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RES 2024-15 Debt Financing Plan TOWN OF TROPHY CLUB, TEXAS RESOLUTION NO. 2024-15 A RESOLUTION OF THE TOWN COUNCIL OF THE TOWN OF TROPHY CLUB ESTABLISHING THE DEBT FINANCING PLAN AND TAX RATE GOAL FOR THE FISCAL YEAR 2025 BUDGET AND THE FISCAL YEAR 2025-2030 CAPITAL IMPROVEMENT PLAN; AND PROVIDING AN EFFECTIVE DATE. WHEREAS, the Town of Trophy Club, Texas (the "Town"), recognizes the importance of managing its fiscal responsibilities to promote sustainable growth and long-term financial stability for the community; and WHEREAS, debt financing is an essential strategy for raising capital to invest in critical infrastructure projects, including road repair and replacement, sidewalk replacement projects, and other infrastructure and facility needs that are vital to the Town's continued development and quality of life; and WHEREAS, by responsibly issuing bonds and other forms of debt, the Town can smooth the budgetary impacts and maintain stable tax rate levels over time, ensuring that necessary projects are completed without undue financial strain on current or future budgets; and WHEREAS, the Town Council recognizes the need to establish a debt financing plan in conjunction with the annual budget and Capital Improvement Plan to ensure that the necessary capital for funding these projects is both budgetarily achievable and sustainable within the Town's desired long-term tax rate goal; and WHEREAS, the Town's "Debt Financing Plan and Tax Rate Goal", as detailed in the attached Exhibit A, provide a comprehensive approach to leveraging future revenues to address current infrastructure needs, and balancing immediate expenditures with long-term fiscal responsibility. NOW, THEREFORE, BE IT RESOLVED BY THE TOWN COUNCIL OF THE TOWN OF TROPHY CLUB, TEXAS, THAT: Section 1. The facts and recitals set forth in the preamble of this Resolution are hereby found to be true and correct. Section 2. That the Town Council hereby establishes the debt financing plan for the Fiscal Year 2025 Budget and the Fiscal Year 2025-2030 Capital Improvement Plan, as outlined in the attached Exhibit A, to guide the Town's financial decisions regarding capital investments. Section 3. That the Town Council adopts the tax rate goal for the Fiscal Year 2025 Budget and the Fiscal Year 2025-2030 Capital Improvement Plan, as outlined in RESOLUTION 2024-15 PAGE 2 the attached Exhibit A, as part of its commitment to maintaining fiscal responsibility and ensuring the Town's financial health. Section 4. That the Town Manager is hereby directed to implement the "Debt Financing Plan and Tax Rate Goal" as part of the budgetary process for Fiscal Year 2025 and to periodically report progress to the Town Council. Section 5. This Resolution shall take effect from and after its date of passage in accordance with law. PASSED and APPROVED by the Town Council of the Town of Trophy Club, Texas on this 9111 day of September 2024. tit J: e' �-" y ' y OF T RON.. a or cc co v og ATTEST: 9 �vA RY 1,�9 • (Nraimmy Dixon, wn Secre )(\- APPROVED TO AS FORM: Dean': 01, rne9yY Resolution No. 2024-15 Exhibit A TM I IIs DEBT FINANCING PLAN & ANNIVERSARY TAX RATE GOAL FISCAL YEAR 2 0 2 5 � f ,FY 2025 BUDGET & FY 2025- 2030 CAPITAL IMPROVEMENT PLAN TII / la DEBT FINANCING PLAN & ANNIVERSARY TAX RATE GOAL Debt financing is an essential strategy for governments to manage their fiscal responsibilities and stimulate growth. By responsibly issuing bonds or other forms of debt, governments raise the capital needed to invest in infrastructure, promoting long-term sustainability for the community. By creating a debt financing plan, the Town of Trophy Club can smooth budgetary impacts and tax rate levels over time, facilitating essential projects that might otherwise be delayed or underfunded. Moreover, a well-structured debt financing plan enables the Town to leverage future revenues to address current needs, striking a balance between immediate expenditures and long-term financial stability. In conjunction with the annual budget and capital improvement plan process, the Town Council adopts a debt financing plan to ensure that capital necessary to fund capital projects such as road repair/replacement, sidewalk replacement projects, and other infrastructure and facility needs are budgetarily achievable and sustainable within the Town's desired long-term tax rate goal. Details regarding specific projects anticipated to be funded through the issuance of general obligation bonds or certificates of obligation can be found in the capital improvement plan. The debt financing plan is summarized into four sections, presented below. flReview of existing debt U Future debt borrowing amounts, including amount and timing Ei Debt issuance structure, including term and expected interest rates IL4 Debt burden goals TII A 0 DEBT FINANCING PLAN & ANNIVERSARY TAX RATE GOAL REVIEW OF EXISTING DEBT 1 The Town of Trophy Club has 10 bond issuances outstanding, with the most recent issuance being Series 2023. Within the current six-year capital improvement plan horizon, four of the ten outstanding bond issuances will be fully repaid. In FY 2024, outstanding debt payments (principal and interest) total $2,885,220. The Town's total outstanding debt obligation in FY 2025 is $2,941,140. The Town's outstanding debt obligation drops to $2,081.199 in FY 2026, and the entire amount currently owed will be repaid by FY 2043. FUTURE DEBT BORROWING AMOUNTS Anticipating future debt amounts is critical to presenting a long-term sustainable debt financing strategy. Future debt issuance amounts are presented in the Town's capital improvement plan. The FY 2025-2030 Capital Improvement Plan anticipates debt issuances in FY 2025, FY 2027, and FY 2029. Anticipated borrowing schedules are also presented for the next 15 years. FISCAL YEAR ISSUANCE AMOUNT FY 2025 S8,1 50,000 FY 2027 S5,582.000 FY 2030 $7,000,000 FY 2032 $7,000,000 FY 2035 $7,000,000 FY 2038 S7,000,000 FY 2040 $7,000,000 On average, the Town of Trophy Club