Travis County Commissioners Court
Tuesday, February 22, 2011,
Item 20
>> let's call 20 back up.
20 is receive update and take proposal action on Travis County debt model for possible 2011 bond election and cash flow assumptions.
>> trying to break up the bad news throughout the day.
>> good everyone, judge and Commissioners.
I just wanted to start off -- jessica will walk you through the model, but I wanted to start with giving you a quick overview of what our assumptions were in terms of what you are about to see.
the assumptions on the debt model includes what we have traditionally done with bond fund programs in the past, and that would include roads, parks and open space as well as facilities.
and we have some recommendations in terms of the overall total and also any changes in the direction that we go with regard to some of the facilities discussions that we've been having.
we certainly would say that we would come back to the court and readdress at that point.
one thing I'll also mention before jessica gets in, what you'll see in terms of issuance assumptions that have been made, we've made these assumptions based on a number of criteria, but what we've really been looking at and discussing over the last few weeks are economic conditions, low interest rates, primarily, that we have been able to take advantage of over the last two or three years.
low cost of construction as well as low cost of labor at this point.
and we're looking at potentially in the -- what we estimate to be the coming next 24 months, 12 to 24 months, I should say, we're anticipating that we'll begin to see an up tick in some of the interest costs and some of the construction costs, and so for that arena you are going to see -- reason you are going to see front loading of assumptions with regard to issuing debt and also to keep the overall debt service tax rate beyond 2013 as flat as we possibly can.
so with that, I'm going to turn it over to jessica she will walk you through it.
she's got a power point presentation.
I think it is also included in your backup.
if there's any questions, please feel free to stop us along the way.
>> good afternoon, there is a power point that I have loaded on to the laptop and I called media and hopefully we'll be able to have that displayed.
there we go.
today I'm going to go through a debt model presentation with the court and this presentation is important also because it will be very similar to the presentation that p.b.o.
gives the citizen bond advisory committee most likely in March.
so we want to present this to you, get your thoughts, make any revisions if there are any and then move forward as we go towards a potential November 8 bond election, which is my birthday.
>> [laughter] just throwing that in there.
I'm going to go through review of current debt service as well as the debt service, what I've called the debt service gap which is difference between the f.y.
11 and I want to make the one caveat, assuming no additional debt includes $2 million of remaining voter approved bonds slated for issuance in f.y.
12 which is for u.s.
highway 2890 west.
also a brief history of the debt capacity recommendations.
this next graph is convenient because it does show how long it's going to take with no additional debt for us to reach and pay off all our current existing obligations.
looks like that's approximately 2033ish or 2032.
the next table gives thaw same information in numeric format.
our current debt service is projected to be 74.7 million and that it steps down all the way to 3035.
I've provided f.y.
12 through 16 and through 35.
as far as the debt service gap, I want to talk about c.o.s.
various renovation projects.
we're also issued them for major projects such as the purchase of 700 lavaca, and land we have purchased recently.
c.o.s are generally five years in which certain conditions are met in the Travis County debt policy that is published in the adopted budgeted.
so what I have done here is in the c.o.s, what we've presented in the past and the same philosophy this year which is we look at the rolling average of our capital needs from the previous 10 to 15 years, which includes both c.a.r.
and c.o.'s.
c.o.
funds you get to approximately rolling average of 26.4 million per year that we have been using in short-short-thermoc.o.s and c.a.r.s.
I did not use the purchase of 700 lavaca because that is not something we do every day or every year.
debt service, basically what we found then, assuming the annual short-term debt, basically fills the gap that was available for paying off the debt.
so debt service payments do not begin falling until f.y.
19 which we show on the following table.
and that is shown for you there.
you can see that our annual debt service once we plug in what we predict the county will need for ongoing capital needs, annual debt service hovers still around 74, 73 million, then it jumps to 78, 80 million, then starts coming back down in 2019.
next I want to talk briefly about the 2005 Travis County bond election.
the planning and budget office's recommendation was to -- at that time was to maintain relatively level debt service.
in other words, we recommended filling that gap with the 2005 bond program.
that, like I just said, was not really available this time because of where we're at today.
the recommendation was for approximate 159 million over five years, deducting 40 million for jail beds and our recommendation was about 119 million.
the bond election, just so you are aware, was 151 million and it did include 65 million for mobility and drainage, 62 million for parks and open space and 24 million for jails, facility improvements but 40 million for those jail beds.
