Okay, good afternoon. This is the special bond program financial presentation
convening at 3 o 6 p.m. for our television viewers and we'll turn over
to David Gaines. All right well good afternoon everyone thanks for being
here as we go over the the financial forecasts that we have right now for the
bond program that we're that is up for consideration for 2019. So during this
presentation we're gonna touch on an overview of our of our debt structure
talk talk about what our current debt service outstanding debt services and
look at a little bit of our issuance history over the past few years for
both CEOs and for our bond programs touch on our bond ratings and then
really get into the details of what our financial assumptions are right now and
to talk through some of the scenarios that the committee has asked for and
some other scenarios to help kind of see how things could play out with different
assumptions moving forward with the bond program. So here's our current tax
breakdown for our property tax. Our property tax is broken up into
maintenance operations and debt service rate and so you can see our forty point
five cents for maintenance operations and then twenty one point five cents is
our our property tax rate for debt service which goes specifically to make
our general government debt service payments and you can see there our tax
rate has declined six cents over the past three years by a combination of
SS value growth throughout the city and having a emphasis at a management level
to stay near the effective tax rate to those past three years. So just want to
talk a little bit at a high level about what the considerations we have when we
look at debt for the city. Our outstanding debt that we have right now
is comprised of three components general obligation bonds which are a lot of what
we're discussing today for the bond programs for our 2014-2012 bond programs
those are five bond programs that have outstanding debt associated with them and
debt service payments to them. Next is our certificates of obligation which
I'll touch a little bit more on later about the amounts of certificates of
obligation that we've issued but and what those are here in just a couple
slides but they make up a big portion of what we have outstanding. With those COs
what you'll see if you look at our total amount of debt a lot of that debt is
self-supporting debt so within our COs you're gonna see a lot of our utilities
that have debt that are not better technically backed by property tax but
they're not paid for by property tax they're paid for through revenues from
the utilities or wherever the other self-supporting funds are. We do have
limited revenue bonds outstanding a lot of those are associated with that with
the DEC with the Denton Energy Center but and I'll touch on this later too but a
practice we have now is for those utilities we don't use revenue bonds
where we say the revenue is gonna be the sole source to pay this debt service we
issue those with certificates of obligation and thus getting a lower
interest rate which we then divert to our street maintenance fund. So our
debt service fund is ultimately what pays our debt our debt service payments
so we have property tax and other revenue sources come into the debt
service fund and then that that fund makes our usually about twice a year
payments on the debt service that we have outstanding. Maturity schedule what
we're for this for this program for the bonds we're looking at we're looking at
20 year 20 year bonds for each of the issuances we have for the 2019 program
all of those bonds have nine-year callable options and as a principal you
try to keep the debt to correspond with useful life that's not that's not a rule
and it's and a lot of times when you look at will issue 20-year debt for a
street that is gonna last longer than 20 years but it's more prudent for us to
issue that 20-year debt for those pieces for those projects. I will say on this as
you know as we mentioned the nine-year call option one of the changes in the
tax reform bill a couple years ago it does not allow us to do any more
advanced refundings as a municipality which is a tool that we had in the past
where we could refund essentially refund our bonds early and you go for interest
rate savings that is no longer an option for us. So when you say nine-year call
option what do you mean by that specifically? Is that where you can resell?
We can refund yeah we could refund or we could we could pay it off early
okay at that point but before that point you can't do anything. So you can't
accelerate payments prior to nine years? Correct. Can you accelerate them after the nine years?
You could issue I mean if you refund them and on a different schedule you
could but that would be there. So it's basically a one-time refinance option
at nine years after it's issued? Not one time you could do it after that.
But it doesn't have to be a full refinance at nine years it could be just
accelerate payments right well starting in year 10 yeah you can accelerate the
payments to pay it off in 15 years for instance. Right it would be years 10 through 20 in this
case that you either refinance or pay off. Yes sir. And you can choose whatever amount you'd like to do.
And our debt service payments are real they're they're essentially level
payments it's not gonna be the exact dollar amount because of the way we have
to issue the debt but it's essentially level payments just like a mortgage
payment where you're paying a lot of interest up front and then principal
later and I have a chart that will show our current debt service and you can see
how that how that works. So the the state limitation that recently passed that's
a limitation on the zero through nine year period? That's a it's a I have a
later on I can start getting the weeds on that but really that focuses on the M&O
side. Okay. And then the debt service is just kind of added on top but I'll get into that.
Okay. In detail with you. So we did we just touched on these but again general
obligations these are these are the voter approved a for voter approved
bonds which we're talking through today have a uniform election date you do get
lower interest rates with certificate then certificates obligation or revenue
bonds but you and you go through this the process of an election where a
certificates of obligation you don't go through a process of an election but we
do have to do a notice of intent to sell certificates of obligation currently as
of today the notice of intent window is 30 days you have to tell her you have to
put that notice out for 30 days in advance that we're gonna sell sell this
amount of CO's with the legislation that was just passed by the state that is
extending to 45 days and some different requirements on how you post those so
that starts in September we currently just we just issued a notice of intent
for some CEOs this year that were under the old regulation so starting next year
we'll have some new stipulations with those and those are that also that
legislation also applies to our bond bond language which I'll get to in the
next slide as well. Can you explain what the rationale is for the change in the
law? I would I would defer but I would say mostly it's just transparency they're
trying to get more time more window more people to see those certificates of
obligation because there's no election associated with them. That's right just trying to
give voters more time to basically petition if they want to.
So here's some of that some of the additional pieces of that legislation
that was really going to impact how we would go forward with a potential 2019
program the legislation updates some of the language that we have to post within
the each proposition including showing the principal and interest we have on
all of our outstanding debt obligations you know since we have our own utilities
since we have our own electric our number looks can look inflated to other
cities just by the simple fact that we we have our own electric we have our own
solid waste we have water and wastewater so that number can look larger than
other cities of comparable size you have to you have to include in the language
your estimated interest rate that you're using in the program what you've
anticipated for your for your principal and interest payments the debt tax rate
associated with the Brown program so as we go through this a lot of a lot of
discussion rightfully so has been talked about can we keep it out keep our rate
of the total tax rate or keep it at the effective tax rate but for the actual
language itself we have to show what we anticipate to happen to the debt service
tax rate so even if our total tax rates stay in the same and we're just
decreasing the M&O increasing the debt service the language has to reflect that
debt service increase that ballot language or ballot language right the
ballot language is pretty it's pretty it's gonna be pretty long now there's a
table and there's a lot of information included yeah so does that become a
concern in terms of helping people understand what is going on here what was
being proposed I I think I think it's just something we need to be aware of
and make sure that we understand understand that we obviously hit
everything that we need to hit understand the implications of it and
then another piece of that along with the debt tax rate they did have a
stipulation there to show what that impact would be on just they picked a
hundred thousand dollar appraised resident home stay which obviously is
lower than our average but just as a reference I assume for so they can have
a comparison to all other municipalities or anyone else issuing those bonds the
impact of the debt tax rate on 100,000 is that is that impact based on what we
are assuming in terms of property value growth in a way it is because it's
trying to you're trying to guess what your max so we'll end up saying what our
max debt service rate will increase so whether it's five or six cents and I
assume I don't know if they have detail on how we calculate this yet but I assume
you take that number in and apply it to a hundred thousand dollars right basically
be like what's the impact of you know the five cents all right what's the
impact of five cents basically the five cent increase so basically you would be
showing your tax rate today plus the five cents and what's the word I'm sorry
where the five cents come from later on we get to our base case right now it's
between five and six cents that we're anticipating the debt service rate to go
up so we're just kind of jumping ahead in reference to what we'll probably if
we go with what our 210 number is and our base assumptions it would it's going
to end up between five and six cents that the debt service tax rate would
increase so here's a history just to kind of to put these in terms for
everyone so you can see what we what we've issued over the past since 2012
2013 with the the first issuance of the 2012 bond program as we've talked
previously we've already we've issued the entirety of the 2012 program and
then next year we'll issue the in 2020 we'll issue the final amount of fourteen
point six six million of the 2014 program and you can see how we've issued
those year after year to get to it to get to our totals you can also see our
CEO funded projects here just added at a subtotal range there's a lot of detail
within those on what we've issued each year to equal our total that's just for
just for reference for everyone so we've issued for 41 million and 17 and 18 for
CEO funded projects why the what was the spike there in CEO funding that was when
we were I can pull up the detail I want to say is it was when we added the
additional money to streets to some of our bond program projects but I can pull
that up very quickly so it looks like it's it coincides with the issuance of
all the 2012 that because it dropped off it dropped off the year before I'll put
I think this could have something to do with when when the reality of price
increases started hitting that year and there was a lot of there was a lot of
you know trying to find how to fund projects right because I mean we had we
had projects that doubled in cost that was basically the funding the gap
between it was kind of a catch-up here right for cost increase it just struck
