This is a piece that was sent out from Jim Shepherd, former Richardson Councilman. Excerpt, "I have no doubt the size of the bond issue can be reduced substantially, with the needed portions of the projects completed, on time."
"Many have opined on the merits of the specific bond proposals. I thought I would take a slightly different strategy, and discuss costs of bonds, and why a 10% tax rate increase should not be necessary, but is being proposed. The problem is these issues are not sound bites, and detail and complexity are not an easy way to prove a problem to a large group of taxpayers. However, I hope you find some value in the positions taken in the attachment. Certainly more pages could have been written about the perils of misspending.
Please feel free to forward this to any who may be interested in the truth, and might vote accordingly.
City of Richardson bond questions---
1. What does "selling debt" mean?
It means the city obtains a loan by selling bonds to investors. The city then taxes property in the city in order to raise funds to pay the investors back, with interest, over what is normally a 20 year period.
2. What does a $66,000,000 bond sale (debt) cost?
The city has a very good credit rating, which means generally the rating agencies have confidence the city council can be counted on to raise taxes sufficiently to pay the yearly payments to the bond holders. For example, if the bonds sell with a 4% interest rate, the cost over the 20 year term of the bonds rises by almost half:
Bond principal .....$ 66,000,000.00....... ...$ 66,000,000.00
Interest Rate ....................4.00% ..............................4.25%
Yearly payment
(for 20 years) ......$ 4,856,395.52 ...............$ 4,964,509.10
Total Interest
Paid .......................$ 31,127,910.40............ $ 33,290,182.00
Total taxes needed
for bond debt
payments ............$ 97,127,910.40 ............$ 99,290,182.00
Of the total payments in the example, $31,127,910.40 is interest. If the actual interest rate was 4.25%, the total interest would be 33,290,182.00, a two million dollar increase. Total payments would rise to $99,290,182.00. Even small changes in the interest rate make large differences when dealing with $66,000,000.00 loans.
3. How does the city pay the yearly payments on the bonds, known as the Debt Service?
The announced plan is to raise taxes on the taxable property in the city by raising the tax rate from the current level of $0.57516 per $100 value to $0.63516 per $100 value. This is an increase of 6 cents per $100 value, or a little more than 10%. The Dallas County Tax Appraiser just announced that 60% of the homes in Dallas County will have a reduction in their appraised value. Based on this, the tax increase to pay the debt service may actually need to be greater than 6 cents. Using the city’s 6 cent number, the annual tax increase for a home with a value of $182,810 (Richardson's average home value) would be $110 or $9 per month. This means $2,200 per average home is needed to pay the debt on just this one bond issue. (The city has far more than one bond issue, and far more debt than this proposed additional debt of over $97,000,000.)
4. Do bond issues always require tax rate increases?
NO. Many local governments do not issue debt until they can do so without a tax rate increase. That generally means they work for a combination of paying off existing debt first, and adding new and improved property to the tax rolls through growth and development, not borrowing a dime more than absolutely necessary, and not spending any portion of the taxpayers money foolishly. In other words, the same fiscally responsible actions a good businessperson, or a wise homemaker with a family budget, employs.
5. Is this a good time for a 10% tax increase?
No. There is never a good time for a 10% tax increase. Among the many reasons are—
a. The city tax base is dropping again this year. Consider how much the city may increase your taxes for its operational expenses, in addition to the 6 cents for the debt.
b. Dallas County may well increase taxes this year, for the same reason – a drop in county tax values.
c. There is a recession in progress.
d. The Administration and Congress are spending borrowed money at a rate that cannot be sustained without massive tax increases of all kinds, from income tax, to death taxes, to gas taxes (or, a massive reduction in federal spending).
6. What should be done?
a. First, remember for every dollar borrowed for 20 years at 4% interest, an additional 40 cents is needed to pay the interest.
b. Second, any items in the bond issue that are not absolutely necessary now, should be cut from the list. The same is true for items that would generally be considered bad policy, or those so vaguely worded, or obviously overpriced, as to be unwise. The staff has proposed that 5% of the bonds go to staff for salaries. Even if legal for bond projects, you do not finance $3.3million dollars in salaries for 20 years. A lot of things that are legal are still unwise to do.
c. Terminate the practice of taxing homeowners at the full tax rate, but gifting and granting millions of dollars to wealthy developers, or companies, in the name of economic development.
For example:
1. The city paid over $20,000,000 to develop Galatyn Park for the Hunt/Hill owners, who paid dramatically less than that amount in cash, plus some land the city developed for their project.
2. Todd Fobare, the developer of the apartments at Campbell and Central (East Side), got the former Wick’s property as a "gift" from the city, when the North Texas Council of Governments revoked its grant to Fobare. (In good times, the city valued the Wick’s property at close to one million dollars.)
3. TI, a great contributor to the history of Richardson and UTD, was given a 100% tax abatement on what was to have been $2.5 Billion in equipment, and a 75% tax abatement on what was to have been $500 Million in land and buildings at the new plant on Renner. This means that no tax would be received from TI on its equipment, regardless of whether the equipment actually installed was worth more, or less, than $2.5 Billion. In addition, if the plant ever goes into full production, TI was to receive an additional credit on its water bill, for $1 million PER YEAR. (It appears that TI recently got an even better deal from the city.)
What if TI had only a 60% tax abatement on its land, building, and equipment (similar to the new Blue Cross buildings)?
[...]
... Homeowners must pay their full tax rates, AND make up for the "gift" of water as well. [The] 100% and 75% tax abatements, granted for over 20 years as the original was, are a substantial part of why excessive giveaways in the name of economic development result in an inability to grow the tax base. The result is very happy, loyal companies and developers, paying small portions of their normal tax bills, but requiring large tax increases (10%) for common homeowners, most of whom pay taxes on 100% of their property value. There is a huge practical, fiscal, and legal difference in an appropriate incentive to bring in or retain a good business, versus an inappropriate or imprudent tax giveaway.
I hope this information helps you with the cost of bonds, and the need to borrow only what is essential in these hard times. The bond proposals need to be stopped, and the cost and need for every item re-examined. I have no doubt the size of the bond issue can be reduced substantially, with the needed portions of the projects completed, on time.
Jim Shepherd
Former Council Member
City of Richardson"