I'll continue on unless there are any questions.
part 2 is just a short review of the white lines and the debt model assumptions.
this is something you've seen before, but this is perhaps a part of the presentation that I might make a little bit lengthier for the bond committee because they probably have not heard this every year for the last several years.
we have primary measures and secondary measures.
under the primary measures, there are four that we generally talk about.
that's bonded debt, ratio of toole taxable value which measures the debt burden on property values.
we try to keep this between one and one and a half percent.
we are way below that.
net bonded debt per capita measures the debt burden on each person.
this amount is currently at $800, and even with the recommendation that I'm going to provide you in a little bit, we will be below that.
annual debt service payments to total general fund which measures affordability, we try to keep that under 20%.
we're going to do that.
short-term debt rate service ratio, we try to keep that less than 25%.
this we'll be able to do except maybe in the out years when I basically don't have any more long-term debt assumptions, but for this bond election we are fine.
as far as secondary measures, this is where we've run into trouble in the past -- that makes it sound more dire, it's something we try to at least let you know.
we don't have as much control over this area because it's the overlapping debt area.
and that includes then all taxing jurisdictions in this community.
so overlapping debt to taxable value measures the overlapping burden on property values.
we try to keep this below 5%.
we're not keeping it below 5%.
and we're projecting it will be approximately in the 6 to 7% range in continuing to go up.
as far as overlapping debt per capita, it measures the overlapping debt burden on each person.
I should say on the overlapping accident what I look at is the trend also rolling average of what it's been increasing.
it looks like right now that's about 6.86% per year.
I do want to point out that the school districts represent almost 40% of those debt figures and cities represent about 26%, Travis County represents about 12%.
>> and have we projected that -- given what we know is likely to happen with regard to the shift on to local property taxes for much of what was state provided services, have we projected out what that overlapping debt percentage may look like or is this based on previous trends?
>> it's based on previous historic trends on outstanding debt.
>> well, history is about to change.
>> yeah, it very well could.
>> we're going to see a whole different world on overlapping debt at the local level.
>> let's see.
as far as some of the assumptions, I already discussed that the 2 million of prior authorization from the 2000 bond election will be issued, the current schedule is for it to be issued in f.y.
12.
we are done with the 2005, the 2001 bond authorizations.
the -- as far as new c.o.s, I've discussed we're assumingsing to 24 million a year based on historic capital needs.
that includes c.a.r.
of approximately 5 to 6 million per year.
the interest rates were based on historic review of interest rates for Travis County.
this is the same approach that we took in our presentation in 2005.
they have been projected by p.b.o.
after consultation with the county financial adviser.
they are obviously likely to change.
net taxable value and new construction estimates.
then population estimates are from the city demographer department of planning at the city of Austin.
actual figures for that are actually found in the cafr and it's lagged by a year.
as far as the interest rates, I'll just briefly say that in attempt to be conservative, what we have done is taken the highest long-term rate from the previous 15 years, added 100 basis points, assumed that to be the highest rate in the next 15 years and stair stepped our way up to that rate.
so in f.y.
12, 13, 14, we step it up in 50 basis points and 25 after.
that a similar approach was used for short-term rates and those rates are generally lower than long-term rates.
for what we're assuming for the upcoming bond election, potential bond election, we're assuming a $400 million package in over seven years on this model.
this is a traditional model.
it's what you've seen in the past and what you've known so if anything else is considered it will have to be considered separately.
robbie discussed why the cash is front loaded.
we have the lower interest rates going right now.
we have some pent-up demand.
construction costs lower.
it coincides with how we've issued in the past.
I've looked at the 2005 and 2001 bond election and tend to average 46%.
that's how this was also derived.
one thing I want to point out about the table on the bottom is that the cash flow that I'm showing is only for this potential bond election, however, you need to also remember that there is 2 milk issued in f.y.