me that it was a significant increase compared to the also you can see these
are all the projects that we issued in 17 18 so you know obviously it adds up a
lot of that was that street reconstruction about ten million
dollars to the street reconstruction in association with the previous bonds
airport roads mayhill bridge was included in that the five million
dollars that was not a bond package right this is just see these are all CEO's
yeah but some of those were to make up the shortfall in the bond correct I
think and a lot of that's going to be in the street reconstruction down and the
fire station yeah okay so that detail on what that was all right thank you sure
the fire station number eight is that the one that so that was for the design
but we're gonna reimburse that aren't we with this we're not we're not gonna
reimburse me that that 500 the money that we've already issued that we won't
come back and reimbursement we just already spent that that amount for it is
the design but what that allows us is that first year when we issued the money
in 2020 we're able to get started on the fire station right away since we've
already paid for that so here's just a reference and you can see how the
principal interest falls off as we go forward and then our principal this is
our total debt service outstanding at the beginning of this fiscal year so
before we've issued the debt that we're issuing right now in FY 18 19 where we
said about 25 million dollars and you can see how you know over the next 40
years that at that entire amount will or over the next 20 years that entire
amount will will go away but you can see kind of how that slopes down and
obviously as we look forward to a 2019 program it would just kind of increase
it where it stays steady and actually increases over that 25 million dollar
debt service number this is all general government so it's general geo and CEO
that are paid for with property tax program so one I want to touch just very
briefly on our bond ratings we have just had bond ratings from all three of the
rating entities over the past few months the first two associated with our bond
influences our CEO NGO issuances this year and you can see there we've been
rated by all three of the entities at that that's here right below that prime
grade for each they all have different lettering and numbering combinations but
that's where we sit the Moody's rating was an increase for us we increased from
the double a two to a double a one so that we're now with Moody's equaled
where we are with Fitch and S&P on that same level and ultimately what that does
it helps our interest rates by having our having higher bond ratings it helps
our interest rates well we can project for and what we actually pay in our
interest rates as we issued debt here are some of the pieces that they pointed
to for increase our tax base having a healthy and stable financial profile and
some of those other strength strengths like having the steady universities our
population growth so we'll start getting into the forecasting and want to first
touch on our assessed value it before we get to what our projections are look in
the past and see how our ourselves value has grown you know as we all know our
assessed values growing significantly over the past few years you can see here
since 2014 the large amount of increases that we've had in 2014 about 11 and a
half percent and each year going forward all above that eight percent growth in
assessed value but prior to that in 2010 to 2013 you know we weren't seeing that
that massive amount of growth where it was it was it was lower even in 2010
after the recession where it actually decreased I do want to make a note as we
talk about our assessed value and it'll be a footnote that we have for a while
as we show these history reports when we're showing these just for comparison
sakes we have the frozen values included so starting in 2018 going forward all of
the over 65 freeze values are taken out of our assessed values total that as we
do some projections so we a lot of times we'll look at our freeze adjusted
assessed values for this purpose we've kept them in there for comparison sake
if you take and so you can see that eight point seven six cents percent that
we're projecting right now as an increase next year but if you take out
the frozen values it's really right at eight percent of an increase so yeah
that's the blue line is just showing kind of our total increasing so if you
look on the right here it's saying you know we're up to 12 billion over 12
billion around 12 billion in assessed value so in 2010 we're closer we're
around 6 billion in assessed value so it's been increasing you know steadily
to get up to that 12 billion whereas the bars are just showing that year over
year percentage increase in our assessed value so it's billions not millions it's
bill yeah so this is 14,000 no debt for this like it's billions on the side
there are there a couple of projects in 14 and 17 that caused that larger value
increase that maybe we should take into account because you can't count on a
large commercial value coming in I think it's really just been steady I mean if
you look at our history it's really just been steady growth on our existing
values that's just driven it hasn't been a lot of the new value our new values
been steady we have we do see an increases here in our new value but it's
not enough to really to drive these increases it's really just our total
base having those value increases each year
so right of this total right now so for 2019 our preliminary we're looking at
off the top of my head between 420 to 440 million in new value previous year
it was and I can get these exact numbers for you so these are just estimates
around 330 million in new value and so that was fairly consistent that's been
growing as well but just you can see kind of as a perspective we're looking at
12 almost 12 billion in total AB at 400 to 450 million in the new value mix up
that amount but that does as we talk later about the effective tax rate and
that three and a half percent rollback that does come into play with that as
well
so just to make a conclusion here that 12 billion 400 new value is about four
or five percent yeah yes you know it's not much but it does have just have an
impact on on us when we're doing a lot of our rate calculations and that new
value helps us so I want to talk a little about these are these are some of
the assumptions that we have in each one of the scenarios for our out years
moving forward so I'm going to touch on each of these and we can kind of keep
these in the back of your mind as we look at any other scenarios these are
pretty much baked into each one that we look at so start with for next year's
debt issuance is we have the fourteen point six six which we reference
frequently to close out that 2014 bond program that's baked in assuming we're
gonna we're going to do that next year I think what you'll see is by having that
fourteen point six six in already any we're also planning on issuing bonds
next year if the program goes forward so it just adds to that and increases our
issuance in 2020 and then we also have five million dollars not only in next
year's program but also five million plan but five million dollars in each of the
following years for certificates of obligation for vehicle replacements and
facility improvements this has been pretty much an ongoing ongoing amount
that we've used for those for those projects where we take that one point
five million for facility improvements and then we're able to use those on all
of our municipal facilities throughout throughout the city and then that three
point five million on vehicle replacement is again that's just a
placeholder amount for all of our general government vehicles obviously
the utilities pay for themselves and even we get new vehicles a lot of the
internal service funds will pay for those that initial cost of the new
vehicles and it is a drive of ours what one of the initiatives that we've had
this year as we've gone through the budget process and really before the
budget process was to take a hard look at our vehicles and see how we can
utilize our current fleet instead of replacing fleet kind of share vehicles
across departments so it's very likely that three and a half million number
will come down in out years even next year I think we're looking at a lower
number than three and a half million but we just that's just plug number just so
to stay conservative and what that amount might be we have we are showing
beginning in 2020 through 2023 a drawdown of our fund balance in our debt
service fund the debt service fund currently has an inflated fund balance
of close to five million dollars which really isn't necessary for what the debt
service fund does the debt service fund essentially is just a pass through of
the revenues we get in to pay out for debt service because property tax values
are pretty stable in a year to year where we get our certified values and we
essentially know about 99% collections what we're going to get in for revenue
in the property tax in the debt service fund we don't need a straw a really
inflated fund balance to cover any mitigating circumstances so our goal
right now is to draw that fund balance down to a million dollars you know that
fund balance increases simply because we get our certified values from the CAD
saying here's here's what your assessed value is that's the number we use for
budgeting purposes but it's a fluid number so throughout the year we get
supplemental assessed values from the appraisal district that can increase
that the actual AV and then we end up with more revenue than we budgeted so
that that's what can increase the fund balance so our plan is to use that fund
balance to mitigate some of the debt service payments so is that that's used
to pay down existing that accelerate the payment on that that's yeah you got to
use it for debt service so yeah yeah you do have to use it for debt service so
essentially that's what it does and I mean it's always just when you use those
the one-time hit essentially but you know in those years it does help us
mitigate some of that increase that we would need on the debt service side in
those years as we as we do all that down so going back to the slide the
outstanding debt service or are the numbers we just saw the fourteen point
six and the five million it's gonna be issued in 2020 is that reflected in this
debt service there it's not this is this is just before we issue even the 2019
okay so this is what we have outstanding at the beginning as of 18 right yeah as
we move forward it's in it's in all of our forecast moving forward but this is
just where we sit right now so obviously that would increase with those amounts
in the 2019 amounts so as far as our interest rate assumptions that we have
in each each of these forecasts we're showing we're reflecting an interest rate
of 3.75 percent on all of our geo debt for that we issue in 2020 and that's
really based on issue interest rates are low right now so we want to be
conservative and expect that they'll increase but instead of expecting they're
gonna increase all the way back up to four and a half percent next year we
built in saying okay even if they increase they're probably not gonna go
out that much next year to kind of ladder that increase up before we get to
2021 where we've just put in a four and a half percent conservative interest
rate number you know interest rates can just fluctuate so quickly and when you're
looking at a six-year window it's really tough to try to anticipate that a low
interest rate I think you can get in some trouble with that so we wanted to
just as we start getting to the forecast just do a step back on the current
projects these about as you've seen throughout all of our presentations thus
far these amounts have to have our fluid and have changed as we've had
discussions and they will I'm sure they will continue to change as we discuss
these with the committee especially as we get into some prior virtualization
discussions with the committee but just as an update of where we are right now
with some of these changes notably the street rehab program which which we had
a lower number but based on the conversation we had on the 13th on June
