Travis County Commissioners Court
March 18, 2008
Item 15
Let's call up item no. 15. Review and take appropriate action on recommended update to the Travis County debt policy, chapter 21, Travis County code. Let's indicate our intention to go to 16 after 15. You have a letter from me with a number of attachments. The background to this item is -- in recognition that there are a wide variety of capital projects of some considerable size looming for a potential bond election in the future. We did an exercise to see whether a hypothetical $300 million worth of death could be readily absorbed within our debt capacity, not having anything to do with debt service or affordability. Realized we went over what we have called the white lines, one of the key variables that we have used for over 18 years to help guide the -- the amount of debt that Travis County has issued and has been -- was developed 18 years ago in conjunction with the bond rating firms. Well, we realize that one of the key -- key variables was -- was the amount of debt per capita. It was $500, we went over that $500 limit and stayed over that $500 limit and then all of a sudden the light bulb came out -- excuse me, went on, it said $500.18 years ago is not the same as $500 today. And a review of the labor bureau, labor statistics revealed that 500 in 1990 is $800 today. We thought it would be appropriate to update the -- that main key element of the debt policy to simply inflation adjust the $500 to $800 so that when sometime in the future, which I assume will be in the next six to 12 months, you begin to deliberate the magnitude of your bond election, or maybe it will be 24 months, that you have a debt policy that will -- that will accommodate the magnitude of -- of likely debt issuance. So since we were going to propose a modification to the debt policy, we thought well, you know, there's also this -- this overlapping debt, which we all have discussed for many, many years with the bond rating firms and the bond rating firms have recognized that overlapping debt, which is the total amount of debt that all governments have incurred, within the region, is not something that Travis County can control. And indeed it is somewhat unusual for -- for the county governments to be tracking that or using that as a -- as a limiting variable. But we should still know about it and we should -- we still should track it. We thought it would be wise to have primary variables, secondary variables. Before we went, made any recommendations, however, we took a look at the moody's analysis and report on variables of the 48 other triple a rated counties in the country. And we -- we supplied that material to you. And as you can see, we currently have a little over $500 in debt per capita, that can be compared to a high of 34 -- over 3500 in one county in virginia, which is triple a, all the way down to $29 per capita for another county in iowa. The media is 476, the mean is 791. We are suggesting that we go from 500 to 800. Lad patillo has consulted with the bond rating agencies and we have consulted with susan spitaro, both concur with the logic of this recommended change. We then decided well let's see -- there are two real pieces to a debt question. One is debt capacity. And it -- it's analogous to, well, you go to the bank, the bank says I can loan you so much for a mortgage. Well, but can you afford the mortgage. So you might actually have more debt capacity than you can afford or wish to afford because you have other obligations. Similarly, with the government, you might have debt capacity of a certain amount. But you are going to have to tax for it. You are going to have to have an increase in your debt service payments, an increase that is going to then be translated into a tax rate. And that's what the -- what the bond election is about. Voters say yes, I’m willing to be taxed for this valuable set of programs, or no I do not wish to be taxed for it. And that's really where -- where the -- the bottom line decision will be made. So you may -- what this does is -- is increase the capacity but does nothing with requests of -- with respect to the question of -- of the affordability of whatever bond package you decide once the various projects become more mature. Some of these projects are relatively mature. Some of them, as you know only too well, are still in the planning stages. That's the short review of this. We also took an opportunity, since we are reviewing the debt policy, to update a few words here and there to make them more reflective of contemporary circumstances.
>> I have two questions. One is -- the -- this per capita debt ceiling is based on all of the debt by entities in Travis County.
>> no, that's overlapping debt.
>> okay.
>> Travis County debt per capita is proposed to go from 500 per capita to 800 per capita. Overlapping debt is all of the entities of the city of Austin and Austin aisd being the two largest issuers of debt in the region.
>> do we know whether they have -- whether they have a limitation on -- on -- or a guideline on per capita debt.
>> the city does not.
>> aisd?
>> I do not know about aisd. I know that the city, I have reviewed the city's financial policies and they have -- we actually have more variables than the city does. And they do not use debt per capita. Their debt is $900 million, over $900 million. Ours is 586.
>> we use that $500 limit in the past to -- to help us how?
>> that's correct. It has served us well. It's just as inflation we were under it.
>> the question mark at the end of that. How? Help us in what manner?
