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RES 2024-23 Finance Future Expenditures TOWN OF TROPHY CLUB,TEXAS RESOLUTION NO.2024-23 A RESOLUTION OF THE TOWN COUNCIL OF THE TOWN OF TROPHY CLUB, TEXAS, PROVIDING FOR REIMBURSEMENT AND EXPRESSING INTENT TO FINANCE EXPENDITURES TO BE INCURRED; AND PROVIDING AN EFFECTIVE DATE. WHEREAS, the Town of Trophy Club, Texas (the "Town") is a municipal corporation and political subdivision of the State of Texas authorized to finance its activities by issuing obligations; and WHEREAS, the Town will make, or has made not more than sixty (60) days prior to the date hereof, payments with respect to the design, engineering, acquisition, construction, reconstruction or renovation of the projects listed on Exhibit A, which is attached hereto (collectively,the"Financed Project"); and WHEREAS, in certain circumstances, federal and/or state law requires that the Town express its official intent to issue obligations to reimburse itself for expenditures paid prior to the issuance of such obligations in order for such expenditures to be eligible for reimbursement from the proceeds of such obligations; and WHEREAS, Section 1.150-2(d)(2) of the Treasury Regulations sets forth limitations regarding the timing of reimbursements made from the proceeds of certain obligations; and WHEREAS, all constitutional and statutory prerequisites for the approval of this resolution have been met, including,but not limited to,the Texas Open Meetings Act; 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. The Town reasonably expects to reimburse itself for costs that have been or will be paid subsequent to the date that is sixty (60) days prior to the date hereof and that are to be paid in connection with design, engineering, acquisition, construction, reconstruction or renovation of the Financed Project from the proceeds of obligations to be issued subsequent to the date hereof. Section 3. The Town reasonably expects that the maximum principal amount of obligations issued to reimburse the Town for the costs associated with the Financed Project will be $8,150,000. Section 4. Unless otherwise advised by bond counsel, any reimbursement allocation will be made not later than eighteen (18) months after the later of (1) the date the original expenditure is paid, or (2) the date on which the Financed Project to which the expenditure RESOLUTION NO. 2024-23 PAGE 3 EXHIBIT A DESCRIPTION OF FINANCED PROJECT Purposes/Projects Total Amount Constructing, reconstructing, improving, repairing, developing, $8,150,000 extending and expanding streets, thoroughfares, bridges, interchanges, intersections, grade separations, sidewalks and other public ways of the Town, including related streetscape improvements, public utility improvements, storm drainage facilities and improvements, signalization and other traffic controls, street lighting, and the acquisition of land therefor. RESOLUTION NO. 2024-23 PAGE 2 relates is placed in service or abandoned, but in no event more than three (3) years after the original expenditure is paid. Section 5. This resolution shall become effective from and after its date of passage. PASSED AND APPROVED THIS THE 28TH DAY 1 CTOBER 2024. 4A1 �� 0 i or ATTEST: `AN( CLUB • I Tammy Dixon, To SecretaryAvib 2 � APPROVED AS TO FORM: `*01 * PNg-' De og 'a, To orney r� DEBT FINANCING PLAN & TAX RATE GOAL . . . . . . . . . . . . . . . . . . . . . . . . . . FY 2025 BUDGET & FY 2025-2030 CAPITAL IMPROVEMENT PLAN Tit 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. Review of existing debt 2 Future debt borrowing amounts, including amount and timing 3 Debt issuance structure, including term and expected interest rates 4 Debt burden goals nI A 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. 2 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 FY2027 S5,582,000 FY 2030 S7,000,000 FY 2032 S7,000,000 FY 2035 S7,000,000 FY 2038 S7,000,000 FY 2040 S7,000,000 On average, the Town of Trophy Club anticipates borrowing $7,000,000 every two to three years as depicted in the chart above. A DEBT FINANCING PLAN & ANNIVERSARY TAX RATE GOAL DEBT ISSUANCE STRUCTURE 3 Certain assumptions are made regarding the structure and interest rates of debt to be issued. Specific details will be prepared by the Town's municipal advisors prior to each issuance. For the purpose of forecasting, the following assumptions are made as of the approval date of this plan, which should be verified against results based on the condition of the debt market at the time of issuance. DEBTI$SUANCE ANTICIPATED ANTICIPATED MATURITY INTEREST RATE FY 2025 15}rears 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 1&S tax rate should be no higher than o.1.25% 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. TU I la DEBT FINANCING PLAN & ANNIVERSARY TAX RATE GOAL ODEBT BURDEN GOALS (CONT.) • 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. TIT A 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.o997gg. In FY 2025, the I&S tax rate is $0.099427 per $ioo 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 $o.1o5. 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 2040. After FY 2040, the taxable valuation growth estimate is flat at o.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 Ito growth, the taxable valuation would reach $3 billion in FY 2031. Ili A e DEBT FINANCING PLAN & ANNIVERSARY TAX RATE GOAL TAX RATE GOAL (CONT.) As the Town strives to maintain an I&S tax rate of $o.io5 per $ioo 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 municipal operations and eligible for debt financing, the Town will seek 2 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.