13th have increased that amount and then decreased at Ryan Road amount because
some of those discussions where that need for that larger road isn't isn't as
necessary now and then these are also now prioritized by our our staff
prioritizations on what these road projects would be where we have Bonnie
Bray first Hickory Creek second and in the street rehab programs are number
three priority at that inflated amount so we'll get we obviously get into more
detail on those specific programs with those presentations that we have coming
up but wanted to show those there and then just have essentially taken that
and kind of just move some move some of the dollars around as necessary to get
to our 210 million total but again this will be a bigger discussion for the
committee as we get to those prioritizations and you got you all
really talk internally about where those dollars need to go first obviously first
talking about what is that total pie and then how does it break how does the pie
break down one piece that's not in here and on this chart is public art that
would also that would be whatever public art amount would be in addition to this
or or come from another spot and you pulled street lighting and open space
off we've listed them here we have not had street lighting and open space in our
recommend recommendations since we've come from council not to say that it
shouldn't be on here it's just as as we put forward options it was on the on the
bottom of the prioritization scale but definitely open to including those and
seeing how we can work can you remind me again what was the discussion on Jim
Crystal why was it on there and then taking off the Jim Crystal is simply a
prioritization of trying to get to 210 million dollars and as as staff
prioritized the roads Jim Crystal was a little bit lower than because other areas
went up we cut that
and that construction would be paid for by the developers as they build that out
right it's gonna be a combination yes would be a combination of the West Park
clients is necessary and can you remind us of with the FM 428 that's gonna be
all other sources of correct yeah we initially put this together based on
this is where we're here and people really yell right now from these roads
we try to get these for communication purposes we're currently talking to the
state right now
so Ryan Road we were thinking that four million could get both intersections and
maybe just the maintenance kind of thing but now it's at eight six nine so what I
think we're still in a stage where there's a range and we don't have
precise numbers on what it's gonna be with the changes that's happened have
happened with the Ryan Road this is obvious this is a number that's a
placeholder to some extent as we look at how we shift money around and get more
detail it can change but that's where we know our option contemplated
so we don't know so just I drive that road so the intersection at Teasley it's
pretty wide looks okay got lights what I'm not sure all the redesign is I know
that there's a business that's going to be in play but you're going to be
pulling it back the side triangles we've got new development that's actually
coming in there's another proposal council we see in the next meeting for
significant multifamily use right there across from the Walmart and so the idea is
trailer what do you have to do with all different parts of that intersection to
get it to its ultimate build out okay thanks so I want to move on I want to be
cautious with this with this slide this is really just one scenario that could
play out for how we would sell our how we would issue our bonds for these
programs and really just for planning purposes so everyone understands the
impact of timing on these on our issuances you know we up it up until
today I've been have been working on this model to get to a point where we to
show amounts that would be feasible to actually accomplish the goals that we
have with these projects and stay at our goal with 210 million dollars of being
below our current tax rate our current total tax rate so this this this plan
does that so I'll touch on a few pieces of it you can see in the plan now we've
issued all of our amount all of our dollars for the public for the police
department substation and renovation in 2021 in 2021 to have those dollars
completely out so that we can meet our goals of getting it complete we
previously had that in later years but moved it up and we also obviously have
big numbers there for Bonnie Brand Hickory Creek in the first couple of
years and then starting kind of ramping up into our street rehab program even
with a 70 million dollar total we we're not gonna need a full 10 million dollars
the first year because we still have that for some of that 14.66 million is
street rehab so that millions really gonna be for design for this the
program so that we can hit the ground running in 2021 David did I just hear
this wrong but I thought chief Dixon wanted to do the substation first so he
could move some functions out of City Hall East to the substation then then
renovate the substation right yeah that that is his plan so it looks like you're
doing both at the same time well for the issuance we have some to issue the
dollars because even though they're staggered they're pretty condensed to
the point that we would need to issue all the dollars in 2021 to get them
both complete on the schedule I believe we have this another slide second in
another presentation I could bring it up I believe it was December 2022 that we're
planning on having this the station complete so again these numbers these
numbers can really be affected by the decision that we make and what our
targets are as far as you know if you push some of these out and you push
some of the issuance to later years it will it will change our impact on our
tax rate but obviously will mean the delay in getting any project started
especially with some of these projects that are tied to other funding sources
so we can continue to have those discussions as we look at
prioritizations and the pieces associated with those so I'm going to
get into the details on a number of different scenarios a lot of these the
committee's request to kind of see the full impact of these scenarios a lot of
these slides are gonna have be in the weeds on a lot of numbers so I'll try to
to call out what we're looking at but definitely ask any questions as we go
along here's a summary page of the programs that we'll be looking at this
first one is essentially our base case and our recommendation that you saw
previously and that's what we've been working on throughout the process of a
210 million dollar program assuming assessed values increase at 4% and all
the other assumptions we looked at earlier and as you'll see in the next
slide that equates to between a five and six cent increase on the debt service
tax rate but does keep us total below our current tax rate or current total
tax rate so it's that same five cents or 56 cents that's just a type it's five zero five cents zero five six
yeah it's a big difference yeah and it's that same case with the 33 cents there
that should be three point three cents it is correct and you'll see those on
later slides too okay and I just want to just confirm the point one nine is
correct zero one nine on that aggressive yeah so if we get as we get to that
aggressive approach you'll see if we were if we're assuming 8% AV growth
throughout the life of the program we would anticipate only about a two cent
increase in our debt service tax rate so that was just really a layout as we go
through these scenarios what you'll see here so this is our base case scenario
at 210 million dollars and the 4% growth in those out years I will say on each of
these we'd have updated our preliminary 2020 with our estimated assessed value
which I saw earlier was about 8% over our last our previous years assessed
value so that piece has been updated but all out years are going to have the
assumptions that we list here below so the base case 210 million dollars it
keeps the total tax rate below our our current tax rate of about 62 cents as we
go as we go forward even on this 22 is that it's below our current tax rates
surrounding issue that makes it look like it's level with that so as you go
forward the total tax rate stays below the our current total tax rate but as
as mentioned the debt service tax rate does go up between five and six cents
that will be the piece that has to be on the ballot language of what will it how
much will our debt service tax rate increase some of the other pieces here
you can see here's our our effective tax rate in each of these years and again
as we look at these effective rates and some of this rollback rates these are
all just projected calculations a lot of assumptions made moving forward but a
range of where we might end up on those rates in future years so you can see
we're about two cents on average above the effective tax rate in this model at
the 210 million dollars for reference here I've included the some estimates in
what we might anticipate for the three and a half percent rollback rate this is
the new based on the new legislation of that rate coming down from eight percent
three and a half percent and because that's mainly on the because it's on the
maintenance and operation side as we go through these slides you'll see that the
range is really going to be you're going to see mostly around 12 or 13 cents I
would say just for precaution I'll say it's probably going to be between one
cents and two cents that we are below the three and a half rollback in future
years and that's probably just going to be a circumference what we have to to
live with moving forward and that's not affected by the debt service tax rate
but it'll just it'll be a constraint on us as we go through our operating budget
each year I think one of the pieces but I think what it's good to reference that
as we look at adding a station as we look at adding a substation or fire
station and we consider what are the operating costs that that we need as a
city to be able to point back to these things and say you know we know that we
have these needs so if we ever get to a point where we need to have a election
on our rollback rate which will be associated directly with operating cost
we can we can talk to it and point to those specifics that that increase would
be related to we've shown the overall the average tax bill here on this
scenario and this is about as you look at these scenarios are going to be about
the same because our M&O rate is at that effective rate it drives these to be
fairly similar as you look across the board but about a 3% increase to the
average tax bill and this is increasing that average tax bill by the same amount
that we're increasing AV in those future years so is the three and a half percent
rollback which we'll have a new name I guess going forward is that applied just
to the M&O rate or is that applied to the total rate how does that so it can
get a little complicated but I'll at a high level what it does is it goes you
with your M&O rate you say what is your effective M&O rate what M&O rate do you
need now to pay for your existing values next year then you add three and a half
first you do a three and a half percent one point zero three five to that then
add the debt service tax rate on top of it so that's the way the debt service
tax rate stays out of the calculation yeah you can increase on it's on but
there's also a piece to it where because we get it we have a sales tax relief that
comes from our additional half half cent of sales tax comes through our general
fund for property tax relief that also plays into our formula a little bit so
it's not as clean as seeing that okay so I got a high level if you look at 40
cents you know at three and a half percent you get close to that twelve to
thirteen so one point three to one point four cents and that's kind of how it
rolls out in the rollback difference okay
so I'll just start going through some of these scenarios and connect answer
questions as we go along here's here's a chart showing the tax rate impact of
that to it of the 210 million base case scenario so you can see our property
total rate really staying stable fairly stable throughout the process dipping a
