By Andy Sevilla

With a $55 million bond election looming, Buda leaders are fast-tracking up to $5.5 million in new debt in hopes of acquiring a lower interest rate.

At their Sept. 29 meeting, Buda council members unanimously approved a notice of intent to issue up to $5.5 million in Combination Tax and Limited Revenue Certificates of Obligation (CO) this year for water and wastewater projects throughout the city.

The proposed COs – which do not require voter approval – would address the Garlic Creek Lift Station, downtown wastewater line replacement, Lifschutz wastewater line bottleneck replacement and water tank repairs at Garlic Creek Booster Station and Bonita Vista Well #3, according to city documents. 

“If you think of the number of projects and the improvement to our infrastructure, it’s really monumental and it really is going to help our city grow,” Buda Mayor Todd Ruge said of the CO bonds. 

Meanwhile, the proposed $55 million bond propositions Buda voters will weigh in on this November are concentrated on roads, buildings, drainage and parks. Those bonds have been broken down into five different ballot propositions. 

“The reason why we’re encouraging you to move forward on these projects now is precisely because of the (November) bond election,” Buda’s financial advisor, Jennifer Douglas, told council. 

Douglas said cities could take advantage of a lower bank-qualified interest rate if the municipal government is borrowing less than $10 million in tax-exempt bonds and leases in a calendar year.

While interest rate savings vary based on existing market conditions at the time of sale, Douglas estimates, on average, savings of around 25 basis points (0.25 percent) for longer maturities.

So far this year, Buda has issued $4.5 million in Certificates of Obligation (CO) for the Bonita Vista street reconstruction and the Westside Water Well projects. The city could issue up to another $5.5 million in COs and still qualify for bank-qualified interest rates.

During budget deliberations, staff indicated COs for the downtown wastewater line replacement and the Garlic Creek Lift Station were to be issued in the upcoming fiscal year – FY 2014-15, set to begin Oct. 1. 

However, if voters approve all or some of the November bond propositions, the city could surpass the thresholds for a bank-qualified interest rate in the 2015 calendar year. 

 “Because you’re holding a bond election for well in excess of $10 million, and we’re assuming that hopefully all of it, but at least some portion of that will pass, you won’t be able to take advantage of a bank-qualified status – meaning low interest rate next year,” Douglas said.

In fast-tracking the issuance of CO debt this calendar year, the city could still take advantage of bank-qualified interest rates for the remaining $5.5 million.

“It just gets a better rate on these projects that have nothing to do with the bond election,” Douglas said. 

The CO bonds, which would address water and wastewater improvements would be handled by those respective city funds, therefore property tax rates likely would remain unaffected, though incremental increases to water and wastewater fees could be expected.

Generally, Buda has been on a rate schedule adding anywhere from 2 to 5 percent to water and wastewater fees each year, Ruge said. In doing so, the city is being proactive and looking ahead at funding future improvement projects through small yearly increases.

“We try to be very conservative and look hard at incoming projects five years down the road to make incremental cost adjustments, as opposed to a big hike later,” Ruge said.

The approved capital improvement projects for the upcoming fiscal year that would be impacted by CO bonds – downtown wastewater line replacement and Garlic Creek Lift Station – are estimated to cost $3.02 million.

Three other projects tacked on to the CO list for consideration – Lifschutz Bottleneck and water tank repairs for the Garlic Creek Booster Station and Bonita Vista Well #3 – amount to $720,000. 

While the council approved the issuance of a notice to issue up to $5.5 million in COs, the legislators have until Nov. 24 to firm up the number of projects and costs associated to total the whole amount or less.

According to the city’s latest debt figures, Buda has $24.325 million in outstanding principal debt, all from COs dating back to 2006. The addition of $5.5 million could raise the city’s debt by just over 20 percent.