Moving to strengthen its financial position, West Valley City this week completely overhauled its debt and revisited a controversial plan to take the cap off the franchise tax.
The ambitious debt restructuring is being hailed as a major money-saving achievement, while the tax plan is being condemned as an economic threat to the city's biggest corporate residents, particularly Hercules Aerospace."Needless to say, we're opposed to any removal of the franchise tax cap," said David L. Nicponski, Hercules' government affairs director. "We have an especially serious concern given the com-petitive nature of the aerospace industry and the requirements facing our company to push costs down."
But with the city facing a $300,000 shortfall in its West Ridge bond payment, tapping the full potential of the franchise tax may be the only option, City Manager John Patterson said Friday.
The option was last proposed by former City Manager John Newman in May 1991 but failed in the face of vigorous opposition from a coalition of influential companies and organizations. Led by Hercules, those same opponents - including the Utah Manufacturers Association, Utah Taxpayers Association and the Valley West Chamber of Commerce - are coming together again.
At $19,000, the cap on the electricity franchise tax benefits only a handful of big industrial companies in West Valley City, but Nicponski said it has a much farther-reaching economic impact. Though Hercules has trimmed operations and reduced its work force from 4,700 to 2,600, it remains the city's biggest employer and taxpayer.
Removing the cap would be "like killing the goose that lays the golden egg," Nicponski said, estimating the cost to Hercules at "more than $300,000." He asked if the cap is taken off the electricity franchise tax, will the telephone tax be next.
Patterson said the additional revenue is needed to meet debt obligations connected to the development of the West Ridge buffer around Hercules' Bacchus Works. The city issued $14 million in revenue bonds to establish the 660-acre buffer - which includes a golf course and an industrial park - expecting the development to pay for itself.
"The city came forward to make West Ridge happen, now we need them (Hercules) to come forward and contribute a little bit more," Patterson said.
Nicponski said the development of West Ridge hasn't progressed as rapidly as anticipated because of economic trends beyond the city's control, but he predicted that it will be successful. "It will just take a little while longer than expected," he said.
While the City Council hasn't taken a position on the tax cap, it directed Patterson to "pursue the issue." He initiated discussions with Hercules on Thursday, with more scheduled.
Meanwhile, the council on Thursday tackled the rest of the city's debt burden, authorizing a total restructuring that reduced its long-term debt from $32.4 million to $22.3 million. The net result, according to Patterson, is a cumulative savings of $2,661,298 over the next 17 years.
Patterson said the debt reduction was made possible through the refinancing of bonds to take advantage of lower interest rates. Also, Zions First National Bank provided a letter of credit that replaced a debt service fund requirement, releasing sufficient funds to allow the city to redeem $11.7 million in municipal securities called certificates of participation.
"We're very proud of this accomplishment," Patterson said. "For a city to reduce its debt burden by 31 percent is just unheard of."
In the process of restructuring its debt, Patterson said the city strengthened its already healthy financial status. "The financial report card of the city looks good: an A rating," he said.