little at the end with that operations rate essentially coming down the debt
service rate coming up in those two years to pay for the program and offset
that five to six cent difference in those out years and keeping our total
tax rate stable so one I want to make sure we hit all of the the scenarios
that were mentioned this is a moderate growth scenario so this would be instead
of a four percent AV growth in each year we had six percent AV growth what would
that look like so in this scenario we're looking at between three and four cents
that service tax rate increase because we're obviously you're with the increase
AV we don't need the debt service rate to go up as much but you're gonna see a
lot of the sim a lot of similar things on the on the difference here with the
rollback and then our average tax bill just because the average tax bulls on
based on a larger amount so that's how it comes out especially as we're focused
on these scenarios of keeping our operations rate M&O rate at the effect
nearly effective tax rate so this is six percent growth and again between three
and four percent increase to the debt service tax rate if you if you want to
get it we have we have additional detail we can get into the weeds of exactly
what we're using for fund balance drawdown what we're we're showing for our
tax rate everything that happens in our debt service fund if you want to get in
into those but for now this is more of a summary of kind of all the machinations
that got us here so here's a here's an aggressive growth scenario so say we you
know we ended up with eight percent growth over each year this bond program
looks similar to last bond program over the past few years we've had that growth
each year what would the tax rate look like and if we were to hit eight percent
growth each year we'd be looking at about a only two percent increase to the
debt service tax rate you know I I think it would we would obviously want to be
cautious with making this our we're gonna bank on this this is what we're
gonna put forward but it is useful to see how much it can change but it is it
is what we've average over the last five years or more right it it absolutely is
I just I think as we go to the voters it would be we definitely want to be
conservative to not it and I appreciate that but I also think that we have to
you know I don't think we we need to short sheet this bond package because
we're afraid we won't grow at 8% I did in all indications would say we have
every reason to expect to continue to grow at 8% or more yeah and I think I
think it's just two different conversation as far as the bond language
itself I think we definitely don't want to go to the voters and say it's only
going to be a three cent when it could be higher but as far as the discussions
amongst the committee of where you expect it to actually happen I think that
that's definitely a discussion that committee can have and this can
definitely add to that discussion in 14 we asked for two cents three three and
we didn't take any of it right well it's I mean the right is a variable here in
the SS value the real what's the average tax it's gonna be a function of those
two and so if if your growth is more your rates last if your growth is less
your rates more is there any feeling for I guess all these scenarios are computed
with the M&O staying at the effective rate is there any feeling for whether
that's more or less likely given the conservative or medium or aggressive
scenarios presented here as opposed to I don't know I get up nearer to that three
point five percent increase I don't know that it would be I'll say two things I
don't know that would be necessarily tied to the the aggressive scenarios
maybe tied to the total obviously if we don't have the this the new station we
we came we're not necessarily gonna be able to hire as quickly to fill it like
we would plan to but I will say as we get to the end you'll see some
variations being in the details of this as we look at the aggressive scenario
included is also assuming our new value is gonna grow additionally so that new
value comes and helps the M&O rate I do think it's gonna be tough and as we look
at this this three and a half percent rollback rate I mean it's it's very
difficult to stay at the effective rate for multiple years and it's that's gonna
be a constraint on us I even when you look at this forecast this I want to
make sure that everyone knows this is not our proposed budget that's going to
counsel but for planning purposes we've already said that for this planning
scenario we've assumed that we're gonna go two cents above the effective tax
rate in next year's budget well if you look at preliminary 2020 we're showing
us we're showing a two percent two cent increase right as we've shown as we've
gone through the budget process we've counseled we've tied each of those
increases to kind of a tier of supplemental packages so we're not
saying that's going to happen but I think it's worthwhile to include in our
in our forecast for now I guess what I mean it's difficult because it's
predicting the future but what I'm trying to assess from a risk perspective
is with the various growth scenarios right they present a different burden on
the debt service rate in order to pay back the bonds right and so does the
projected burden on the M&O rate go in the same direction or does it go to the
opposite such that the risk is is mitigated you know yeah I think it's tough
to tie it directly to AV growth because a lot of AV growth is just a single home
just appreciating in value sure whereas that doesn't have any demands but if
we're talking about new developments coming in that does change the equation
okay so we don't have that in here that would be probably a different discussion
but I think I think this is also tied to the larger discussion on how much does
growth sustain itself as we've continued sort of peeling back what it's costing
us to provide services to developers versus what they're actually paying in
we've had those discussions of council particularly water waste water we're
about ready to have it on the street impact fees and then our cost for
providing planning and development services if the council decides that you
know the growth should be paying for much more the cost of the staffing it
requires and the capital projects then there is another lever here but right
now they haven't made that policy decision because we really have only
framed it recently for him so David's overseeing a study right now on those on
those fees and that could provide a little bit of relief to the M&O rate
moving forward if they decide that they're going to start subsidizing left
so that that's the other important variable even if you're seeing increased
growth but it's not paying for the services on an ongoing basis you're
getting nowhere and so that's the that's the policy discussion that you'll be
who will be having with council here in the next 45 days or so
we wanted to add a fourth scenario as we go through each of these kind of high level
scenarios and dollar amounts and this one is hey let's say obviously the ones
we've been looking at so far are consistent growth each year what about a
scenario where we start off where we kind of see the trajectory around now
was a person next year maybe a dip in 2022 but then maybe we hit some sort of
recession or at least a downturn to some degree and we see it trail off in the
future years I think what you see in a lot of these mixed scenarios is they
basically come in at that 4% number essentially you know the hero we're
looking again right under a six cent taxing to increase on the debt service
tax rate not meant for anything other than just another comparison that to
kind of include in your decision-making as you look at each of these scenarios
and think through what could play out
so we can definitely go back and touch on any of these as we go through but I'll
kind of move on to the next kind of round of scenarios we included numbers
for 150 million dollar package again this is just a comparison when we started
the process we said we would look at a 200 million dollar package which we said
would keep us around the total tax rate we would look at a hundred million dollar
package which would keep us around the effective tax rate which we'll have
later but also just wanted to show here's what a hundred fifty million dollar
package would do I think an important consideration as we look at these other
packages hundred and fifty and a hundred million dollar package the piece that we
would have to then go back and do is go back and look at that schedule and not
only say what projects do we need to do with this new amount but how do we plan
them out and what are the priorities on timing of these so with a hundred fifty
million dollar scenario at our base case the four percent growth looking at
between the two and three cent tax increase at two point four cent tax
increase on the debt service tax rate and again as I say those tax increases
that's the maximum tax rate increase you know it'll be what where's that number
where it's the highest and then it'll in most years it's going to be below that
but we want to make sure we're focused on what is the maximum rate as we move
to the moderate growth the six percent growth on 150 million dollars looking at
just about a cent and a half increase a maximum tax rate increase on the debt
service side and you can see the total the total percentage tax bill increase
is going to be less in this scenario than it was in the previous scenario
just because our debt service tax rates going to be lower whereas previously it
was at three three and a half now it's around two two percent growth I know we
had a question of how would these compare to inflation no inflation kind
of nationwide right now is it about two percent so there's that comparison and
if you if we do an aggressive approach say hey we're going to do 150 million
we're going to think through what would that be at eight percent growth each of
those out years really you're in a situation where you're looking at maybe
a cent maximum taxing tax rate increase on your debt service tax rate but as
you can see as we go through all these scenarios that rollback rate doesn't
change much because of the way the calculation right right and again here's
that mixed variable rate growth moving forward and you kind of end up back
where we started on the four percent growth a final scenario was the hundred
million dollar program the goal with this was to remain you're at right at
near the effective tax rate as the numbers shake out we're really right
there as on average a little less than a cent away from the effective tax rate a
hundred million dollars moving forward and these are 4% growth I think what
you'll notice on this is if we were to do a hundred million dollar program we
would not have the increase in the in the debt service tax rate other than a
small increases by kind of a few a few percentages of it of a cent moderate
growth again same story where you're not seeing increase over that current 2.15
debt service tax rate in those out years but I you know a hundred million dollar
program I think we'd have to make some pretty significant choices and I think
even if you say we were going to do a hundred million dollar program but we
were going to include the police station and fire station and some of those big
roads that really have to have those dollars up front if we were going to
front load this we kind of showed it more spread out for these purposes if we
were going to front load those and do maybe a four-year program a three-year
program instead of a six-year program then you might you might have those
increases that we're looking at now it would just be a shorter program to be
hit with that burden and then you can see the eight eight first 8% AV growth
really seeing a steady decline in that debt service tax rate moving forward
with a hundred million dollar program and then our mixed our mixed scenario
comes out pretty pretty close where you're not you're not up to your debt
service tax rate in those out years
that's all we have for the presentation for the scenarios I hope I hit on
everything you all were looking for for this initial presentation but would be
happy to answer any questions talk through any of the details on this or
