Funding Cities’ Investments
Should we bite the bullet and make that needed purchase today, or put it off for tomorrow?
This is a discussion millions of Texas families have around the dinner table and it’s the same question that’s asked at city, school and county planning meetings as local leaders decide if their communities can afford necessary capital improvements as the economy continues its recovery.
“Many Texas cities have been postponing capital investment,” notes Bennett Sandlin, executive director of the Texas Municipal League.
The organization surveys its membership every year, and in 2011, 52.4 percent reported that they were opting to hold off on financing major projects rather than take on more debt and tack the costs onto residents in the form of higher property tax rates.
“That’s the highest number we’ve seen since 1987,” Sandlin says. “But there’s a belief that things have bottomed out.”
To bond or not to bond
Current rates make it attractive to borrow or refinance.
Questions for local governments to ask when deciding whether to issue debt.
- Can a project really be put off?
- Are today’s interest rates too good to pass up?
- What are rating agencies saying about your city’s fundamentals?
- What is the existing tax burden on residents?
- Is there public support for the project and a bond issuance?
The organization is currently polling its members and the results — which Sandlin hopes will reflect an upswing in confidence — will be released in March 2012.
So while it’s been seen as some of the worst of times for some, for other municipalities, like the rapidly growing city of Sugar Land, it’s a “great time to be in the market,” says Director of Budget and Research Jennifer Brown. “Interest rates are crazy low.”
In early December, Sugar Land issued a $9.8 million bond offering that will be used for debt refinancing. With an average coupon of 3.58 percent, compared to 4.5 percent on Sugar Land’s previous debt, “The city will save nearly $91,000 per year in debt service over the next nine years,” Brown reports.
To keep pace with the incredible growth the region has experienced in recent years, Sugar Land was in the capital markets in April of 2011 as well with a $98.85 million bond offering to finance construction of a surface water treatment plant.
Bond issues finance specific initiatives. Capital raised from the sale of bonds is typically used for voter-approved projects. Because it represents a long-term obligation and could affect property taxes, taxpayers must approve the obligation to pay back the bonds over time. TR
Find more information about municipal bonds in Texas.
by Texas cities
|Combined Value of Bonds|
Source: Municipal Advisory Council of Texas