anticipates borrowing $7,000,000 every two to three years as depicted in the chart above. .. TII A DEBT FINANCING PLAN & ANNIVERSARY TAX RATE GOAL DEBT ISSUANCE STRUCTURE Certain assumptions are made regarding the structure and interest rates of debt to be issued. Specific details will be prepared by the Town's municipal advisors prior to each issuance. For the purpose of forecasting, the following assumptions are made as of the approval date of this plan, which should be verified against results based on the condition of the debt market at the time of issuance. DEBT ISSUANCE ANTICIPATED ANTICIPATED MATURITY INTEREST RATE FY 2025 15 years 5.00% FY 2027 15 years 5.00% FY 2030 15 years 5.00% FY 2032 15 years 5.00% FY 2035 15 years 5.00% FY 2038 15 years 5.00% FY 2040 15 years 5.00% DEBT BURDEN GOALS 4 Over time, the Town of Trophy Club desires to achieve the following goals related to debt burden. Achieving these goals signifies that the Town's overall debt financing plan is being structured to smooth budgetary impacts and tax rate levels. • Annual debt obligations payable from the Town's I&S tax rate should be no higher than o.125% of the Town's total taxable valuation. • Debt payments should be laddered to achieve a relatively level or consistent annual debt burden over time. Annual debt obligation amounts should be adjusted in future years to account for anticipated increases in total taxable valuation. T11 DEBT FINANCING PLAN & ANNIVERSARY TAX RATE GOAL DEBT BURDEN GOALS (CONT.) 4 • Anticipated future borrowings should be projected for the term of current outstanding debt to ensure that future borrowing needs can be achieved without exceeding the Town's tax rate goal. • If possible, the Town's long-term goal is to minimize the amount of taxpayer dollars spent on interest. To that end, the Town should evaluate opportunities to change maturities from 15 to io years when the above- mentioned debt burden goals can be maintained. • As the Town begins to layer debt every two to three years, the annual debt service requirement will grow from its current fiscal year amount of $2.9 million to approximately $4.5 million annually in the 15- to 17-year horizon. The I&S rate is expected to remain flat as taxable valuation grows in Trophy Club during that time. As current debt is retired, the approximate annual debt service amount, including principal and interest, is expected to stabilize around $4 million annually. • Infrastructure such as roads, sidewalks, medians, storm sewers, facilities, and parks that have useful lives extending beyond 15 years are to be maintained, repaired, replaced, or added new through debt financing with a maximum term of 15 years. • Smaller equipment, vehicles, and other capital assets that have a useful life of less than 10 years are to be debt financed with a maximum term of 5 years. y' TII DEBT FINANCING PLAN & ANNIVERSARY TAX RATE GOAL TAX RATE GOAL By Texas law, the Town's debt obligations may be funded through an Interest & Sinking (I&S) tax rate that is levied on all taxable property in Trophy Club. It is the Town's intent to pay for all eligible debt payments through the I&S rate. Maintaining an appropriate I&S tax rate is critical to maintaining the Town's capital infrastructure. Limitations on the Town's operating budget prevent large adjustments to maintain expensive infrastructure such as roads, sidewalks, storm sewer systems, medians, and parks. Accordingly, Town staff presents prioritized lists of infrastructure projects to the Town Council with the intent of funding these projects from the I&S tax rate. The Town's I&S tax rate in FY 2024 is $0.099799. In FY 2025, the I&S tax rate is $0.099427 per $100 of taxable valuation. The Town's goal is to maintain a level I&S tax rate of $0.105 per $100 of taxable valuation. From the FY 2025 amount, the Town has $0.005573 (a little more than half a penny) to grow the I&S tax rate to achieve the goal of $0.105. On an annual basis during the budget process, staff will present options to the Town Council to increase the I&S tax rate by the necessary $0.005573. In order to avoid a tax rate increase on Trophy Club residents, the primary strategy is to increase the I&S tax rate equal to the required reductions in the Maintenance and Operations (M&O) voter approval rate established by 2019 Senate Bill 2. To forecast the debt financing plan with the tax rate goal, the Town utilizes an annual taxable valuation growth estimate of 3.00% through FY 204o. After FY 2040, the taxable valuation growth estimate is flat at 0.00%. These estimates should be checked against actual results based on taxable valuation growth at the time of issuance. The taxable valuation for FY 2025 is $2,616,368,183. At 3.00% annual growth, the taxable valuation would reach $3 billion in FY 2031. TII AG DEBT FINANCING PLAN & ANNIVERSARY TAX RATE GOAL TAX RATE GOAL (CONT.) As the Town strives to maintain an I&S tax rate of $0.105 per $100 of taxable valuation, the Town will utilize two primary techniques to reach eligible debt targets. If the Town has not identified capital projects, including equipment 1 and/or vehicles, necessary for municipal operations, the Town will seek debt defeasance to reach the desired debt target to achieve a total I&S tax rate goal of $0.105. If the Town has identified equipment and/or vehicles necessary for 2 municipal operations and eligible for debt financing, the Town will seek short-term debt options. no more than 5 years, to fund these items. In conclusion, the FY 2025 Debt Financing Plan and Tax Rate Goal for the Town of Trophy Club provides a strategic framework to ensure the Town's infrastructure needs are met in a fiscally responsible manner. By maintaining a balanced approach to debt issuance and managing the I&S tax rate, the Town can fund essential projects while ensuring long-term financial stability. This plan reflects the Town's commitment to sustaining growth and enhancing the quality of life for its residents, all within a well-structured and sustainable financial strategy.