any other questions you have there's a lot of information that you're just not
getting so if you need to digest it and come back and now you can ask any
questions of me obviously today later anytime any general questions is this
the same presentation that's going to be made to the entire bond committee or
will there be one I think that's I think as we talk with the committee we look at
the schedule we can talk through that I'm sure at some point we need to do a
high-level I don't know we want to it's up to the committee we can go into this
much detail we can go into high level whatever the committee would like kind
of the thought was is let's all of us go through the laborious task of talking
about this and then bring back a proposal or you know I don't think we
need to bring everything to the full committee or else we'll probably swallow
their tongue and have their eyes roll back in their head. Basically I was doing
your averages and your so your five-year average of growth right now the last
five years is nine point six seven six percent and your ten-year average is six
point nine six four percent so I don't really know why we're using a four
percent if literally the last ten years average growth is nearly seven percent
so what I was gonna ask is this committee are we supposed to make a
recommendation for what percentage the other committee the main committee uses
when considering this bond program should we define a number say we're
gonna go with X. I think that was the intent is we would bring back a
recommendation to the larger body to consider. I mean this data also doesn't
include the 2008-2009 recession numbers so it's a little bit skewed. Well it is but
we're ten years removed from that. You know you could you can you could say
well it doesn't include the Great Depression of 1929 but we're we're well
past some of that and I think we have to also begin to project what we think the
growth rate is likely to be based on what we know is coming. Based on those
numbers I don't see where eight percent is aggressive at all I feel like your
average over ten years is six point nine six four so six would be your lowest
number not four yeah and I feel like you should be looking at you know six eight
ten. So what is the risk if you sell this package saying we anticipate eight
percent growth and you end up before. I think the risk the risk for that is
significant in that we lose our validity with with residents to some degree if we
go to them and say here's what we can do for you at this tax rate and then we
can't can't follow through on that I think that reflects. So your bond program you're
eventually going to issue the projects right but it just might take you a lot
longer to do it so right now you're talking about five six year program if
you come in a lower you know growth it may take you seven years or it just
depends on how you have to rebalance you know your tax rate or what all else is
going on at the city so basically just could prolong the whole process. And that
gives you more opportunity for inflation. I think you can look you can look back
from a historic standpoint look back at the 2005 bond issue and what happened then because that
basically 2005 I can't remember what the desk what the projection was on growth
then you get 2008 recession and so you can see what would happen and that bond
program stretched out ten years versus five. So staying more
conservative we can I wouldn't say guarantee we wouldn't come close to
doing what we needed to do in projects by staying more conservative because if
we don't if we do eight and then we don't hit that. Well if you stay
conservative and you don't you don't hit yeah and you only hit four percent
growth or you have a two percent in there in some year the double-edged sword
of value that assess value going up is the cost of construction is going up as
well and so you can do less projects with the money that you have and so you
know if we're think it's going to be eight percent increase every year we
better build everything first year yeah because inflation is going to eat into
the project. Yeah but I think what also comes with that is if you go with a
conservative estimate you're talking about asking the voters to authorize a
larger tax increase and that and that becomes the other side of that sword
really is that that the voters at some point might say I don't think I don't
think we can afford to do this and if we and if we're if we were to assume a more
what I'm gonna call more accurate growth rate then we're able to really have a
conversation with the voters based on what our history is telling us rather
than than a sense of the what-ifs and and the what-ifs are always going to be
out there but but but there's a bigger a bigger issue if you're asking the
voters for a for a significant tax increase that they don't want to support
and do you believe five cents is significant that's a that's a pretty big
chunk three cents wasn't it five cents so David when we were first getting
started I think you mentioned that you were gonna check on the legal
requirements of SB 2 or maybe it's some other legislation that stipulates what
assumptions and how that has to be worded on the bond measure is that
correct yes HB 477 I'm sorry I was thinking SB 2 yeah and that's that's
kind of that's what we're basically referring to here I think there's there's
more to it these are some of the bullet points of what we have to do in that
bond language but it's really focusing on what we have we have to really feel
say what was I increase on the debt service tax rate gonna be and what is
that impact on this hundred thousand dollar residential homes that gonna be
for yeah I think just as we talk through this it may be and maybe helpful to
understand what the requirements of the bond language that goes on the
proposition would be because to some extent right now it just feels like we
come up with a number and then that's what people read I think that's what I
think that's where it gets back to you know what they've asked for now is you
include the interest rate that you're projecting a lot of those different
pieces and there's a table that goes along with it but we can come back and
kind of show you what that table would look like in this scenario and also so
as I look at the in these various scenarios that the one or direction the
difference in the debt service rate from you know fiscal year to 2019 to the end
in 2026 am I correct in assuming that if that trends up that our ability to
issue another bond program at that six to seven to eight year out range would
be curtailed and that if it trends down then the difference there would suggest
a certain size of a bond program that that we could afford at that point if
the D turns up if the debt service rate trends up versus trending down the let
me try to explain some background so I think in our first meeting maybe there
was some discussion about how road maintenance is paid for and how you know
the general crack ceiling and that sort of thing is paid out of the the general
fund but the end-of-life road reconstructions have typically been
paid for out of out of bond monies right so right now we're we're planning this
bond to reconstruct a certain number of roads over the six-year period but after
that six years is up that we're not just going to magically not have to
reconstruct any roads right so the the question would be how much future debt
service relief do we or gap do we need to plan for to be able to continue
operating like that if that's what we do I wonder so I mean I think we can
definitely as far as scenarios in that case as you look at okay here's our debt
service falling off we add on the new programs here a new program we issue
those then it falls off obviously by debt falling off there's gonna be some
capacity there within the current debt tax rate to add more debt in future
years but maybe we go a little higher so that would be a whole nother you know we
can get to that point where we try to make them projections in future years but
ultimately that's going to be kind of a decision that you make later on but we
could I mean essentially we could do we can definitely show something like this
where we show if we did a 210 million dollar package on our scenarios how does
that debt fall off where do we sit on your seven of what our different debt
rate is what we the tax rate do we can go into those I think that'd be helpful
sure that's gonna ask I know this is a ridiculous question having my
experience but your Hillwood Hilltop securities guy where do y'all see
long-term debt going in terms of interest rates when I was doing I was
doing private partnerships and you know we hit it in 2000 2004 to 2006 we were
like just getting these incredible deals and everyone wanted to you know do more
do more do more and all of our consultants kept saying hey what goes
down has to go back up and you know we talked with you earlier it sounds like
we're in the bottom of a trough so you know here in the last two or three years
we've been fluctuating at bottom trough so like last year rates were up this
year they're they're way back down again and so next year you know they're most
likely gonna go up what's happening now with the Fed rates you know they're
cutting the short end of the curve but that's making the curve a lot flatter so
it's not really affecting the long end where you all are issuing you know 20
year debt okay so you know right now a 20 year deal at a double a rate you're
looking around you know 3% I know the current issue is a little bit lower than
that but that's just because there's a refunding that's shortening the life but
going forward I mean I think you know adding 50 basis points on the next year
issue just looking out a year from now I think that's you know a conservative
and prudent estimate and then looking into the future you know a hundred base
points on top of that you know getting you to around the four and a half five
percent range that's that's not unlikely if you look at you know a chart from the
80s I know what the 80s was really high but to today I mean if you take an
average across that I mean you're gonna be a lot higher than than where we are
today and it's gonna be you know a lot closer to you know probably that five
year you know the five percent interest rate but you know there's no telling but
right now we're at historically low rates and I wouldn't assume that they're
gonna stay around two and a half three percent so you that's what you were
showing previously is kind of four and a half percent in the long term right now
as I've said we go we show that incremental increase next year about four
and a half is just for planning purposes what we want to show in those out years
because it just gets almost dangerous to kind of assume those going to be low in
those out years because it fluctuates so much so that doesn't go that doesn't
directly address Tim's question which is are we using a you know putting the guy
in the street if you say well we're assuming four percent this you know
assess value growth and everyone says heck my property is going up eight
percent why don't I get some credit for that is that a fair remark so I'm just
trying to think how do you how do you slice the baby well I think
let's use a different metaphor I guess what I'll say to that is that for both
the 2005 bomb program and Tim you were right for that certainly you know 2014
bomb program we use very conservative estimates around four percent we're very
clear with the voters that at four percent this could take up to a four
cent tax rate increase or a three cent tax rate increase and be the new one of
those materialized I think what makes it very difficult is that if you go too
aggressive and we can argue whether that it's aggressive or not is you can get a
situation where you've now told voters we're gonna be at a percent and this
isn't gonna cost you any any tax rate increase how do you then go back to them
when that doesn't happen and now you've got to raise the tax rate I think it
puts you in a very difficult position with the voters about that so so I think
for other arguments about being or not being conservative I think I think the
four percent is really conservative is certainly what staff feels comfortable
with and the idea would be if if rates come in higher right praise values come
