KYLE — An ordinance adopting an updated debt management policy was approved at the Kyle City Council April 1 meeting, as well as a debt financing plan.
The reason for the proposed update to the policy was to provide clear guidelines, incorporate the latest compliance requirements, provide distinction of compliance requirements, clarify policy direction for the treatment of assessed valuations within tax increment reinvestment zones (TIRZ) and clarifications of terms and provisions throughout the policy, read agenda documents.
According to Director of Finance Perwez Moheet, the last time the policy was updated was in 2014, following its initial approval in 2011.
These changes include: providing policy guidance in 19 sections, as opposed to the current six; adding a section regarding policy goals and objects; updating the conditions of debt insurance with more detail, including 10 separate categories, for both short-term debt issuance and long; updating the restrictions on debt issuance to include seven restrictions, instead of the previous five, along with information on variable interest rate and issuance of private activity bond — both of which are prohibited — and clarification to define the general fund revenue.
“The requirements and limitations as specified in the city charter, the current policy does not cover that, so you have to refer to two separate places to comply with this requirement,” explained Moheet. “Under the updated or recommended policies we are bringing all of it in one place, so it’s one reference document.”
Other proposed changes include updating limitations on outstanding debt balance, characteristics of debt issuance, types of debt obligations and the review of debt management policy, which city staff will bring forward annually to make any necessary changes.
Regarding the limitations on outstanding debt balance, council member Michael Tobias questioned potential tax impacts. Currently, the policy states that the Certificates of Obligation (CO) debt payable from the general fund will not exceed 3%, but it is being proposed to increase this to 6%.
“This portion of the policy does not impact the calculation of the property tax rate. So, this basically allows the city to have outstanding debt equal to a maximum of 6% of the assessed valuation for the same year,” Moheet said. “The reason this is being increased from 3% to 6%, [is] it allows the city to manage the financing requirements for its capital improvement projects … This will allow [the city] that capacity to be able to issue those debts as needed. So, when we do issue the debt, that is the time we will share with council what the tax impact is.”
Moheet stated that there has to be room to let capital improvement projects (CIP) happen, which this allows.
“It looks like there’s much better improvements to understand what we’re allowed to issue debt for, how long for and for what project and I think that’s great to see that information in a much more concise way for us,” said council member Miguel Zuniga.
The item to update the policy passed 7-0.
Debt financing plan and property tax management
The last update to debt defeasance, financing options and estimate property tax rate impacts was in June 2024, according to agenda documents.
“Since then, economic trends and factors affecting projections have significantly changed since June '24. In addition, after the '25 debt defeasance was authorized by the city council, an annual assessment of debt defeasance options or accelerated debt repayment is necessary for [fiscal year] '26 and future budgets,” said Moheet.
Moheet stated that council needs to give further direction, as in the summer of this year, the city will be issuing approximately $125 million in tax and non-tax supported debt.
Mark McLiney of SAMCO Capital Markets, the city’s financial advisor, presented several options available for council going forward.
“Your snapshot right now is you’ve got the 2020 bonds that were voted for parks left and that’s $7 million, but more importantly, the 2022 bonds, you have $256 million left of the $294 [million] that was voted by the citizens. The play-in is needing $38,900,000 this year, $50 [million] in '26, $65 million in '27, $50 [million] in '28 and then, [$45,100,000] in '29,” said McLiney.
Council was presented with three different options. The first being following the council’s old debt policy, which means that general obligation (GO) bonds are issued when needed, resulting in “a lower tax rate in the early years with an overall tax rate pressing against the targeted $0.599 overall rate” and causing a higher total interest paid than the other options. Currently, the city's tax rate is $0.4693.
The second option is structuring the debt, which McLiney said goes hand-in-hand with the new debt policy approved, “allowing us to push debt forward, pay it off quicker.” This would target a $0.5865 tax rate, according to agenda documents.
Finally, the mixed option combines the first two to raise the tax rate close to $0.5939 in 2030, but it will occur in two steps.
In addition to the GO bonds, there will also be new projects that council approved funding for at this meeting. (Note: council unanimously approved an additional $36,500,000 to be added to the city’s CIP budget for FY 2024-25 earlier in the meeting, which included $17 million for the Kensington Nature Park, $10 million for the future animal shelter, $4,300,000 for the future Dacy Lane senior center and $5,200,000 for a Parks and Recreation Department facility.)
“Council has directed these other projects, so this tax rate for the other projects is in addition to what we said to the voters on the general obligation bonds,” said McLiney.
If all the bonds were issued at once for these options, the tax rate would increase an additional $0.0935, but, as it would be spread out over the next few years, it lowers the impact.
Ultimately, staff recommended council to proceed with option two, which would increase the tax rate to the anticipated target in 2026 by structuring debt, so that the city pays more principal interest in the earlier years, with lower interest paid over the life of the bonds, said McLiney.
Zuniga was in support of the third option, as it would reach a tax rate of $0.5939 in 2030, as opposed to reaching $0.5894 immediately in 2026, as is proposed in the second option, though it is set to lower to $0.5497 in 2032, according to agenda documents.
“I’m in favor of the staff recommendation,” said Mayor Travis Mitchell. “The tax rate increase is coming from GO supported debt, which means that the existing residents who lived here said that they were willing to increase their tax rates up to $0.59 in order to have us deliver these road projects … This is one of the steps that I think helps us. The further out we go away from November 2020, the demographics of the city shift, people move in and people move out that weren’t a part of that vote and council changes, too. For that reason, we have the imperative now to go ahead and make that change.”
Mitchell also noted that choosing a path that slows down the projects results in a higher tax rate in the future, as construction costs, design costs and land acquisition costs rise.
The item passed unanimously, following a motion by Mitchell and a second by council member Bear Heiser.
Additionally, council elected to proceed to add $15,350,000 tax-supported COs for 2025, which includes money toward Kensington Park, intersections and other park improvements, along with $63,700,000 in non-tax-supported COs, including water, wastewater and TIRZ #2 for 2025 in this item.
To listen to the items presented, visit bit.ly/4ldLMJN.
