Issuing $2.1 million in municipal bonds was essential to helping the city of South Tucson, Ariz., emerge from bankruptcy in 1984.
Now those same bonds -- which have been refinanced multiple times during the past 33 years -- have the potential to put the cash-strapped one-square-mile city back into bankruptcy.
City officials as well as former city officials said part of the problem lies with previous city administrations that approved spending over three decades that increased the municipal debt to its limits, borrowing more to construct city buildings and buy new equipment. Each increase was decided by the sitting City Councils at the time without ever going to the public for a formal vote.
No one believes this cycle of borrowing more was illegal but current South Tucson Mayor Ildefonso Green said the decision to repay the bonds as slowly as possible will eventually cost the city of 5,600 an estimated $13.8 million.
That is, if they don't refinance the bonds again.
"It was the previous administrations kicking the can down the road," Green said.
When he learned about the bond debt several years ago, Green said he was concerned about how much debt the small city had. Today, for every dollar the city pays in bond principle it pays another $3 in interest.
In all, the city owes about $7.2 million in bond debt and isn't projected to pay off the debt until 2037. By that point, the city will have spent an estimated $13.8 million on its bond debt, including interest payments. A long way from the $2.1 million South Tucson borrowed in 1984.
City Manager Sixto Molina, who was hired earlier this year, said while the city has always struggled with its finances, previous administrations could have handled it in a better way. "All the financial problems we are having right now are not our making," he said.
The city had a secondary property tax for about two years that helped pay off some of the bond debt. It ended the practice in 2014 after the city attorney determined it was not legal because the city never submitted approval of the tax to a vote by residents.
Green said that was a blow to the city in its attempt to find a dedicated funding source.
The roughly $600,000 annual payment on the bond debt represents 12 percent of the city's general fund finances.
For several months, the South Tucson City Council wrestled with an estimated $624,000 budget deficit, and openly considered eliminating its fire department. Additionally, it has explored a possible contract with the Tucson Police Department to patrol South Tucson city streets at night.
Molina believes they have solved the budget crisis, however, part of the solution will have the city paying a decreased annual amount to the state's pension fund for public safety workers.
How the debt began
South Tucson went bankrupt in 1983 shortly after a judge awarded Tucson Police Officer Roy Garcia $3 million after he was seriously injured when he was accidentally shot by a South Tucson officer when the two agencies responded to a call about a man barricaded in a home.
The city issued $2.1 million in general obligation bonds the following year to help pay off the settlement.
At the time, the bond was essentially a 30-year loan the city could pay off with small, incremental payments paid for with general fund revenues.
Over the years, though, city leaders began using the bonds to pay for new city buildings and to buy equipment by refinancing the bonds every few years and borrowing more money.
For example, the city issued new bonds worth $4.5 million in 1987 to pay off the original bond issue and used the additional money to build City Hall. The city repeated the process in 1990, issuing $5.6 million in bonds to pay off the previous debt as well as use the remaining funds to build its public works facility.
City officials repeated the process -- refinancing the old debt at higher amounts -- in 1998, 2003 and 2007.
Asked if there was anything illegal about how the bonds were financed and refinanced, Green takes a long pause. "No," he answers.
The city is now considering asking residents to support a new bond issue that would allow it to refinance the outstanding debt and borrow an additional $1.6 million, supported by a new secondary property tax.
For a South Tucson homeowner with a property worth $100,000, the proposed new tax would add up to $122 annually.
Another possible solution to bring in more revenue -- that would also require voter approval -- would increase the city's rental tax. City officials have toyed with the idea of raising the 2.5 percent tax to 6.5 percent. Roughly 70 percent of residents in South Tucson are renters, according to a city analysis.