in higher then we'll be anticipated that we were not we're not gonna do those
tax rate increases which is exactly what's happened over the last two bomb
programs and potentially even further yeah correct it gives you from a
staffing perspective I think a little more flexibility and at least you're
being open with them with the voters where you may or may not be if you say
8% and it's not gonna take a tax rate increase and that doesn't come in I
think really all you have at that point is to extend that bond program it's
gonna think it's not a contract with the voters but it's gonna be very
difficult so if we're kind of a contract with the voters so so the question the
logical question that comes with that would be whether or not we think that
telling the rest of the committee and and the community that this could cost
five and a half to six cents are we comfortable doing that or do we have to
begin to talk about cutting the package and cutting back on the projects we're
gonna do and I don't know and I would just say my view I don't think we can
cut the projects that we have in line I think they're not really they're all
desperately needed and this does not include anything related to parks right
and lighting or lighting and if we add park money and now are we talking about
seven cents that's a that that's that's asking a lot of the voters even if we're
able to say well yeah but you know it'll grow faster than that and it won't
happen and that was a question as you were talking Tony I was thinking you
know how many voters are gonna remember the last two bond packages and they
didn't have a tax increase that's you know people typically don't remember
what things they didn't lose yeah well or they know what happened to their tax
bill right they know what they happen to their tax bill right so how would we
like to pursue pursue this would you want to someone put forward a motion of
at least one yeah I was actually gonna say I'm a numbers guy I mean I run a
business I know you got everything else besides numbers but numbers are for me
very key in understanding where the business is going whether we're making a
profit whether or not making a profit what needs to change what needs to be cut
but when you're looking at these numbers I feel like a 10-year average should be
the number they're using if it's six point nine six four and that's exactly
what it is and that should be what it is not six or five or some made up number I'm
really not to get bad at the city but I feel like y'all throwing a number out by
throwing out a four percent or a six or an eight it came out of the sky no no I
don't know where that number came from then I haven't heard of any definitive
of where you get that number from but I'm looking at numbers on the screen and
they tell me what the average is so that's what I'm saying I'm more concerned about the
impact as Tony was saying of going with an eight and then losing losing not not
kidding eight and having to then say oh never mind we said it wasn't gonna cost
you anything but by the way it's gonna cost you five cents that I think is
suicide basically I with regard to selling them yeah yeah I agree yeah yeah
I mean I think a lot of this may become more clear when we get an example sheet
of what the ballot initiative we have to look like given those regulations right
yeah that's a good point and I guess just a couple things well it may look
like these things came out of sky the previous committees have used the four
percent as a planning standard you're never gonna meet a finance director
that's going to suggest that we should go a bit more aggressive than that you
just won't because they don't like being wrong and I also don't agree yeah I also
don't agree with your 10-year average I think if you take if you take the the
two peaks out I can probably defend that more and you're probably still around
seven - because you take that last year the recession that our highest year out
and you may have a little bit more of a case to make here in terms of we are
being you know too conservative so if you're if you're landing that six to
seven - you've got some you've got a story to tell this sort of right in the
middle where you're all talking about and the whole point to give you those
scenarios just just to get your thoughts start a conversation I agree with Tim
that the four percent is just how you explain that I mean we tend to look at
in the municipal side you do the victory dance when you know you assume four and
you're able to get eight the problem is you left all that money on the table for
projects that are needed now and they're going to cost a lot more down the road
so I think if you can get somewhere in that six to seven two percent we can
explain that you could put an audit the oversight committee together every year
saying okay here was it here was the what we were planning on in terms of
growth assumptions here's how it measured up that's something that we're
not doing as overtly as we probably should be because staff is you know
taking credit for well we haven't raised the tax levy for the bonds but we were
not really showing it every year that this is what we planned on and here's
what actually happened so I think I think that's an important part of the
audit process moving forward is just sort of changing how we position that
because the other side of this is this the city has become so reliant on
issuing CEOs I would argue you couldn't backtrack it and trace it anyway so you
know that's one of the things that we're trying to do is getting our general fund
a little bit more structured in terms of let's get all the subsidization of
growth over to the side make sure that those programs are standing on its own
that we really can have discussions about what is happening once you isolate
the growth variable because it's clear there's millions of dollars a year of
subsidy happening in that area but I think if we build the formula this is
how we're going to go back and audit it and explain it to everybody each year
and make sure that we're on track and that becomes the subject of a you know
of an annual report or two something like that it makes it a whole lot easier
to get by it but I still think that 8% is way too aggressive and you're gonna
regret it because even if you hit it most years those years you don't
inflation is outpacing that right so you probably gonna want to end up in the
middle somewhere and I would agree with you probably more than the 7% but you
take those two out and you've got a really strong argument to what you're
trying to say so just kind of a little context for how how we're helping you
work through this but it I like I like your I like your question I like Tim's
point - you can you can get so conservative that these numbers seem
monstrous and people are scared right now you've just had the 750 million hit
from the school districts you know in that bond issue the city is 15% of the
tax bill 20% of tax bill at the most and yet that's what people are gonna
remember so the story you tell is important so let me make a motion which
is not to take a definitive position but rather that if we were to use a six and
a half percent assumption rate growth rate and what the ballot language might
look like if we could see all of that together with a six and a half percent
rate then then maybe take action on how we feel about that once we sort of see
it that's a really really vague way of making a motion in formal since there's
no not a quorum of the whole committee won't be a right motion but it's an
informal so any feedback on that Susan you're uncomfortable yeah okay
people feel more comfortable my understanding is like the main reason
this bond proposals before the city and for us is because we're expecting growth
we're expecting to need these roads to be wider and have more traffic and to
handle more growth I mean it seems counterintuitive to not expect to have
this growth that you're planning for to make these streets wide otherwise why
would you be widening the streets so I mean it's it's kind of to me they feed
off each other if you're gonna project the growth and you're gonna project you
need these roads couple of these roads it's already that should have been done
ten years ago yeah and I think you have a high school that's really yeah one and
I think the community is gonna say yes we have to have this for the high school
because there's too many parents who have waited in line so my to my CPA and
to my former city CFO what would be a great that you know taking Tim's idea
what would you a rate be you would be comfortable with I'd be comfortable with
five going between six and four yeah five okay or four and a half you're
getting too conservative at that point I'll just be honest with you I think that
when you do that you're you're asking the voters for a big number if you want
to do all the projects that need to be done well well but I think I mean I like
the more conservative approach that if you it's it's if you under promise and
over deliver because if you say five percent and with this here's here's a
rate increase we're gonna have to have a five which is not as high as four but
certainly less than six and how do you defend five percent well you know go
back to when it was negative in 2010 and you know there's a lot of other things
in there too that we have the sales tax which is part of the part of the half
cent that comes back you know we've seen what's happened to sales tax in the last
year so and it's the fact that most of the growth has been driven by value on
existing properties not not this point in fact we probably lost many properties
that were paying tax to University of North Texas or hospitals becoming not
for profits I mean I'm having said that I'm good with five Eric how about you
well I just to repeat what I tried to say earlier maybe not very effectively I
think I I just want to see what the ballot initiatives is gonna have to look
like yeah so if we need to be the ones who direct what growth percentage is
used for that assumption then I think we need to look at the recommendation of
four percent and maybe a different recommendation and understand what
governs our ability to actually claim a percentage on that language on the
ballot you mean we need definitely as far as writing the knowledge we can we
can write in whatever scenarios you'd lying multiple scenarios that's no
problem so we have that we have to five or six cents per thousand dollars what
is that on the average house that's that's different right your average tax
bill is different than the language we have to have on the ballot correct yeah
so it's $100,000 so right on the debt service side also when you think of a
percentage tax bill increase they're not just thinking of the city they're
thinking about the entire right you know they're thinking about school districts
and everything and so somehow if we can I don't know how you saw it but it's got
a bit smaller say it's about about a sense about $30 it's $30 a year so then
that makes a lot of difference I mean I need that exact amount but also the the
part of the equation that's within the city's control is a right it's not the
assessed value right right so if you if you build in you go into a bond and you
say this is a potential rates we could be based upon this growth rate if you
exceed the growth rate you always have the ability to back down on the rate
increase right but you're not gonna have the ability if you don't have the growth
rate to say well we missed it instead of five cent increase it's gonna have to be
seven cents because that's when you start cutting programs for extending the
projects yeah well I guess to my early concern you know if your growth or if
the actual growth falls short of projected growth and your debt service
rate has to increase you have lower flexibility to you know replace roads
that you need to replace later which then means we're in the same boat where
everybody's gonna be on the roads continuously playing catch-up yeah John
I know you're you're biting your tongue I'm not a banker so I but if you're
going to a bank they ask for a five or ten-year business plan they look past
that's six point nine six four percent of course I just took the numbers that
you had on the screen it is the last ten years includes the negative one and a
