Debt management is a key financial principle that guides the development of Southlake’s budget every year. This approach supports a financial strategy that will allow the City to retire 94% of the current tax-supported debt in 10 years.
“The City uses several different methods to reduce debt, including careful budget management, use of voter-approved special revenue funds, aggressive amortization schedules, paying attention to refunding opportunities, and using cash when possible for major projects,” said Southlake’s Chief Financial Officer, Sharen Jackson. “Our approach has allowed for a reduction in the City’s property tax-supported debt by 60% since 2003 in spite of ongoing infrastructure development.”
“Debt as a percent of assessed value (property tax) has decreased from over 3% in 2002 to a projected 0.44% in 2019,” Jackson notes. “For the fifth straight year, there will be no new property tax-supported debt. The City will use cash to pay for general fund capital needs.”
Special Funds Debt
The City has several special funds that are responsible for paying principal and interest on outstanding debt. These include the Southlake Parks Development Corporation (SPDC) for park-related projects, the Crime-Control and Prevention District (CCPD) for safety and security initiatives, and the Community Enhancement and Development Corporation (CEDC) for projects like Champions Club at The Marq Southlake.
“SPDC, CCPD, and CEDC are voter-approved corporations or districts that help support many services that the Council and our residents have told us are important,” said Southlake City Manager Shana Yelverton. “These funds are supported by a percentage of sales tax and any time we take on capital projects supported by these funds or the general fund, the City pays for them either in cash or with Council-approved low-interest bonds that maximize the City’s AAA and AA+ bond ratings.”
The city also has several revenue bonds that pay for City’s water and sewer system improvements. Debt payment on these bonds is supported by Southlake Water Utilities ratepayers.
Paying It Off
At $0.447 cents for every one hundred dollars of valuation, the City of Southlake’s property tax rate supports basic city services such as public safety, street maintenance, library, and community services. It also helps pay off the debt that’s been incurred projects such as new roadway construction. The rate will apply $.0357 for general operations and $0.09 for the debt service fund.
Total debt service fund expenditures for FY 2019 are projected to be $6,186,261 for annual principal and interest payments, as well as related administrative costs. The projected debt service balance for FY 2019 is $5,826,015.
Special funds are paid off through their own debt funds. Currently, there are no debt obligations for the Crime Control Prevention District. For FY 2019, the SPDC Debt Service Fund will cover total expenditures of $2,886,537, and the CEDC Debt Service Fund will cover total expenditures of $2,451,406.
“The City takes it debt obligation very seriously, said Yelverton. “Several years ago, we worked with the City Council to establish a strategy to reduce the debt as a percentage of assessed valuation over the long term. It’s good to see that percentage decrease year after year.”
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.