The wanted city debt, explained by a resident |
Editor’s Note: We have received the following from a reader, who was forced to research the town of Kerrville’s debt situation after reading how a citizens’ petition ended a planned public safety complex for Kerrville Police and Kerrville Fire Departments. We were impressed with the effort, confirmed the details to be correct, and have chosen to share them with our readers with the aim of providing a straightforward explanation to a complicated question.
by John Harrison
The town of Kerrville has a debt of $ 67 million. Some feel that Kerrville property taxpayers cannot afford that amount of debt. This may be a reasonable reaction.
But we can also come to the conclusion that this debt is very affordable when we understand the details.
There are basically three âbucketsâ of debt that include 12 different debt packages (think separate mortgages). The city has assumed this debt over time and one would have to look at the 12 âmortgagesâ to understand the rationale for each project undertaken. But for this exercise, let’s just focus on the big three buckets.
Compartment n Â° 1 holds $ 43.6 million in the Water Fund. This debt has been contracted over the years to pay for water supply and wastewater collection / treatment projects and other utility projects for the city. Over the past 15 years, I remember two new lifting stations, new water wells, a new ASR well, a treated water tank and special water treatment for removing a contaminant from our drinking water among the major projects that required these expenditures. We can ask ourselves if these projects should have been carried out, and these arguments were made at the time, but in the end, they were all carried out by the city councils in charge. So who is paying this debt? Simply, those who use city water and sanitation services and the more water you use, the more you contribute. For some of us, we are striving to reduce the amount of water we use and therefore we are letting those of you who use a lot of water pay this debt.
In addition, non-profit organizations, other government organizations, hospitals, universities and churches pay for water and sewer services, but they do not contribute to property tax revenues. This debt is therefore extended to more than just the property taxpayers. In addition, the city can apply and requests annually a state grant that offsets part of the debt for a specific project. A little known fact – the town of Ingram is charged for sanitation services, so they too are helping to pay off this debt.
Debt service (for the next eight years, declining thereafter) is about $ 4.2 million out of about $ 13 million per year in revenue collected by the utilities department. From my perspective, this bucket of debt is in good shape.
Bucket # 2 is a $ 10.6 million debt that the Economic Improvement Corporation (EIC) has pledged to pay. The city, under a law put in place by the state of Texas, established the EIC over 20 years ago. The EIC is a separate entity that studies potential projects and then makes recommendations to city council for final approval.
Funding for EIC projects comes from an addition of 0.5 cents to municipal sales tax, known as 4B sales tax. Remember who pays municipal sales tax – all of us who shop in Kerrville stores, including shoppers who don’t live in Kerrville. So thank you to the people of the county and surrounding areas for helping us pay off this bucket of debt. State law limits the type of projects the EIC can fund.
Former city council members have suggested that the city use this money to pay for the ongoing costs of running the city. It would be against the law. In accordance with the law, these sums have been used to support businesses that have created new jobs in Kerrville, as well as projects that have improved the overall attractiveness of our city. The municipal councils in place at the time approved all these projects. The amount of 4B sales tax generates approximately $ 3.6 million per year and the current indebtedness is $ 1.1 million per year. EIC members and city councils have handled this bucket of debt well.
Compartment n Â° 3 holds $ 12.8 million in debt. This debt is paid directly by the city, through property taxes. Of this debt, $ 10 million was contracted in 2019 to pay for street repairs.
The street I live in didn’t need this money, but I guess there were a number of residents in the city some streets were in need of repair. The city council reacted to the entrance and added this debt to repair the streets.
Maybe we should have raised property taxes to pay for the cost of street repairs, but I think we all know that wouldn’t have been acceptable to anyone in town. This leaves only $ 2.8 million in debt incurred before 2019. This is the bucket in which the funding for the Public Safety building would be managed – if we had gone ahead with the process proposed by city council. .
In 2010, city council set a standard that all councils have followed since then. They said the city would not incur additional debt if it required a tax rate hike. This was followed and, in fact, the tax rate was reduced several times over the years. This bucket is small and has been well managed for the past 10 years. Another note – the average cost of debt is around 3 percent. This is my calculation by discounting future debt payments.
This is all explained in the online budget documents. My conclusion, after studying this in detail, is that the Town of Kerrville (city council and staff) has done a good job of managing the debt.
Not only can we manage the current amount of debt, but the city could easily incur additional debt if needed to fund the Public Safety complex.