half percent and that's where I came up with almost seven I'd probably be fine
with six percent because that's what they presented was a four and six and
eight and it sounds like everybody in this committee threw the four out
actually because nobody said four so as far as my understanding is I think the four
should be out and we need to be deciding something closer to six that's not what
I said I would prefer four actually I was thinking five was a compromise so yes
since we're in the since we're in the court in the military you always look at
three courses of action so we're gonna look at three courses of action so about
language for four percent a five percent and a six percent if I could add a small
thing to that perhaps if there's I think those are great I don't really know what
area cities in Texas or what the right region is to consider how how have they
what percentage have they put on their ballot initiatives say in the last five
years is there a general rule what's the methodology as far as the verbiage or
the adult percentage the assumed AV growth I mean up to this I don't know
that the assumed AV growth even is included now moving forward so I think
it's really just been focused on what is that depth increase and that's really
gonna be yeah that right that's gonna be so determined it on the size of the bond
package and other considerations yeah it just it strikes me as odd that you you
put a ballot initiative in front of people where you have to give specific
numbers and those specific numbers are based on a growth assumption that you're
not putting an initiative well yeah I think when you see the language it's
pretty complicated already and there's a lot of numbers so the more you put on
there but I think there's two things there's there's what the ballot
language is and there's also what the what the explanation of the program is
going to be and you can all you can always include that information in that
area but yeah I appreciate the four five and six examples and what that would
look like could I just also ask do we have any kind of projections about
housing developments that are going to be coming online over the course of the
next five to six years commercial development that's going to be coming
online in that time frame that would it would in turn be something that informs
our projected growth rate because of these things that are at various stages
of coming online well isn't that there's 707 approved
developments I Tim when he's looking at a number of projects or projected value
yes well we haven't obviously yeah I mean we haven't said here's the
development we haven't have coming on next year and made those assumptions we
can definitely look at that and see what the best way to incorporate that is so
my suggestion would be to bring those three courses of action back to us and
that changes quarter to quarter but but we also know for example that and and
and admittedly it's it's still very vague but that you've got Hunter Ranch
and coal ranch that could be at the end of this because it conceivably when
they're starting to come online or that there are other developments that are
occurring somebody was telling me about the development that's occurring over
by the Walmart grocery store that's now now coming on well and PNC just
approved chairman drive that's a major development got approved yeah you're
right so that come to council this month so I mean even if you ignored on our
bridging coal ranch there's other significant developments that are
definitely wheels are turning will start will be coming online in this time frame
but historically we only had 420 440 million right that's why big number to
make an impact on valuation you know 12 billion so are you comfortable with that
approach yeah absolutely we can come back with everything requested thus far
as far as a timeline I'm assuming you want to have another one of the this
group meet again we can talk about that now not next week so not not every two
weeks do you want it we can do it all the same
I actually have one question it goes back to my original question the purpose
of our committee is it to pick and help the committee establish a percent and
all I've heard us do not to be this you know the thorn in everyone's side is
three more numbers so I thought our committee was supposed to pick a number
and then that's what's presented to the other committee not three more I agree
but I think to see the three numbers to pick a number so I think Eric's point is
is and I agree with it is there's language and it's all in the a lot of it
has to do with the presentation and to the public and to see those three
scenarios and then we can then I think bring a motion or we can't bring a
motion in this group please make a recommendation to the larger group this
is what we think should should it be you know is it four percent probably not but
you know these guys put a lot of effort into it and haven't been a government
bureaucrat for most of my life I want to honor their hard work and and their
understanding implications the wording is going to be identical in all three if
we see if we don't if we don't look at all three then we're basically in my
opinion making a decision without really understanding what the sensitivity is of
those decisions that makes sense I understand if you're gonna have three
options but I would really like one of them to be based on historical data can
can it can we not go with these numbers that everyone keeps pulling out of here can one of them be whether it's 10 year, 15, 20, you all want to pick what that data is based on, can we have a number that's actually based on historical data?
I've built a lot of performance you know I just did a ten million dollar deal in you
keep you don't have to have the exact number sometimes we're trying to
communicate very complicated topics to a very uninformed public and to be able to
just say well you know this is a range that we looked at I think is not
unreasonable so am I wrong in that? I don't think you're wrong you know I guess my question is so then what I'm hearing the committee saying is you're
comfortable with 210 is that is that what I'm hearing the subcommittee saying
is it you're comfortable with 210 it's a matter of is it four is it five is it six
percent is it eight percent and then what does that mean on a potential tax rate
increase is that kind of what I'm hearing yeah in my business I have to wear many hats for government's sales and I'm totally agreeing this has to be sold to the general public if we pick a 210 million dollar bond program or whatever that number is this eventually has to be sold to the citizens of Denton and the more
conservative we are on that number the harder it is to get the citizens to approve it and that's why I'm really focused on the statistics and the historical data because that is helping us I don't really I feel like everyone's fighting me in this room because the better and closer we are to the statistical data of 6.9% over 10 years is going to help us sell this to the citizens and that's why I'm kind of like not understanding why y'all fight so much you want to be conservative and all this but so I'm gonna take the opposite standpoint did you
live here in the 1980s okay what happened to home values in the 1980s what happened home values in 2001 what happened home values in 2008 great so instead just follow that pattern and every seven to ten years you can expect an economic downturn so we can
realistically expect an economic downturn sometime in the future we are in the
longest bull run bull market ever is that accurate statement so let's hedge our
bets a little I think John if if I thought 8% was was was a realistic number
I'd be I would have brought to you a 400 million dollar bomb program not a 200
million dollar bomb program I think you know by staying conservative and I think
6% probably still a conservative number just to be clear with you you know the
reality is if if in three years things work out the way we hope that they're
going to work out then likely we'll be back to you or to another committee for
another bomb program you know that could be parked it could be far more extensive
than what we've presented here you know and so but but again I think I think the
210 if the committee the subcommittees making that recommendation that's you
know we're at the 210 and then we can bring back as many scenarios you want
with the ballot language and have you make make a recommendation on what that
needs to be so I I think the one thing that goes with that 210 question because
I think it's a really important question is are we leaving something out that the
committee as a whole is going to want is that are we going to need to put park
land into this bond to go above the 210 to go above the 210 I think and I'm
really saying is that something that the committee is going to you know if we if
we were to assume 210 and the committee says no it needs to be
250 21 what you know are we then yeah are we then trimming something else and
up I have a point I'd like to agree with that comment because there's a lot of
things that I actually haven't really pushed for in the committee meetings
and one of them is street lighting I agree yeah I agree street another thing
that I've talked to the city about is East McKinney Street and I don't have to
make a formal comment in the meeting later tonight but I don't I want to see
East McKinney as a possibility on here for us to consider and think about and
I'm talking about the section of the city took over thanks to the city for
doing that but now the city is responsible for widening McKinney all
the way to Luke 28 and that's a very busy road it's I'm just saying there's
those are two things that one's on here and one's not that would definitely
impact why I'm saying we need to be better on our rate here because I don't
think two tens enough well if you if you're moving towards a five to a six
percent area you can probably obviously bump that number up to 230 240 my only
concern with you know I think we just need to crunch the numbers more because
the city's never been in a position growing this fast where we've had to
face a rate rollback and I think what I'm concerned about to be honest is if
we're wrong and we don't perform on the you know and hit these numbers and then
we have to go to voters saying we've got to hire more police officers and we need
you know is that going to get held against the city at that point and
there's a there's a fine I totally agree we could probably come up with a billion
dollars in need here and there's no question but the question is every time
you go out to the voters you need to be able to say this is what we told you
this is what we did and I have it just David never talked about this yesterday
it's just apparent to me that in three four years we're probably going to be
going to a rollback election given our public safety needs in particular where
I've been taking vacant positions since I got here and we've moved 20 of those
over to the PD but they're way behind and so I'm worried that we'd be able to
perform you know do what we say we're going to do report back that we did that
so when we need them for operational help down the road given this new
legislation that we've built that track record when do you think if if ever
assuming no downturns those kinds of things when do you think the next bond
package would be needed to come back to the voters probably three or four years
and so that parkland could be in that street lighting could be in that so
probably so one of the things I was wrestling through thinking through is
what are there other sources of to pay for some of these requirements so yes it
parts the answer is yes and street lights we are looking other other
electric utilities then municipally only the utilities in other communities about
50% it's a 50/50 split about 50% put in everything and the other 50% the city
puts it in and and in the MOU takes it over in Denton the city puts it in and
then the DME takes it over we're looking at how can we phase that onto existing
streets that already that we had not new streets existing street corridors how
much can we afford within the DME budget and so that is something we're currently
working on and could help address some of that but again we're still looking at