>> when -- when you have reviewed the list of projects, that are valuable and all of which have proponents for them, frequently they have added up to much more than you might be able to afford or have capacity for. That $500 limit has then been used as a tool to help pare down 7 the -- the vast array of valuable projects to the most valuable projects. So giving some hypotheticals, well, no, some -- not hypotheticals, some history, we have come forward during bond election time and citizens bond committees and said in essence you know we can really afford a -- an x hundred million dollar bond election. But there is two or three x on the table. Of projects. And -- and that -- this -- this variable, along with others, has been used as a way to -- to -- to cut that down and keep Travis County within a reasonable amount of debt. Because everybody has gotten a -- typically a -- there's a much more -- I won't say unlimited but there certainly is a much larger need out there than typically has been able to be accommodated. So ...
>> judge, the only thing is I think in the past we looked at overlapping debt because for the ordinary taxpayer out there, they have to look at the bill and so I have got to pay this to Travis County, this to the city of Austin, this to aisd, this to a.c.c., this to the hospital district and -- and while they all vary it's still -- it's still, you know, a payment that the taxpayer has to make.
>> yes, we are not proposing not to look at it. When you look at proposed debt policy on the third page, we use -- we would -- we would have four -- four variables. And what we are proposing is three primary and a secondary. Now, you may be objecting to placing it as a secondary variable in which case perhaps it shouldn't be secondary, but we certainly are not proposing to exclude it as a concern. We are saying if we are over the white line, over what we would like to have, Travis County as a government can't do much about it. Because there are dozens and dozens of m.u.d.es and wcid's, the school districts, not just Austin aisd. The other school districts have quite a bit of debt out there, I mean, the -- the del valle has 175 million. Pflugerville has 282 million, manor has 176 million. Lake Travis has 200 million. Those are -- that's not criticism. That's just an observation that there's a tremendous amount of debt and a tremendous amount of need that they have and their actions can affect overlapping debt overall.
>> yeah, because I think when the ordinary person goes to try to get a loan to do whatever, they are evaluated on how much they can borrow depending on what they make.
>> yes.
>> on what they earn. So you look at the ordinary taxpayer, how much does the ordinary taxpayer make? And then gets to pay all of this debt, even if they don't support the issues. And they get outvoted in -- you know the majority rules. And so you still have that -- that out there about the overlapping debt and I think that it has -- it has some impact, it has a lot of impact on people when they look at their bills. And having to pay all of that debt whether sometimes they didn't vote for the project.
>> uh-huh.
>> but they get for pay for them.
>> uh-huh.
>> I just -- some little sensitivity toward that I think needs to be allowed for.
>> do we think the other entities may know about the -- about the capping, overlapping debt? I mean your 4 here makes all of the sense in the world, it's just that I don't know that we have worked real hard to get it done. You say a 5% taxable value for all overlapping debt in Travis County, cities, school districts, others, will be established in concert with cooperative efforts toward sharing this goal with the other debt issuing entities? I mentioned it several times, when you mention it it resonates with everybody but after that meeting --
>> well, we did do something once at a prior time when a prior county judge led a charge, no, developed a committee, the --
>> debt committee.
>> I’m talking about county judge bill aleshire trying to deal with the other governments in the region.
>> uh-huh.
>> trying to get them to limit their debt.
>> [indiscernible] was the result. A technical budget term.
>> d not a g, right?
>> right.
>> so -- that's not to -- to put any -- any negative connotations on the prior county judge. It was just the response from the school district and the city of Austin was thank you very much for your opinion. Look to yourself. We have our own needs. We will go to our voters. If they want to approve it, then we are going to issue this debt because we have school needs and we have city needs and you have needs for roads and jails, so please conduct your business. That was the answer. And it was -- it was -- so there's not much we can do I think. In respecting our -- our colleagual governments.
>> [one moment please for change in captioners]
>> . My opinion is I don't see a problem with raising it based on inflation.
>> one other comment and objects that came to mind about overlapping debt. El as it becomes pore and more of an issue for taxpayers it's conceivable that a valuable and we will thought through bond program could actually fall because of overlapping debt. But that has to do with affordability, taxpayers saying no even though this is an important program, we are being taxed too much in other circumstances, therefore we've got to draw the line. Where that line is drawn is certainly an art and certainly an individual decision on each voter. But that is I think where overlapping debt will become more critical, not with bond rating agencies but just with the average citizen.
>> yes, sir.
>> get this gas by thing off my shoulder, either you or susan. Do I understand that whenever y'all went and talked to the bond houses, that that was not exactly something, even though region slat--legislatively we feel like we got that somewhat taken care of, what is there that I’m thinking that could be still of issue there for the gasby?
>> yeah.
