriate repairs. This means that the $3 million dollars will not fix as many roads when using the piecemeal approach to repairing the streets.
  4. Finally, each year the cost of construction, materials, supplies, etc., increases. There are several tools that municipalities use to track this inflation, including the Municipal Cost Index (MCI) and the Construction Cost Index (CCI), which is tracked by American City & County. Over the last year, MCI and CCI have increased by 1.04% and 1.90% respectively. This means that the cost of this project has increased by approximately 2% over what we would have paid twelve months ago. Using these trends, if the city broke this into four equal-sized street projects of $750,000, then the city would pay an additional $135,000 for the same amount of construction due to inflation.

Where are we going to be working?

The project will primarily be located in the Chisholm Trails development with additional work being completed in Montana Court and Pedernales Drive. The map below shows the degree of repair work anticipated.

streets-project

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