Bond Issue 2015

Certificate of Obligation Issue

View the April 14, 2015 Council Meeting Presentation (PDF)

City Seeks to Issue Certificates of Obligation (COs) to fund Projects Included in the 2015 to 2019- Capital Improvement Plan (CIP)

In 2014, the City Council adopted the 2015 to 2019 Capital Improvement Plan. This plan provides for $229 million in city projects over the next five years. These projects include necessary roadways, facilities and water utility initiatives. Citizens can view the plan in its entirety on the City's website at www.leaguecity.com.

Funding for the plan's projects is provided from various sources and is also outlined in the 2015 to 2019 Capital Improvement Plan (CIP). Existing bond funds, operating funds, grant funds, 4B funds and other available funds are exhausted first, before the use of Certificates of Obligation. The plan estimates both the costs and the required funding on an annual basis. For 2015, the CIP anticipated $20.6 million in debt for fiscal year 2015. Staff's review of both the status of the projects and the funding determined the actual needs for the next 12 months to propose this debt issue of $16.24 million - $4.3 million less than projected in the CIP and over $1 million less than what is being retired for the year from past debt.

FY 2015 Projects

This proposed debt will fund both "tax supported" and "revenue supported" projects. This terminology refers to the sources of city revenue that will be used to pay the debt.

"Tax supported" projects are funded through city property taxes. For this debt issue, $3.5 million in projects will be funded. They include Calder Road, Ervin/Hobbs Road Connector and Five Corners Realignment.

"Revenue supported" projects are funded through water and wastewater customer charges. The projects for this year include the 36" Water Line from SH3 to South Shore Harbour Booster Station and the Eastside Elevated Tank and Well. $14.4 million of this debt issue is for these projects.

City Debt

This debt issue is the first debt issue since August 2012. At September 30, 2012, the City debt was $275.8 million. At September 30, 2014, that amount had been paid down to $251.1 million. During the current fiscal year, the City will reduce that further by $17.7 million in principal payments. So after adding this issue, the City's debt will decline $1.4 million this year to end the year at $249.7 million.

The City's credit is "AA." This very strong rating is reflective of the financial strength of the City and the capability to repay our outstanding debt. The long term goal of the City Council, as reflected in the recently adopted "Roadmap to the Future," is to encourage economic development, which in turn will generate additional revenue and provide greater opportunities for significant debt reduction over time. Meanwhile a rapidly growing city has created enormous capital project needs.

Certificates of Obligation

Certificates of Obligation (CO) are debt instruments available to the city. While very similar to "bonds," COs do not require voter approval. This type of debt is recommended because it is the most cost effective method of financing. Similar to general obligation bonds, COs are ‘backed' by the full faith and credit of the City. The result is lower interest cost than "revenue bonds." The "revenue supported" projects could be financed through a "revenue bond" - an instrument that is only secured by water and sewer system revenues. Revenue bonds have a higher cost. For this issue, the City estimates saving $795,000 by issuing COs.

Additionally, the country is in a rising interest rate environment. We expect that interest rates will increase during the summer and fall months. Delay of this issue will slow project progress and likely result in higher interest costs.

Notice of Intent

By law, (Local Government Code, Chapter 271), the City Council may issue COs after publishing a "Notice of Intent." This is a legal notice that informs voters of the planned debt issue and gives them 30 days to petition the Council for an election. If the City Council does not receive a petition, the COs may be issued. If a petition of 5% of the voters is presented, the COs may not be issued until an election is held.

For this issue, the City is reaching out to the public in addition to posting the legal notice. Two public hearings will be held during City Council meetings on April 14th and June 9th. At that time, residents will have the opportunity for public comment on the proposed issue. This information will be distributed via press release, website and social media.

Council is scheduled to vote to issue the debt at the June 9^th City Council meeting after the second public hearing.