>> if we get forced to do what we know, quite frankly, will whack a lot of people. If you have to take and list these liabilities, what does it do for our 300 million that we may want to issue if we have really got to get to the table with that liability? I mean what potentially does that have for us?
>> two things come to mind on this. One, fral--first of all the issues of gasby with respect to retiry health s is independent of debt. But if Travis County is forced or chooses to incur much larger sets of expenditures because of aging population and the health issues related there to, then that would effect the taxpayer. And it's a little bit like overlapping debt. The more you tax, the more there's some resistance to tax the. So in that sense, it's similar to any expenditure deliberation you've got whether it's pay raises or a new park or a jail or a hundred more law enforcement officers on the street, as you begin to tax more, you are either thanked for your wisdom or condemned for your lack of sensitivity. And so that's I think perhaps the most driving issue. It is a balancing act. The only other conceivable impact I think with with respect to the debt situation would be if for some reason the if the bond rating agency your rating is going to change because you've been unwilling to report certain information and still be consistent with state law.
>> that's where I’m going because that was told us.
>> no, no.
>> it wasn't?
>> first of all, there is no debt that this Commissioners court has incurred.
>> susan?
>> yes, county auditor. There is no debt that Travis County has incurred there are governments who have incurred that debt and there is a feeling out there that everyone ought to be treated the same whether there's a debt or not. This government in the state of Texas took severe issue with that. Our stance was if you've got a debt, you ought to get it on your books. But if you don't have a debt you shouldn't be putting it on your books of how that could impact this policy is some governments who have been, I say, taken in by all the flap are actually going out and borrowing money to put it in a trust fund based on numbers that have been historically unreliable on a debt which they obviously, an obligation which they could because many of them are. And that would compete against this debt. I don't know what christian's thinking is on that but I know what mine is. I just think that would be the most foolish thing we could think of that we would actually go out and borrow dote an obligation that we do not have and put it in an irrevocable trust. So I can't imagine. All of those governments, by the way that did in fact borrow money to get the interest rates that the actuaries told them they kneed to estimate are invested in equities. So you can kind of imagine what their portfolio probably looks like today and will six months from now. Which means they have borrowed hard debt, they have po pay it back. Put in it a fund and invested that. The value of that has gone down. And to replace it they get to tax again.
>> what has kept them, susan, from emulating us? Those governments that you're talking about that have gone out and why wouldn't you just go, okay, Travis County you guys got this thing figured out? Guess what, we don't want to have to go and borrow on equities.
>> a couple of things, Commissioner. One is some of them have a debt. They have made a legal obligation to guarantee a plan for so many years. Some of these states have constitutions that say once you give a benefit you cannot take it back. Alaska, for instance, has that. That's different. They have a real debt. And had you voted to guarantee the health plan we have today for everyone that retires forever, my stance would have been, we put that obligation on our books. Part of it is the factual situation is different. The law that we passed said that we worked on, we didn't pass, obviously, the legislature passed it, is that the accounting records, which are reports that are communicated to our taxpayers, should not misrepresent the nature or duration of any financial activities. And so our stance is we are reporting them on a current basis which truling reflects the commitment which this Commissioners court made under the law. But in other governments and in other governments in other states they have done something differently. So that is different. To add to christian's discussion, because I was kind of the original author of having debt policy many moons ago, we did this as a guide. Like this is not a law or rule of it's a guide. For all the reasons that christian said, a guide for you to look at. Kind of like a foundation, where are we, where should we be. And it's something that you balance against other things, like he said. If in fact the school district is build ago whole lot of of schools and issuing more debt with regard to overlapping debt, do we say we quit building jails here? No, because we have an obligation to do that. So it is a factor. And let me say about the bond rating, because we worked very hard to get a triple a, uninsured aaa. Which means we have earned it. We are not buying insurance to bring it up. But what it means is that if you have a slightly lower rate, and when you borrow, you pay a slightly higher interest rate. There may be issues. People make business decisions based on that. One of the things they like is a big fund balance. A government might say we didn't want to tax for that. We realize we're going to get a slightly lower bond rating but we have decided we don't want to do that. It's exactly what christian said, a guideline for you to look at and just another tool to see if we are reasonable. When he told you the variation in the aaa, what that sells you is that is not a hard and fast rule. A lot of those aaa does don't have a debt policy. We do, we should. You ought to know what you are thinking and how that fits into your planning, but it is one group of guidelines. The other thing is you can always tax currently instead of borrowing if you so choose. It's always a choice. I know during the first recession that we talked about I was fairly new here, and we did issue co's during that time, we borrowed more. And we issueded bonds during that time. And the reason is exactly, Commissioner eckhardt, what you said. And that is at the time the Commissioners court really felt that that was an economic impetus that during the time when the economy was down, that that was a good time for us to put people to work and also get bargain prices on materials and things that we needed. So we did do that. It was the first time that Travis County borrowed for like computers and went into like a five-year plan. So I remember that one very vividly that that was consciously thought out by the Commissioners court to do that. And it was balanced against the other kind of pressure which y'all are very aware of on the general fund. And some of that money you can't debt finance. And because of the nature of our business and the services we have to render, I mean, you get to an economic down turn and you've got a lot of pressure for the kind of services that we render. So what you might say is in order for us to the meet that with operating money, some of these things that we could borrow we should. And they did during that time. They made that as a conscious decision. I don't know if that helps or not.