12 for the 2000 bond election and 20.4 milk issued in short term c.o.s.
that foe tall debt service is taking into consideration all of that.
taking into consideration the future projected potential bond election as well as the annual c.o.
and then the last remaining issuance on any previous bond elections.
I will say the cash flow is not based on specific projects.
this is a financial exercise so it's just here as an exercise to provide you guidance and affordability.
the one thing that we wanted to talk a little more about was the affordability being the tax impact on Travis County average homestead.
and I do want to point out before I go on also that the 400 million, we are projecting over seven years, which is a little different than in previous bond elections.
I think in the last one we projected over five years.
however, we've had 2 last two bond elections really when you look at the completion be six to seven years anyways.
so this exercise which is 400 million over seven years drives projected that service up to approximately 114.1 million in f.y.
18, given the cash flow assumptions that I've presented.
and that is in comparison to the f.y.
11 debt service of 75.4 million.
this is over 50% increase.
so I want to make sure the court is aware of that.
given the county's financial fiscal strength, affordability will be determined by the tax impact.
I'm going to present two tables.
is the first is give you a quick and dirty how to calculate the impact of 100 million in additional debt, which you can use as a reference.
the second one I use the 182 million that we are projecting to be issued in that first year, in f.y.
12.
so if you turn to the next page, page 19, this table -- and if you want to add anything, please stop me, but this table basically provides the average homestead value.
obviously f.y.
12 was going to impact f.y.
13 because we don't pay until the following.
279,000 is the projection.
then after you take out the straight 20% homestead exemption, you've got average homestead of approximately 223,000.
a very rough and dirty estimate on debt service per million of debt is approximately 80,000.
so for 100 million, that would equate 8 million.
right now we're estimating that the estimated tax revenue for one cent the tax rate is 9 million.
if you do the math is additional is $19.86.
not set in stone but gives you a bench mark to work with.
about $20.
>> that number does not take into account as attached analysis the paydown on the debt.
that's just a straight.
if you issue $100 million, what's it going to cost on the average homestead, about $19.86 a year.
>> correct.
so then the next table is really just a ratio of that.
it's 182 million.
you do the math it goes down to $36.15.
>> using a static, say, number of households?
>> this is based on kind of a -- a a projected f.y.
13 average homestead value of 279.
the projection is that the average homestead in f.y.
12, this morning we noted to you is projected at 266.
this is going at 279.
the net taxable value that is in the attached charts takes into effect the increase not only in the appraised value but the new construction.
and we have projected those out.
for the next 20 or 30 years.
>> this does include the projection for new construction?
>> that is correct.
>> and if you -- if you project population increase, the new construction figure would include that?
>> that's correct.
we have projected population increase for the -- the next 30 years?
based on the state demographer's projections.
>> okay.
>> so all of those -- all of those factors that you've mentioned do mitigate some of the increase in the taxes on the average homestead, and we'll show you that debt rate on the next pages.
>> okay.
>> on this -- excuse me, this table I just want to point out the numbers aren't as important as the projects that are listed.
the numbers are very rough estimates, much more work needs to be done.
this was just something that I wanted to show you that there are large projects out there that are going to be -- need to be revisited in the next five -- what we project the next five to ten years.
but I'm -- I'm not sure that the numbers have been at all fine-tuned.
other projects on the horizon as well, the north campus, central booking, some jail beds, the courthouse.
same principle, I just want to make sure the court is aware there are other large projects also on the horizon.
and other thoughts that I wanted to highlight, obviously the issuing schedule used in these exercises may and will change.
it's not based on specific projects at this time.
the interest rate will also likely vary and change, and that change could drastically have a drastic impact on this model depending on the market.
also I want to make sure that the court keeps in mind that the capital projects, all capital projects, or at least most, require additional annual funds to maintain and that in a lot of instances that means new staff.
the next pages aren't in the presentation.
it's just the actual debt model.
and I think what leroy and rodney wanted to highlight there was the debt service rate that is projected at the bottom after the secondary information for the key debt ratios, there is a debt service rate.
and if you look at f.y.
13, that rate increases to approximately 9.5 cents, but we're trying to somewhat maintain that throughout the bond program.
and that's kind of what was part of the basis for the recommendation as well.
