Alert! State Legislation to Cap City Revenues?

Municipalities in Texas are very concerned that the State may enact laws that limit their ability to raise taxes on their citizens. The following is a headline from the Texas Municipal League:

"State-Imposed Revenue Mandates"

"Legislation (S.B. 156/S.J.R 14 and S.B. 182/H.B. 365) has already been filed to impose limitations on city property tax revenues.  The current proposals would provide minimal tax relief to city taxpayers, but they could be extremely detrimental to city revenue.

City officials can use League-prepared white papers on revenue caps and appraisal caps to make this point to their legislators."

One can see that cities are mobilizing to stop any state actions that will limit their ability to raise revenue.  This is the classic response of an organization that is more concerned about its power and prerogatives rather than the best interest of its constituents.

Our city is no different.  There are some City Council members who advise restraint on taking any position on any proposed legislation, while others seem ready to man the barricades against any legislation that would limit their power to raise revenue.


According to the Acting City Manager, the city has 3 staff members fully engaged with our legislators -- Schwertner, Gonzales, and Farney, and their staff.  In addition to following bills that may impact the city of Georgetown, it seems the City is working to introduce a "local" bill concerning the merger of the Georgetown water district with Chisholm Trail water district.  The substance of this proposed bill is unknown at this time.


The City needs to be engaged with legislators and staff to enact laws that protect and advance the rights of its citizens.  In particular, citizens want to decrease the role of government in their daily lives.  That means protecting their individual rights as well as reducing regulations and laws that restrict their ability to live a private, peaceful and productive life.  The City also needs to engage its citizens on these issues before the City Council takes a position on any proposed legislation.  This can be done through presenting the substance of proposed legislation in print media, the City's website, town-hall meetings, and other social media.


Let your city council person know that you want to be kept in the information loop so that actions they take truly represent you -- the taxpayer.

More Debt Analysis and Questions

As one would expect, the City's required debt payments are increasing faster then population growth and inflation.

This debt payment growth rate is just another indicator that the rate of debt growth in Georgetown needs to be slowed.  At 9.45% compounded annually the payments are growing slightly less than the debt growth rate at 10.48%, but, substantially above the 6% combined growth rate of population plus inflation.  Again, these rates are divergent and therefore unsustainable.

The city also has substantial funds from the 2008 bond election that have not been spent.  $81.5M was approved by the voters and approximately $23.1M has been obligated/spent so far.  The following chart from the City's Budget Overview presentation of 2/24/2015 indicates the bond funds that have not been issued.

The fact that $58,400,000 of bonds have not been yet issued raises several questions.  (1) Why haven't the bonds been issued for parks and roads?  (2) How long is the authorization to issue bonds good for?  (3)  Are there firm plans to issue the bonds and obligate/spend the funds on approved projects that are consistent with the restrictions established at the bond election?  (4)  Does the city have the engineering, financial and administrative staff to issue/obligate/spend these funds while taking on the $105M road bond projects and the $25M of other capital projects, and the replacement of the Austin Ave bridges?  Are we going to see a request for expansion of city staff?

So many questions!  Ask your City Councilperson.

Debt Growth Needs to be Reduced

The debt of the City continues to grow in excess of its citizens capacity to ever pay it off.  The City is indeed growing in population and in physical size, but, not enough to justify the ever-increasing debt.  The city staff is using the following chart to justify increasing the debt.

This type of presentation gives a deceptive and distorted view of the population growth in Georgetown and on which to make long-term debt decisions.  The following chart gives a more realistic view of the population growth.

Using a 10-year compound annual growth rate gives a more likely projection over the next 10-20 years (the term of bonds).  One can observe the growth rate is 3.59% over the last 10 years.  Why would anyone expect it to be substantially different over the next 10 years?

Now let us examine the growth rate of the city debt over the last 10 years.

The 10.48% compound annual growth rate far exceeds the population growth for the city.  It is generally accepted that increasing debt faster than the ability to pay the debt payments is unsustainable over longer periods of time.