>> think the debt policy has been a good tool.
>> it's been a very tool.
>> one of the bond rating firms completely ignored gasby.
>> that's right.
>> the other one seems to still insist on some language but seems to soften a little bit on what that language has to say.
>> right.
>> so it hasn't quite gone awayright.
>> right.
>> one acted like it had and so did we. The other one brought it up and we kind of discussed it at length and they seem to be insisting that we use some language to address it but really softened their position. So we can do that. The other thing is when we go out for a bond issue we do try to tell taxpayers if this is approved, here is the impact that it will have on you from your Travis County tax bill. Unfortunately, we're not always able to say what that bill from the city, aisd, acc will say. So I think we should do a better job of trying to coordinate that. At our recent joint meeting with the isc city representatives, we talked about the need for us to do a better job of scheduling that issuance. We say ours is roughly every five years and some of the others basically base theirs on need. Some of them come fairly quickly, others take a lot longer. When you do it that way I think you lose ability to control the tax bill.
>> judge, I just happened to watch one of the school board hearings I believe it was last week of the I think they discussed they are getting trito put out I think 233 million worth of issues in may because they feel that they need the school facilities.
>> move approval of the recommendation to the debt policy.
>> second.
>> and hopefully we plan to continue using it as a tool and refine it as necessary. Second by Commissioner eckhardt. Anymore discussion?
>> judge, just one question. Effectively what you are saying in this memo christian, is that in order to borrow perhaps as much as $300 million you really do need to take and alter this debt policy. Otherwise you really won't be able to do that because you're going to have to stay in that 570 range. Is that really what we're doing with this motion?
>> well, you're linking the two. I wouldn't link them. This is not being done so that you can borrow some amount. This is being done because $500 in 1990 is 800 today and just reflected. Then make another set of decisions independently of how much should you, do you wish to borrow, how much will it cost, for what projects, and go out with a bond election to ask permission to do so. I think that's probably a more accurate history of how this is rather than linking it.
>> it would almost be like saying in our family, we, whenever this 500 came up, we will not spend more than 18,000 for a car, we just won't. And now it goes on and now it is 2008 and we say, we're going out to buy a car, will we buy the $18,000 car? We say no, the kind of cars that we drove doesn't cost $18,000 anymore because of inflation, it costs $27 000. So if we think 18,000 is reasonable, well, it was x years ago but not today. It's really an inflation pushup. That's what it is. And this is not, this is just information and guidelines for you to make decisions on. It doesn't bind you to anything, nor does it say that's how much you ought to issue. It doesn't say either of those.
>> the moment we build the bond issuance project by project. If we believe in the issuance way would simply advocate for support of it and deal with it.
>> that's right. Because the bond rators don't have the authority nor the right to say, Travis County, we don't think you ought to build anymore jails or roads. That is not their authority. They can say, gee, in the scheme of things this is what we think. But that the your decision.
>> anymore discussion?
>> judge, sorry, I just have one point in reviewing this. The coissuance, if you look at the spreadsheet it has 14 million starting in fy '09. I know that is just a number there. But if we do, when we start planning, had a number will indeed will be higher because we hope to do much more planning up front than we have in the past before we would develop a bond program.
>> that number is derived by the at the timel capital needs outside of bonds less car. So what you are seeing is a net number because we have car being used to help fund capital items.
>> just an average over the last ten yearsel that's how we derive that. 24 million over the last ten years car --nco and subtract that. So you know this year was a 2300 car. It's just a plug.
>> all in fair. That passes by unanimous vote. We'll ask when she gets back whether she supports it. She is temporarily away.
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Last Modified:
Wednesday, March 19, 2008 2:51 PM