>> just as a frame of reference, when we were putting this thing together, we were looking at both historical debt service tax rates, and if you'll notice going back to 2005, the debt service tax rate was 10.22 cents.
then it rolled down to 8.78 in 2007.
and so our goal there was to try to maintain a flat debt service rate going from 2013 beyond that kind of stayed within those guidelines as well as the other primary ratios and secondary ratios as well as taking into account the market currently as I mentioned earlier by front loading some of this debt and taking advantage of some of the lower interest rates.
so we were attempting to do all of those things as a part of this model and the 400 million numbers that you have before you is what we believe to be a reasonable model within the framework of those guidelines.
>> the increase in the debt service rate from f.y.
12 of .0812, which is slightly down from the current debt service rate of .0819, but the increase between f.y.
12 and 13 is projected at about 1.45 cents.
and on the average homestead projected, homestead value in 2013, that would be about $32.40 on the average homestead increase.
due to the debt service rate.
the other point has to do with the $400,000.
that -- that is the total amount of debt that we believe that you can issue and stay relatively safe inside your guidelines, your debt policy.
if, in fact, any of your projects lend themselves more, need more flexible financing that might be able to be obtained through the issuance of c.o.s as you've done in the past on a facility, e.o.b., 700 lavaca, you built jail beds did c.o.s, those that were mandated that you couldn't get around, then you would be deducting any of that c.o.
that you anticipate you would need on those type projects from the 400.
we're not suggesting that you add anything on.
we're attempting to identify a ceiling for you that we believe financially would be safe.
>> 400 million.
>> 400 million.
>> I think you slipped and said 400,000.
but 400 million during the next five-year span.
>> over the next receiver seven.
we have spread it out a little more.
>> that would be debt serviced by the interest and sinking fund.
>> that's correct.
>> any other debt that we cover with m and o revenue would be excluded from that.
>> that would impact this model so we would need to take that into consideration and provide you an update on what that would do.
>> say we entered into a lease for a building rather than buying one, you make the lease payments from the m and o.
>> that's correct.
>> so how would that impact the 400 million over the seven-year period?
>> we have assumed it would include all of the traditionally bond funded projects, parks, open spaces,al was as the facilities.
if the decision is made over the course of the next few weeks to go with an alternative financing route for any of our facilities, for example, if that decision is made then obviously what we would recommend is that we would come back and revisit this debt model with you, assuming that the m and o portion of the tax rate would pick up those costs.
so in other words, we would recommend reducing that 400 million accordingly and rerun the models.
we certainly would not -- and we've had a lot of conversation about, we would not recommend issuing 400 million in debt and adding on top of the m and o for something like that.
what we would recommend is revisiting, but based on what we know today and what we've traditionally done we wanted to provide with what we believe to be the ceiling for the debt service assuming facilities were included.
>> a question.
you know, we just appointed a person to serve on the bond election committee, and I think I heard sometime in March we would probably have them to review some of the -- well, this report actually.
my question is, and in the past we carolina of looked at some stuff.
I'm -- kind of looked at some stuff.
I'm trying to make sure what we have for the general obligation bonds and, of course, the c.o.s, certificate of obligation, that will all come into play with what those folks are looking at because, of course, it has to be before the committee, they will come back to the Commissioners court with their recommendations on what we should end up placing on a ballot.
I'm just trying to make sure that all these moving parts are moving in the direction where it will be -- maybe we could meet the challenges and the needs what we're trying to bring forward.
I didn't mean to cut you off.
I'm just trying to get it all tied down.
>> we've had discussions along those lines, and Commissioner, what we would recollect that the court's direction be for the bond study committee initially is begin working on the roads and the park open space and hold facilities in abeyance until a decision can be made in coming weeks in regard to the direction we think we want to go in on any of our facilities projects.
and at least it's not slowing the committee down.
they can begin working on some of their roads and their parks and open space projects.
and then at -- once we have kind of worked through the process on the facilities side, then we can come back with a recommendation to the court.
the court can make a decision and then we can engage the bond study committee at that point.
and we think that that kind of makes sense because it allows the committee to begin working on some of the projects, but on the facilities side we would just ask that we hold those in abayance until a decision.
