The City Council approved the sale of $4.2 million in bonds to fund water and sewer capital projects included in the City’s capital improvement program budget at the June 19 City Council meeting.
Bond proceeds will be used for water quality improvements (tank mixers), storage tank upgrades and security, sewer line protection program, water system capacity improvements, and fire protection initiatives.
“These projects are essential for the integrity of our utility systems,” said Chief Financial Officer Sharen Jackson. “But it’s important to note that no property taxes are being used to pay for the bond funds needed to complete them.”
The bonds will be repaid with water and sewer fees collected on the consumption of the services and fees paid on development projects.
“The bonds were sold competitively and we received six bids,” Jackson noted. “We conservatively expected an interest rate of 3.7%, so we were pleased with a low bid of 3.14%.”
The City’s Financial Adviser, Jim Sabonis, explained that the favorable bid reflects the City’s AAA rating, which was confirmed as part of the bidding process, and general creditworthiness.
“When you look at a national index of AAA cities and compare sales for the same day, you’ll note that the national index was about 3.4%. Of course markets move, but Southlake’s lower interest rate compared to rates received by peer cities reflects its credit quality and the tremendous demand for the City’s debt by retailers,” said Sabonis.
Through the City’s use of cash and aggressive amortization schedules when debt is issued, the City has reduced the property tax supported debt per capita from $3,506 in 2010 to $1,682 in 2018, a 52% reduction in that period.
Fitch Ratings has upgraded Southlake Parks Development Corporation (SPDC) sales tax revenue bonds to ‘AA+’ from ‘AA-‘ and has assigned a ‘AA+’ rating to Southlake Community Enhancement and Development Corporation (SCEDC) bonds. Fitch also affirmed the City’s ‘AAA’ Issuer Default Rating (IDR).
The ‘AA+’ ratings “reflect Fitch’s expectation of continued solid growth in sales tax revenues and strong debt service coverage that provides ample cushion to absorb a cyclical downturn,” according to a release issued by Fitch.
The SPDC rating upgrade is applicable to $14.8 million in outstanding sales tax revenue bonds issued for park land acquisition and development. Bonds are repaid from proceeds of a voter-approved half-cent sales and use tax levied for the benefit of the Corporation’s activities. The rating has been upgraded two steps from ‘AA-“.
The SCEDC issue will fund the construction of Phase 2 of The Marq Southlake, a recreation center. In May 2015, voters repurposed a portion of a sales tax levy previously approved for crime control purposes to promote economic development and to fund a community recreation center. (Today, a 3/8 cent sales tax supports the SCEDC, while 1/8 remains committed to crime control programs, most notably the School Resource Officer Program.)
The Corporation/City will issue $26.7 million sales tax revenue bonds for The Marq through a competitive sale on June 7.
“Fitch’s ratings exceeded our expectations,” said Chief Financial Officer Sharen Jackson. “We’re so pleased to achieve high credit ratings, but more importantly we are excited about the opportunity to continue to build a wonderful community.”