Bond, Municipal Bond - 2021

Updated: Jan 24

The City of Plano could be putting up to $404 million (Error 404: Bond Not Found) in new bonds on the May 1st election ballot.

This is an updated version of the article I published months ago on how municipal bonds work, which was before the passing of the late, great Sean Connery. Rest in peace, 007.


I'll break this into three parts:

  • The Point of Municipal Bonds

  • The 2021 Bond Referendum Proposals

  • What All This Means to You


The Point of Municipal Bonds

In the business world, debt, like a stock offering, is a useful mechanism to finance the growth of your business, where the idea is that if you borrow money at at a certain rate of interest, you can use it to generate more money than you have to pay back by investing in your business, growing it, and earning more money.


However, government doesn't produce anything of marketable value, so municipal bonds are more like your personal debt. You take out loans for big things that you expect to last a while, like a home or a car. You don't take out a loan for your weekly grocery shopping. Municipal finance works the same way. You have routine, ongoing expenses, and then you have the occasional big stuff. Your property tax rate is broken down into two categories, which combine to determine your overall tax rate:

  1. Maintenance & Operations (M&O) rate: as the name suggests, this is for day-to-day operations, like staff salaries and paying the bills

  2. Interest & Sinking (I&S) rate: this is just a confusing way of saying "payment on debt"

The city takes on bond debt for the same reason you take on a mortgage: even if you could afford to pay for your house all at once, it would be incredibly painful to do so, and making regular payments provides some stability, so you don't have your expenses going up and down like a roller coaster every few years as you incur large costs. In addition, local governments have an even better reason to do so--to make sure the people benefiting from an expense are the ones paying for it.


The police officer who responds to your call this year is paid for this year from M&O taxes collected this year. He may retire next year, and while we'll miss him in the Plano PD and wish him well, you won't still be paying next year for the income he earned this year. Roads, however, are not only really freaking expensive, but they also have a lifespan of thirty some odd years. Unlike the police officer, who earns his paycheck one day at a time, a road is paid for all up front when it's first built. By issuing a 30-year bond to pay for the road construction, I&S tax receipts will be used to repay that debt, plus interest, over a 30-year period, which means that if you move out of Plano next year (we'll miss you too), you aren't stuck with the entire bill for a road you're no longer going to use.


And so bonds are a necessary component of municipal finance, but you, the voter, hold the power to approve them.

The 2021 Bond Referendum Proposals

The bonds are divided among three main categories: Streets, Parks, and Facilities. You can review the city's bond referendum proposal report here.


It's not exactly a mystery which category most folks feel is the priority. You might have noticed we have a bit of a traffic situation in Plano (or did until the pandemic). Not only have we exceeded the planned population, but we're also the only thing standing between the rest of a rapidly growing North Texas and Dallas, resulting in a lot of through-traffic. This means our roads have taken a real beating. Roads have a lifespan of about 30 years, and many of ours were built about 30 years ago. We try to repair as much as we can to extend the useful life of a road, but after a while, even roads give up the ghost.


There's other work to do, of course, to parks, recreation centers, and facilities such as fire stations and libraries. Up to $404 million in all, across 51 projects.


With all of these projects, we commissioned a Bond Referendum Citizen Advisory Committee (BRCAC... it just rolls off the tongue) which spend several months last year reviewing all of the proposed bond projects to assess the relative priority of each. Additionally, city staff rated each project as high, medium, or low.


I've done some analysis, which I'll share with you here. I've created the spreadsheet at the following link, and listed the proposed bond projects by category, their cost, BRCAC priority score, and city staff priority.


Bond Project Priority Analysis:

https://docs.google.com/spreadsheets/d/1CQeamXVlFSfDz05bHzyXigviKMAArEyBpUY1Hfs8ksU/edit?usp=sharing


I categorized the BRCAC scores into three ranges, and came up with an "aggregate" priority using the following approach:

  • If the BRCAC and Staff priorities aligned, I used that priority as the aggregate

  • Otherwise, I deferred to the lower priority of the two (e.g. if the BRCAC felt an item was High Priority, but Staff felt it was Low Priority, I used Low Priority as the aggregate)

The total dollar amounts I calculated are as follows:


BRCAC

  • High: $268,334,292

  • Medium: $135,558,112

  • Low: $0

Staff

  • High: $288,846,004

  • Medium: $67,016,400

  • Low: $48,030,000

Aggregate

  • High: $228,074,292

  • Medium: $127,788,112

  • Low: $48,030,000

NOTE: at last check, the amount of bonds we could approve without necessitating a tax increase was around $170 million. Council will include on the ballot what it includes. You, the voter, will have to determine whether it's worth it.


Once we've determined what's going to be on the ballot, it's illegal under Texas State law for the city, or any representative thereof (including me), to advocate for a bond proposition on the ballot. We can provide you with factual information, and leave it to you to make the decision.


[UPDATE]: I forgot to include the amount of bonds that have already been authorized by voters in the past, but not yet issued. The outstanding amount, since the 2013 Bond Referendum Election, comes to $80,170,500, as shown on slide 14 of this presentation. A few months ago, Plano City Council authorized these bonds to finally be issued in 2021. Likewise, any voter-approved bond-issuing authority granted in the May 1st, 2021 election will be issued a piece at a time, over the next few years, rather than all at once, to keep taxes and bond payments as steady and predictable as possible.


What All This Means to You

Before we discuss anything else, recognize one simple truth. We purposefully plan and incur bond debt to keep your tax rates relatively steady and predictable. This means that when we have new work that needs to be done, we time the bond issuance to correspond with the retirement of old bonds when they're paid off, again, so we don't have dramatic peaks and valleys in expenses.


BUT! When you hear that approving the bond "won't affect your taxes," that means only that your current tax rate won't increase if the bond is approved (specifically because it will take the place of old, paid-off debt). It does NOT mean you won't pay for it. You will pay for every last dime. There isn't an expense incurred by government that isn't paid for by the taxpayers, so recognize what this really means. It also means that if the bond is not approved, the I&S portion of your tax rate would go down. But should it? That's up to you. Government at all levels have legitimate expenses, but in America, we answer to YOU, so YOU get to determine if our city really needs the work done.


What can you do at this point? The public hearings are over, but you can still contact your council members between now and Monday's meeting. You can help educate your friends and neighbors, and encourage them to get involved. Last, but certainly not least, you can vote in the May 1st, 2021 Plano municipal elections.

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