>> after that they would come back to see how much the financial picture will have an impression on what they recommend.
>> right.
>> the other thing that I think -- people have always -- the feedback I've had is people like the fact that we have covenants on our bond projects.
so that they know specifically that what is asked for and what is approved is spent on that original project.
and that it's not a floating number that then gets switched to another project, and the next pages one gets delayed.
the one that they voted on gets delayed.
so will you all be making that as part of the presentation as well?
>> I think the covenants that right now are -- I think it's at the court's pleasure what they would like to do.
I can certainly work with the county attorney and provide any kind of history what those covenants would look like.
you want to maintain some flexibility in case a project needs to be abandoned, obviously.
>> sure.
>> the flexibility you maintain in the 2005 election.
but I'll call the county attorney's office and talk to them about it.
>> I've had comments from people who have compared us to other entities and the covenants mean a lot because they feel like this is what I approved and that's what's getting done.
but we have an opportunity, though, that the savings on a project will go to another project that's related.
and it's not just all of a sudden goes to something else.
>> yeah.
>> Commissioner Eckhardt.
>> one thing I want to be mindful of, you had mentioned we will be trying to answer questions quickly in the next several weeks with regard to how we might approach the facilities projects, putty also had some discussion with regard to alternative financing mechanisms and other sources of revenue on some of the transportation projects as well.
and I would ask that we get an agenda item in the next couple of weeks to -- to bless some task force and mechanism internally and perhaps some external advice too if you you a think it's advisable to that we can run sort of a alternative financing mechanism debate parallel to the bond, the citizens bond advisory committee so we can answer some of these questions sooner rather than later and know what we need to finance in a traditional bond sense versus the c of o versus the public-private partnership versus a t.i.f., versus pass-through financing and what have you.
I imagine the usual suspects would be called upon for that sort of work, you three sitting at the table, steve manila, the county attorney's office.
>> auditor's office.
>> auditor's office.
danny hobby just stepped out, but I imagine danny as well as the interim over at facilities.
but I would ask that we get that before the court and get it blessed sooner than later so that we have a mechanism we can turn to.
I'll getting a lot of phone calls about alternative financing mechanisms and I would like to refer them to people who know what these folks are talking about.
>> anything else?
>> no, sir.
>> well, this is really formative.
I wouldn't say depressing but I was feeling better before it was called up.
>> the good news is the Commissioners court has routinely over the last several -- over the last 15, 17 years since I've been here have followed the budgeting principle to use ongoing revenue to support ongoing expenses.
and we have recommended that and you have approved it two years ago, three years ago whenever we and many economists say the downturn coming, you took our recommendation to increase substantially your reserves and that is the good news is that you do have 4.9 million in general fund emergency reserve if we need it and you also have 8.9 in allocated reserve, which is substantially above what we have carried in good times.
so that is the good news to all of this.
>> there's good news even in history, isn't there, mr. Nellis.
do we need to take any action on the debt capacity and affordability report we've just heard?
>> judge, I think the -- I'm not sure as long as we know that the court is okay with this, I mean this is what we would present to the bond study committee.
obviously we'll get into a little deeper discussion as jessica mentioned, but unless you need a vote is need to do allow us to do so, as long as we know you are comfortable with it, we'll go forward and make that happen.
>> with the understanding with the committee that if in fact the alternate financing comes into play, if that 400 is going to come down.
we have talked about, you know the roads and open space and the the rest facilities.
>> that doesn't mean the county isn't spending.
just to have a holistic approach to how we're financing these things, we have such a good bond rating because of just what you stated, leroy, with regard to our history, that all things being equal, straight bond financing for some of these things is the cheapest way to go, and some of these alternative financing mechanisms are actually more expensive in the long run.
so just with the caveat that with the special financing task force looking at this simultaneously, it gives the bond advisory committee the advantage of that holistic view.
it's not just to drag their $400 million ceiling down because even driving it down doesn't mean that we're not spending the money or having to spend the money.
>> right.
sure.
>> when they ask you whether the court approved it, tell them you gave the court the report and you still are a county employee.
that will be a good sign.
>> thank you, judge.
>> thank you all.
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Last Modified:
Tuesday, February, 2011 2:19 PM