that and I'm on the park side we're also looking at what are essentially impact
fees for you right that go into funds that can be used for parkland acquisition
that Gary mentioned last time as well so those are some other sources of funds
that could be used for open space piece so it's $24.99 a text out route yes and
did they not put in light no text out apparently made that change a couple
years ago on new roadways that are constructed they no longer put in
streetlights so we're now having to account for that and we actually we had
to pay for an upgrade to I-35 for lighting otherwise you'd be coming up
from Dallas and all this and be dark and Denton so I think the consensus is 210
is what we want to shoot for and then we're still thinking through whether
open space and street lighting are above the line or below the line and that we
then want to look at a four percent five percent and six percent ballot language
and what that looks like to meet after on July 11th seems that three o'clock so
if we did say we met here at three o'clock to go through the scenarios I
think as we talked to the schedule for the whole committee agile dry 11th
meeting for the committee in the hole I think we really have to get to that
point where you all start talking about poor prioritization and going through
that exercise so they don't kind of set the stage for your conversation as a
committee on what goes below and above the line and you've already prioritized
right these are priorities are just staff we're showing a recommendation
this is not we're not set with this but this is just for discussion purposes for
the committee there just aren't that many projects here that we're gonna you
know we're gonna really be and I and and if it is the case that we're at 210 then
I I don't see that we're gonna be talking about cutting anything it's
already been cut the staff has already done that no I'm talking about it
street lighting is not in their open space that in essence the staff
recommendation right now has cut it to 210 or 209 whatever that right but is
there any flexibility in the current staff option column like on Ryan Road
to divide that back down to 4 million and then you know use the other four to
buy street lighting or sure and in the grim Jim Crystal we can take it we can we
can try to find other funds for that especially if the council increases the
impact the which will be recommending shortly so you do you do have a little
bit of flexibility we moved we moved the street rehab program that that number
has essentially doubled after we met with the committee last time and we had
that in-depth discussion about our OCI rating so yeah you could you could say
you know what let's move that back to 55 million or whatever and between that
and Ryan Road we've got some money for street lighting open space you can
certainly do that but to your point Tim yeah we did prioritize the the projects
I would the only exception that is I put the firing range last up on prop one so
the committee could see it and you know we just don't get very many opportunities
where we can possibly bring in two to three hundred million dollars of other
people's money so that was that was a huge that was a huge driver for us you
know and then the street rehab we've got dollars going through 2020 so we need
dollars starting in 2021 again but that number could go down a little bit we
just wouldn't be able to make as big of a run on the OCI but if you felt like
that was the trade-off to get street lighting and open space dollars that's
fine so I think to the question of is 210 the right number I'm kind of I'm not
as concerned about a specific number as I am about making sure the projects on
there will easily pay for themselves with the assessed value of the residents
that they support right but that will be a full committee discussion I'm sure as
we go through them all right as far as dollars go I think I think actually maybe
I should ask what's more important the dollar amount are how it affects the
taxes and the effective tax rate I think that's really what we're supposed to be
deciding if we want to keep the effective tax rate below 0.05 and and we
agree on you know whatever the percent it's five percent let's just say then
that should be what determines how much this and I push back on that and that
I'm more concerned about preparing for when I 35 becomes a mud hole in five
years and preparing for Denton High School and preparing for all the growth
and that's good experience mainly on the south side of town and you know we can
say well we're gonna we can pat ourselves on the back that we kept the
growth rate under a certain amount but we shortchanged ourselves for future
growth that we know is going to come and people are going to behave in life
because we don't do everything that we knew we should have done like we should
have done with Mayhill Road and Luke 288 does that make sense
I'm actually gonna bring up later tonight about Ryan but it's because I
think Ryan and vintage should be connected so I don't I don't agree with
making it a two-lane road in the center median because I think it should be
connected to vintage but that's something I'm gonna talk about later
just leave it alone taking it out yeah well I wouldn't spend any money on it if
the city doesn't what I'm getting at is I would take it out and say don't do it
till you know what you're gonna do with the road if you don't know if you're
gonna connect it don't spend the money right now but that's because I feel we
should do street lights and I feel there are things that may be more important
make you know I'm just saying as far as the long term we don't know I mean it's
kind of up in the air whether they're connected or not connected it's all I'm
getting at and I've seen cities build things and then ten years later like I
35 actually five years later tear it all up again because they want to put an
express lane down the middle but well that's not the city events that's the
thing well I don't think that's gonna happen with Bonnie gray I don't think
there's any intention to tie Ryan in the vintage of Todd's data that he shared
last week or maybe two weeks ago I mean we haven't shared with the committee yet
basically that Hickory Creek provides such a significant reliever they just
didn't think it was worth moving forward it does need to be rebuilt or
upgraded at least resurfaced if not and improved in some areas which is where we
came down that four million but there's no intention we have one committee
member advocating to tide in the village but Todd it was not in agreement with
her
any other thoughts so right now we're probably two propositions if you were to
add open space you'd have to add a we'd add a third of proposition but street
lighting could likely just roll into our so so actually what's not here and you
spoke to it earlier but there's nothing related in the public art component
there's got to be added in the price so that's about nine hundred thousand and we
have this kind of five hundred thousand gap here so that we would have to find
a way to fit it in depending on councils direct or the committee's direction and
that would that would likely all be in public safety because we no longer do
public art on the correct correct with the current policy but we'll bring that
up again with the committee this afternoon
well we discussed or that I mentioned having this group come back together on
July 11th wanted to finish that thought so David and I talked we really need to
wrap up business as a whole committee on July 18th correct I think as we look at
the schedule and we'll talk about this layer 18th is one goal I think we can
easily do the 25th as well as was our original plan we've kind of pushed our
dates go to council to August 1st so we can easily fit in the July 25th date
given where we are now that we haven't gotten to the prioritization
conversation it's I imagine we're probably gonna need that July 25th so
that would give us three more meetings all right so if we could meet July 11th
and come up kind of commit to come out of that meeting with a recommendation to
the full committee right of a specific dollar size as a target and then
recommended a B or tax increase which is what you're looking for right yeah
it's well I feel like when you're talking to voters that's what they care
about is their pocket yeah that percent increase and how it's gonna affect them
and that's why for me to be closer to the seven like said I'd agree to six
because it's a percent lower than seven and a percent higher than five I don't
know but but we're our committee we're supposed to make that recommendation as
a whole so as far as I just feel like the better we project closer to what we
think it's really gonna be the easier it is probably to sell because that
projection is higher than what the conservative number is and it may allow
us to go above 110 but that's still a debatable whatever the county to ten
that's all right yeah I think that's a good direction one thing I heard city
managers say earlier was that the city hadn't faced a rollback election
recently and that it's looking increasingly likely that that may happen
in the next three five years so I think I said this earlier but I'd really like
to understand if if there is any relationship between these different
options and how soon or how much that is likely to happen because I think that
plays into what is responsible to ask the voter for at this point so does
everyone understand what they mean by the three and a half percent rollback
election no so kind of back to the understand that's great to the
discussion I'll just pull this up so you can see which other three and a half
percent rollback here this was eight percent it's now gone to three and a
half percent so it's what we were talking about a little bit earlier where
that maintenance and operations piece for our operations our property tax that
goes to the general fund if that rate goes the calculation kind of works is
really focused on that if that rate goes up to the to the taxpayer to an average
taxpayer essentially from existing values to current values if it goes up
over three and a half percent with a tax rate we're putting forward we would have
to go to the voters on it for an election on our operations now if that
in November of that year that election failed we have to go back to our current
tax rate okay so the election would say do you want to hire these police officers
or roll your taxes back how does that work all the specifics on the language
are still being developed so that it's all fresh but it's most likely I'm sure
we have some kind of justification we can put forward for the operations cost
but it's gonna be specifically on do you approve us going to this tax rate or do
we or do you think we should go back to that lower tax rate and it's
automatically triggered this on now it's automatically triggered whereas previously
it was a petition that you had when it's 8% you had to have a petition to get to
that point so now if you go over that three and a half you're automatically
there so what we've tried to show here is that it's really me between that one
and two cents increase is gonna trigger that for us in future years there are
some caveats with that one piece of it is if we don't go up say all the way to
that 1.3 that we get to bank some of that for future years but it is a
significant constraint on us in those future years especially as we're looking
to hire significant amount of officers and different things and I think I just
want to be clear for Eric to that my understanding is we back out the debt
service rate so it's not as if it's not as if the debt service it's really
convoluted it's not as if the debt service rate hurts us there it's the
story we tell the voters this was our plan we've been able to execute our plan
so go ahead and support this next it's it's all about credibility right here's my point
do you want to meet at three again on that 11th or is going to be a three or
would forward what would be better for the city staff for for is fine to keep
you guys from having to wait around for school okay so we'll meet again on July
11th at 4 p.m. in here yep and we'll come out there with a recommendation of
full committee all right thank you all thank you thank you I will miss the July