Saturday, September 12, 2009

Coming attraction - Woodlands Bond Election

Oh no! some say. More taxes! No no no no no!!! This is a case where you pay less for more. This is a yes yes yes proposition. Please vote and do it with a "yes" in the coming election. The assumption of  32.8 cents-per-$1000 value assessment on resident properties requires a yes vote. We need to sell low interest bonds to finance big ticket items like fire stations, parks and other obligatory high cost asset expenses.  Earlier, as the township contemplated how to develop an affordable budget for operations and capital expenses, it had to look into financing options. The answer is to finance parks, pathways and fire stations through the sale of bonds. That will be a  win/win for residents, investors and the township.

There are three items to be placed on the ballot. Legally, the township must have all three. Bonds must be grouped so that voters are able to select which grouping(s) they support and which they do not support. Each grouping must have a similar  purpose. Non-similar purposes cannot be aggregated as one line item on the ballot. Assets or programs having similar purposes can be aggregated. So, legal compliance requires the placement of a minimum of three items on the ballot, each having a similar purpose:
(1) Fire stations - $17.335 mm. (a) One fire station is required for Creekside Park Village. The temporary station there now must be replaced as soon as practical. The accommodation for the fire department personnel is not practical for long term. Personnel will be using this substandard firehouse for two+ years before we can finance and construct a permanent one. Without a fire station, those residents experienced a 25-minute average emergency response time. Their backup remains slow. A full service fire house is required in this area to protect current and future residences and future businesses. (b) One fire station is also required by Indian Springs, which is experiencing a substandard response service level in parts of that village. An average response of 5 minutes is required to receive the ISO 2 rating we now enjoy, however the actual is 8 minutes in parts of Indian Springs! The Woodlands has been planning and promising this station for the last five years, long before the township was even thought of. Both facilities are necessary investments and needed now. The union contract with the firefighters must also be honored by the township. These stations have a life of 30+ years. (c) Renovation at the Central Station is also required. A study in 2003 revealed that the construction of the current station is inadequate and below standards for renovation. It has to be totally redesigned and reconstructed. The need goes beyond just replacing the 30 year old building. The Woodlands needs to have their dispatch team located there also. This facility was originally designed for a "small" woodlands fire department and today the modern technical requirements as well as the requirements of  the community must be met. The Woodlands currently pays for rental space in Shenandoah for the its dispatch team.

(2) Parks and Pathways - $12.380 mm. These facilities also have long asset lives, 30+ years. Residents are contractually obliged to pay for 50% of their development. This commitment was part of the formation of the TWA, the homeowners association for the villages not in the older WCA. Essentially, these facilities will be part of the development of Creekside Park. This is the same obligation used to finance parks and pathways in Sterling Ridge, Alden Bridge and other recently developed neighborhoods and villages. It was part of the TWA resident assessment rate. The township inherits and must honor this obligation as part of the transition agreement.

(3) Refinance existing debts - $20.225 mm. This ballot item will enable us to reduce our interest payments by refinancing our current debt, incurred primarily from building parks and pathways in recent years in TWA - part of the transition agreement. These are short term higher interest loans, to be replaced by long term low interest bonds. This helps enable low interest bonds for 20 years instead of 5 or so years, improving our cash flow and opening the door to lower taxes that we were promised and demand from our new government entity. 

All three propositions are needed for us to go forward with the lowered tax rates. Why, we ask, do we need to vote on it if it is simply a financial process and not a decision to incur the debt nor a decision to construct the assets? It is the law that in order to finance anything with general bonds, a governing entity must put the bonds out to the voter. It is a broad law and does not differentiate between bonds of choice vs bonds of election. For us it is a slam dunk. Some political circles feel bond commitments introduce additional risk for changing to a municipality in the future. I do not see this as a valid argument to vote no. There could be some hurdles in order to transfer debt to a municipality, but even if there are difficulties, our legislative representatives will deal with that if they have to, in the future. We already had one bond sale for the township, as it is. Laws are meant to be changed when a valid need arises. It might mean we will be required to have the bonds reassessed for risk to protect investors, but I would not expect any bond measure to disable the feasibility of becoming a city. Leave that as a separate issue.

There is a cost to bonds. We are expecting to pay 3.16% issuance fees. This allowance is included in the proposal which will total $49.490 mm. Timing of the sale of bonds is unfortunately more distant than one might desire.  The bond money would not be available until June 2010, so construction could not start until then.

A yes vote for the fire station bonds simply means that the schedule of constructing the fire stations will provide the relative service level in the Village of Creekside Park about July 2011 and in Indian Springs on Jan 1st, 2012. Otherwise, there is no project contingency plan that I know of yet. I would expect that we would do as the TWA - use bank loans of higher interest, likely requiring us to adopt higher taxes. It is possible that the township would defer one of the fire stations. Deferring the Creekside Park fire station could result in a lawsuit. 

A yes vote for the pathways and parks should enable us to retain the current tax rate as well. Otherwise, its financing falls to the same strategy as the fire stations - finance through a bank and use whatever funds we can until the next tax rate, then hike it as required.  Taxes are set on the obligations and needs of the community.

A yes vote for the current debt simply means that we save money through lowered interest rates and by financing for a much longer term, improving cash flow and reducing the tax rate. Otherwise, the tax rate will have to be increased to pay down the debt much earlier than if we financed through general bonds.

We expect to get AAA rating for the sale of our bonds. That will get us favorable rates. The township is anticipating that bond rates will remain low into mid-year 2010. November 3rd will be the date for the election this year. The bond election details have been submitted for inclusion onto the November ballot.

Related article
1. Development of the first budget of The Woodlands Township

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