Reynolds Explains Why Bethlehem Is In Debt and How It Has Been Reduced

I've been critical of Bethlehem Mayor Willie Reynolds over the years. When he ran against Bob Donchez for Mayor, I supported Bob. When he ran against the late John Kachmar, I supported John. I am the person who pointed out his former heavy reliance on contributions from developers, a practice he subsequently stopped.  I blasted his policy on access as nontransparent. And I was highly critical of his 2024 budget, which included a tax hike. But fair is fair, and I commend his 2025 budget. It continues the trend of reducing city debt, which was started by former Mayor John Callahan and continued by Donchez. 

Over the past 10 years, Bethlehem's long-term debt has gone from $171 million in 2015 to $88.5 million today. Mayor Reynolds plans to knock it down even more, to $56 million by 2028.

Dana Grubb, who opposed Willie in the primary and then supported Kachmar, was a little less enthusiastic in a comment. "Why did the debt exist/what was it incurred for? How many city positions have remained open and what is the impact on city services? Borrowing for capital improvements and paying debt off over the anticipated lifespan of those improvements makes sense, and given the deplorable condition of parks like Saucon and Monocacy at Illick's Mill, many city streets, the Payrow Plaza paver surface, etc. not making needed improvements is just kicking the can down the road. And yes, how much of the federal money has been used to pay the debt down instead of maintaining city facilities and streets?

The person in the best position to answer these questions is Reynolds himself, so I asked him. Here's his response:

City debt grew after the closing of Bethlehem Steel in the 80s and 90s. Less revenue coming in meant it was tougher to pay salaries, pensions, medical, etc. The City back in those days also had less money to pay for capital needs like street repavings. Debt grew as the city necessarily had to finance needs both on the pension obligation side and on the capital side.

When I got on Council in 2008, we routinely borrowed every few years to work on the city's capital needs. But the good news is that by this time we were already paying more down in debt than we were taking on. For example, our annual debt payments may have been $8 million but we were borrowing $5 million (every other year) during those 2000s years. Paying down more than we were borrowing was good, but we obviously wanted a future that was even better, and we have accomplished that. The last time the City borrowed for our capital needs was 2019. The every-other-year borrowings would pay for new fire trucks, new public works equipment, paving funds, etc. They would generally be approximately $5 million dollars. But when we borrowed the $5 million the city obviously had to pay it back with interest, so the long term cost to the taxpayer is $6-$7 million depending on interest rates. We were able to avoid this equation from 2019 to today with the ARPA dollars.

Out of $34 million we received in ARPA, we used $6 million for street overlays (2022-2025) and $12 million for other capital needs (2022-2025). By spending that $18 million on capital needs WITHOUT borrowing (as most cities do), we were able to avoid any NEW debt and interest payments for at least six years (2020-2025 but we probably won't borrow till 2028) while also making significant progress in our capital needs. Our progress on street overlays can be seen here. In 2024 and 2025, we will have 50 lane miles of roads, which is up from 29 lane miles in 2020 and 2021. I also attached two slides laying out how we used the ARPA dollars to increase our street repavings. I also attached a full picture from 2022-2025 of our capital needs projects/purchases that we completed (two firetrucks, two ambulances, etc.). Those are the same documents in our official budgets. I also included a slide that shows the approximately $25 million the taxpayers in Bethlehem are saving by not having to borrow thanks to ARPA. We essentially took $18 million and turned it into $25 million (by avoiding new debt). We didn't take the ARPA dollars and "pay off" any debt. We used the money to pay for capital needs and paving roads RATHER than borrowing new money to pay for these expenses and add to our debt (which is what we did up until 2019). So we have kept making debt payments while not adding any new debt. This is reflective in our bond rating of AA- which is the best of any of the top ten population cities in the state.

We are excited about all of this and what it means for our parks and trails in particular. We have completed several truly fantastic recreational projects over the last several years. The Greenway, our new Memorial Pool, new Fairview Park in West Bethlehem, $200k in improvements in Saucon Park, Monocacy Way Trail Phase I connecting Illick's Mill to Union Blvd (Phase II coming in 2025 that will connect to Sand Island and the D and L Trail), and a brand new Friendship Park in 2025 just to name a few. These projects, however, have primarily relied on grant funding rather than substantial city general fund dollars. Now, with our rapidly decreasing debt, the City should be able to make even more progress on even more of our parks. We are launching a Parks Master Plan in 2025 that will look to improve the programming and facilities systemically. Many of our 25 neighborhood parks were built in the 40s and 50s, and the Mayors and Councils for the last 70 years were not in a financial position to make year-over-year line item general fund improvements in the park system because of revenue pressures associated with the decline of the Steel. Now, that we have taken our debt from $170 million in 2015 to $88 million in 2025 and $55 million by 2028, we will see substantially lower debt payments (which can be seen in attached slide on our debt schedule) and the capacity for future Mayors and Councils to fund our park system systematically in a way that will not solely rely on grant funding (even though we are still having great success in securing those grants).

Reynolds subsequently added that "[w]e have a few vacancies in our Streets Bureau (strong job market will do that) but they are not intentional if that was the implication in [Dana's comment]. We are not leaving jobs open to take those savings to pay off debt. We hite those candidates as soon as they apply and pass backgrounds, etc. That vacancy factor just gets returned to the cash balance at the end of the year. And we don't use our cash balance (savings account equivalent) as a source of sustainable revenue for things like debt service."

I have no doubt that this response will lead to more questions, but it's clear to me that Bethlehem is on the right track with what essentially amounts to a fiscally conservative approach to finance.