First posted 2/26/2009 12:22 p.m.
A potentially frightening financial forecast could force village officials to delay several construction projects this year, according to Finance Director Judy Kovacs, otherwise Forest Park risks defaulting on its long-term debt payments.
Missing those obligations would likely injure the village’s credit rating, forcing the municipality to pay higher interest rates at a time when revenues are diminishing.
“There’s a real possibility we could be downgraded,” Kovacs said of the village’s credit rating.
During the council’s Feb. 23 meeting, members were reminded of nine capital improvement projects scheduled to begin in the coming months, roughly coinciding with the start of the new fiscal year. Several of those projects would be supported by millions in grant funding, but only if they begin as scheduled. The big-ticket items – a total rebuilding of Harvard and Jackson streets – were pegged for some $3.04 million in grants specifically because the village was able to ready those projects for the 2009 construction season.
However, said Kovacs, it is precisely because these projects were fast-tracked for the purpose of securing outside funding that Forest Park won’t be able to pay its share. The council’s options are to cut projects, issue a bond for $1.2 million to avoid defaulting on its debt, or hope that federal money from the stimulus package is directed toward Forest Park, she said.
At this time next year, Forest Park would be $180,000 short of its debt payments, said Kovacs. In 2011, that figure would balloon to $950,000.
“Talk about bad credit,” village attorney Mike Durkin said.
Forest Park is expected to pay more than $1.47 million toward the reconstruction of Harvard and Jackson. That money is expected to come out of the Village Improvement Plan fund, which is fed by a local sales tax. However, because the projects were originally slated for fiscal years 2011 and 2012, said Kovacs, the balance in that account won’t have time to mature.
“The next question then is, Judy, you’re extremely confident in these projections,” Commissioner Mike Curry asked.
“No,” Kovacs responded. “I don’t know what the revenues are going to be.”
Between the nine projects expected to begin this year, Forest Park is anticipating $4.55 million in financial assistance. Some $2.26 million would be paid by the municipality.
All of the projects are currently out for bid, according to Mike Stirk of the village’s engineering firm, and those figures are due in the next six to eight weeks. Owing to the recession, he said, companies will likely submit estimates that are at least 10 percent below the estimated price tags.
Because of the grant money involved, commissioners agreed to hold off on killing any of the projects until bids are received. Also, going to the bond market is an unattractive option because it accumulates more debt and again puts the village’s credit rating in jeopardy.
Mayor Anthony Calderone warned that commissioners may be forced to approve these projects on the hope that federal stimulus money will come through.
“We’re looking at $4.5 million in money that comes from outside Forest Park,” Commissioner Mark Hosty said. “Four and a half million dollars we’re discussing letting go. We have to come up with our $1.2 million.”
Commissioner Marty Tellalian questioned how the circumstances got to be so dire. The VIP fund was never intended to fully fund infrastructure improvements, he said. Furthermore, it represents a new revenue stream for the overall budget that is supposed to supplement what is already received into the general fund.
If the strategy to compensate for the projected shortfall is to cut expenses elsewhere, said Tellalain, that commitment will be tested very soon when commissioners begin crafting next year’s spending plan.
“We’re all going to have to stand behind the decisions we’ve made,” Tellalian said.
The village is unable to shuffle money between various accounts, said Kovacs, because the general fund balance is insufficient.