Some argue that inflation must be taken into account when projecting financial parameters into the future, so let's examine the inflation rate.

The inflation rate over the last 10 years is 2.3%  The Texas Public Policy Foundation recommends and Governor Abbott spoke about limiting budget growth to population plus inflation in his "State of the State" message.

Applying that metric to the growth of Georgetown's debt would mean it would be capped at 2.3% + 3.6% = 5.9%.  This is slightly less than the 6.2% cap the Governor has targeted for the State.

It is difficult to find consistent debt numbers for the city, however, the total debt identified in the 2015 Debt Overview document to be presented in next week's council workshop is $191,970,008.  The city separates the debt into three categories, (1) Tax Supported - $103,056,309, (2) Self-Supported - $16,760,348, and (3) Revenue Bonds - $72,153,351 for the total of $191,970,008.  It is observed that is a substantial increase over 2014.

The debt growth rate of 10.48% compared to a population plus inflation growth rate of 5.9% is divergent.  This trajectory is unsustainable.

Justification for More Debt Presented by City

The City Council will hold a workshop at 3 pm, Tuesday, February 24 at City Council Chambers to review the city's debt.  The presentation can be found here:  http://agendas.georgetown.org/AttachmentViewer.aspx?AttachmentID=14980&ItemID=9567

The entire presentation seems to be justification for the City to take on more debt!  The presentation also focuses on the benefits to the city as opposed to the impact on the city voter and property taxpayer.

The presentation is cleverly broken down to several different types of debt and the total debt obligation is never revealed.  It seems it is left as an exercise to the reader to perform the necessary addition to ascertain the total debt.

A follow up post will fill in the gaps, perform some of the arithmetic, and expose the long-term trends.  A metric taken from Governor Abbott will also be proposed as a guide for the City Council to use in burdening the citizens of Georgetown with more debt.

City Council Approves $105M Bond Package for May 9 Ballot

The Council added the widening of a portion of DB Wood Drive, for $9M, back into the bond package after removing it 2 weeks before.  The argument being that: (1) DB Wood needs to be widened to 4 lanes to take traffic from Williams Drive and (2) the new Fire Station and Public Safety Complex on DB Wood will also increase traffic on DB Wood Drive.  The flaw in this justification is that only the portion of DB Wood between Hwy 29 and Oak Ridge Drive would be widened to 4 lanes.  The portion of DB Wood between Oak Ridge and the new Public Safety Complex will remain at 2 lanes, including the bridge across the San Gabriel river.  Therefore there will still be a couple of miles of DB Wood that is only 2 lanes and traffic capacity will not be increased!

The City staff estimates the tax impact on the average $210,000 Georgetown home in the first year is $31. However, by the 10th year, the tax bill on the average home will increase by $252.40 from the current city tax bill of $911.40.  This of course assumes a constant tax rate (unlikely) and that property values increase at 2% annual compound rate (not supported by history).  If the actual growth rate of residential property values over the past 10 years is used, the tax bill will increase by $460.85.  Here is the actual growth in residential property values as provided by city records.

Applying that growth rate (8.32%) to the average value of a home in 2015, results in an average residential value of $466,988 in 2026.

Do you expect the City Council to reduce the tax rate such that the tax bill only increases by $252.40 in 2026 as the city analysis shows?  I don't!  Therefore one should expect a 50% increase in city property taxes by 2026 due to this bond package.

Keep in mind that the City is scheduled to issue $25M+ in bonds in 2015 without voter approval and the bond debt is growing at a 10.5% rate, based on the last 10 years!  All in all, it seems the City is on a non-sustainable trajectory with respect to debt!

Debt is Growing at Double Digit Rate

Even before the City presents a $96M Road Bond package to the voters for approval, the City is issuing $25.4M in General Obligation, Certificates of Obligation and Revenue backed debt in 2014-2015. The current debt, not including interest or debt issuing costs is shown in the following table along with the compound annual growth rate.

