The Willow Park City Council heard a presentation on the city’s debt as well as approved a $2,365,000 tax note at a 2.15 percent interest rate to fund street improvements, parks and drainage.
Marti Shew with Hilltop Securities — the city’s financial advisor — first went over the Willow Park’s debt and tax rate information.
“As with most cities here in Texas, Willow Park has experienced a lot of growth over the last few years and over the last five years the city has seen a growth increase of 48 percent — over a 10-year period, 60 percent,” Shew said. “All the growth is great, but with that comes the need for infrastructure and providing services as well.”
The city’s current total tax rate is $0.5367, a total that comes from maintenance and operations and interest and sinking rates.
“The property tax rate is comprised of two pieces — an M&O piece and I&S piece. M&O stands for maintenance and operations and that’s the nuts and bolts of what it takes to operate the city and what keeps the lights on here at city hall; whereas, I&S is interest and sinking, a component of your tax rate that is used to service your debt,” Shew said. “Over time, as you would expect, your M&O component of your total property tax rate is a little bit larger. For the last three years the city has maintained a total tax rate of $0.5367 and that’s basically 53 cents for every $100 in assessed value.”
Shew said in relation to maximums and capacity limit, the city has a maximum tax rate of $1.50.
“As you can see at 53 cents, you are well below any legal limits for your debt. Now there are always practical applications for limits and I suspect if you increased your tax rate to $1.50 tomorrow you might have a bunch of citizens coming after you,” Shew said. “Cities always get a bad rep here in Texas because with all the services you provide, you actually have a relatively low tax rate. It’s usually the schools that are taxing at the maximum rates, which ultimately produces the highest impact to your actual property taxes.”
Shew said Willow Park currently has a little more than $21 million of debt outstanding.
“Now within that debt, you’re not actually levying a tax to pay for all of it. There is a component of that debt that is being paid by water and sewer revenues — this by which we would call a self-supporting debt — so almost $6 million of that debt outstanding is being paid by water and sewer revenues,” Shew said. “Ultimately, as you pay down debt, you have a capacity to layer in additional debt.”
Shew said the tax note, 2019 series, creates just a little more than a 4-cent impact to the city’s interest and sinking rate.
According to the Hilltop Securities document, a 5 cent I&S tax rate increase generates about $6 million in project proceeds and a 10 cent I&S tax rate increase generates about $12 million in project proceeds.
“So that 4 cents for the average property owner who has a home of about $200,000, that tax impact translates to $80 of additional taxes on an annual basis,” Shew said. “If you break that down monthly, that’s about $6.67 per month to a home value of $200,000.”
According to the document, a home valued at $100,000 would have a monthly increase of $3.33, or $40 annually; and a home valued at $300,000 would have a monthly increase of $10, or $120 annually.
Shew said in order to maintain the current tax rate, the city would need to reduce the M&O rate for the increase to the I&S rate.
However, the council was not voting on any change to the tax rate, only on the issuing of $2,365,000 in debt.
The council unanimously approved the tax note motion, which was to consider and act to finance the costs of paying contractual obligations to be incurred for acquiring, constructing, improving and maintaining streets, thoroughfares, bridges, alleyways and sidewalks within the city, which includes related storm drainage improvements, traffic signalization and signage, street-scaping and median improvements and utility relocations. The motion included to finance the costs of acquiring playground equipment for the city’s parks and recreation department and to pay professional services rendered in relation to such projects and the financing thereof.
Karla Gonzalez with Hilltop Securities presented the tax note sale results.
“The city will obtain $2.3 million in project funds from the note. The note was very well accepted and we received six different banks that submitted their bids,” Gonzalez said. “The best bid was First National Bank. They came in at 2.15 percent with a non callable feature, which means the note cannot be paid in advance of the seven-year term of it, but given the low interest rate and the short length of the note, it is really not anticipated that the note will be paid in advance of the maturity of it. So it’s good in this case to take advantage of the low interest rate, even if you don’t have that call option.”
With the council’s approval, Gonzalez said the city will receive the funds from the note on July 10 and the total interest over seven years will be $244,000. The note will be paid off in seven years with the final payment due Feb. 15, 2026. The first payment will be due on Feb. 15, 2020.
“This note is not just for street improvements, it’s also for parks and drainage in the city as well. We have issuance costs every time we go out on tax notes — it’s going to cost you $65,000 to do it — so when we got an interest rate, we just felt as a staff it would be good to go ahead and do it now if you’re going to do it eventually,” WP City Manager Bryan Grimes said. “I don’t know that you’ll see a 2.15 percent on a short-term note. We have funds in reserve, but we are currently earning 2.4 percent on our fund and so we’re earning 2.4 percent and we’re at a loan at 2.15 percent, so it actually would cost us more money to take it out of our fund than it would to issue debt.”
But the council wanted residents to know that the approval of the motion by no means increases the tax rate.
“Your interest and sinking rate will be determined by what our obligations are going to be as of Oct. 1, 2019. We are having discussions with our financial team to actually pay off some of the other debts earlier — like in August or September of this fiscal year,” Grimes said. “I don’t want to sit here and promise you in June that we won’t see an increase or decrease in tax rate. I’ll say that you’ve kept the same tax rate for three years and we don’t know what values are going to do, but we think they’re going to be around $5,065,000, so that in it of itself is going to require your tax rate to go down on maintenance and operations. But I don’t want to say we’re going to keep the same tax rate because we have budget discussions that we have to do.”