Maywood, Calif., hits the streets for financing
Faced with the need for major street repairs and the unwillingness of local voters to increase taxes, Maywood, Calif., solved its funding problem by essentially pledging its streets as collateral for a bond issue. The city has combined projected state gas tax revenues and general fund roadwork allocations to secure financing for a $3.2 million bond issue — without raising local taxes.
Located within Los Angeles County, Maywood has a population of 30,000, which has remained steady for about five years. Street have typically been repaired on a pay-as-you-go basis, and, since taxes provide only enough funding for a large project every other year, many city roads need major repairs.
To improve local streets, Maywood officials originally planned a reconstruction program financed with a $12 million bond issue. However, in California, general obligation bonds must be approved by a two-thirds popular vote; and, although Maywood voters complained of the poor road conditions, they rejected the bond issue that would have financed the project.
So, city officials revised their plans and determined that a $3 million overlay on existing roads would significantly improve local streets. Seidler-Fitzgerald Public Finance, Los Angeles, advised the city on a financing plan and served as underwriter for Maywood’s recent bond issue.
The 30-year issue is secured by a combination of state gas tax revenues and Maywood’s general fund. In California, the state gas tax is pooled and returned to each city for street repair funding, with the amounts determined by population. Historically, gas tax revenues could not be used for principal or interest payments, but that changed recently when the state ruled that such payments are allowable when the debt is incurred for street repair and maintenance. Additionally, although the general fund could not be pledged directly without a popular vote, annual appropriations could be used in support of the issue.
The financing is set up as a lease-purchase agreement, a common practice in California that allows cities to bypass a popular vote for bond approval. The city created a financing authority to serve as the lessor, and it issued certificates of participation. Proceeds from the issue are held by a trustee and are being used to fund the city’s street improvements. The city will then “buy back” its improved streets using gas tax revenues and general fund appropriations.
While other California cities have used similar financing plans, those projects have typically focused on buildings or specific sites. Transferring ownership of city streets to finance repairs is a relatively new application of the lease-purchase method.
The funds will cover the resurfacing of approximately 13 miles of streets and the replacement of 10 miles of curbs. Construction began in late April and is scheduled to take between six and nine months. Design and surveying costs are included in the project.