The growth rate has been double digit since 2005 and peaked in 2007 at 19.06%.  Over the last 10 years the growth rate is 10.48%.

With the City population growing at a 3.14% rate over the last 9 years and inflation growing at 1.72% over the same time frame for a total growth rate of 4.86%, the annual compound double digit increase in debt is unsustainable.  The City is on a path similar to the U.S. Government and the Government of Greece.  The City may not be in trouble yet, but, it will be if the debt load on the taxpayers continues to increase at double digit rates.

Tell your city council person to slow down the debt!

Stealth Spending

The city uses Certificates of Obligations (CO) to raise money for the city to spend without alerting Georgetown taxpayers or asking their permission via a bond election.  Here is the debt that the city intends to spend this fiscal year.

As can be seen in the chart, over $25M in new debt is planned for this year, $13.7M Utility debt, $4.4M for roads approved by voters, and $7.0M using Certified Obligations.  Only $4.4M of this debt has been explicitly approved by Georgetown voters.   The remainder is issued "under the radar".

The City currently owes $136,015,888 in principal and interest backed by property taxes. According to the Texas Bond Review Board, Georgetown owes $243,290,813 when all debt is considered. including revenue backed debt.

Thus it's easy to see that the City plans on increasing its debt by approximately 11.5% this year.  With a population + inflation growth rate of less than 5% compounded annually, a debt growth of 11.5% in one year seems excessive!

Contact your city council person and tell them to slow down the spending!

Road Bond Proposal cut to $96M

The City Council has heard from the Road Bond Committee and has provided direction to the city staff to prepare a bond package for the voters in the May 9 election.  The salient features are:

     1. Cap the bond package at $96M
     2. Do not include the Austin Street bridges in the package
     3. The schedule for bond issue would show completion by 2026
     4. Develop a "Contract with Voters" that limits tax rate increases to 3 cents/$100 for any year and a cumulative rate of 9 cents/$100

The Council removed the Austin Street bridges from consideration because they believe their inclusion would hamper the city's ability to obtain funding from TXDOT and the FHA.  They have already received a commitment of $1M from CAMPO with the expectation that more funding will be forthcoming.  Any funding shortfall, $14.5M required for bridge replacement, would be accommodated using a Certificate of Obligation.

The State originally legislatively authorized the issuance of Certificates of Obligation in case of emergencies, without requiring voter approval.  The requirement of using this debt mechanism only in emergencies has long been ignored and cities routinely use this debt mechanism for any need wherein they wish to bypass the voters.  It should be noted that approximately 1/2 of the current debt tax rate(22 cents) for Georgetown is dedicated to paying Certificates of Obligation debt!

In addition to recommending a bond package for road construction, the Road Bond Committee has been charged with marketing the approved bond package to the voters of Georgetown.  The City Council or staff cannot advocate for the road bonds once the Council votes to put the measure on the ballot.  The committee intends to form a PAC (Political Action Committee) to solicit funds for the marketing activity.  The potential sources of the PAC funds are unknown at this time, but, one can be assured that those who contribute expect to see some financial benefit in the future.

At current bond rates and a typical 20 year duration bond, property taxes on the average $210,000 Georgetown home would ultimately increase by about $210 per year.  Remember that the current property tax bill levied by the City on the average home is about $911 annually.  Also, this estimate assumes that the entire bond costs would be paid by property owners whose property taxes are not frozen due to being over 65 years in age.

The City Council tends to focus on tax rate when considering issuing new debt or developing the annual budget.  They need to focus on the dollar amount extracted from the tax payer, not the tax rate, as that does not consider the increase in appraised value of property.  Let them know it is the dollars from your pocket that matters to you, the Georgetown taxpayer.

The City currently owes $136,015,888 in principal and interest backed by property taxes.  The debt tax rate is $0.22662 per $100 valuation of taxable property.  According to the Texas Bond Review Board, Georgetown owes $243,290,813 when all debt is considered, including revenue backed debt issued by the utility system.