By Karen Gleason
The 830 Times
County commissioners court members recently heard an update on the county’s ability to borrow money, a possible first step to obtaining funds for a major construction project.
David Gonzalez, a director with PFM Financial Advisors LLC’s San Antonio office, presented Val Verde County Commissioners Court members with an overview of the county’s financing options during the court’s regular term meeting June 7.
After giving a brief introduction to his company, Gonzalez reviewed the county’s outstanding debt.
He said the total principal issued for the county’s current debt, which consists of seven outstanding bonds issued for capital improvements over the past decade, totaled just over $56 million, of which $25.6 million remains outstanding.
“The county’s going to be in a unique position here in about three years, where you’re going to have the majority of all your debt coming off the books,” Gonzalez said.
He noted that in 2022, 2023 and 2024, the county’s bond payments would total about $5.5 million each year.
“But in fiscal 2025, that’s going to drop down to about $1 million,” he told the court.
Gonzalez reviewed the last bond rating given the county by the rating agencies S&P Global and Moody’s.
He said the S&P (Standard & Poor’s) rating was A/Stable and that the agency had listed the county’s credit strengths as “adequate management and financial policies, very strong liquidity, very strong debt and contingency liability position and strong institutional framework score.”
That company also noted the county’s credit challenges as “relatively weak economy and weak budgetary performance and flexibility.”
Moody’s bond rating for the county is A2/No Outlook, and it lists the county’s credit strengths as “healthy financial position, affordable debt burden, sizable tax base and strong institutional framework score.”
Moody’s listed the county’s credit challenge as “somewhat weak wealth and income profile.”
“The credit challenges you see here are common for anybody along the U.S.-Mexico border. It doesn’t matter if you’re a school district, a city or a county, so I don’t want to put too much emphasis on that. That’s more of a geographical issue that everybody has to deal with along the U.S.-Mexico border,” Gonzalez told the court.
County Commissioner Pct. 3 Beau Nettleton asked about the “weak budgetary performance and flexibility” note by S&P Global.
“It has to do more than anything with your expenses and your revenue, and maybe they just didn’t see the consistency that the rating agencies like to see, for counties this size, that fall within your peer group,” Gonzalez replied.
“What kind of consistencies would they like to see?” Nettleton asked.
“Well usually they don’t want to see deficits. They want to see continued growth in revenues. They want to see management of debt, management of expenses. They just kind of like to see consistency over a three to four year period,” Gonzalez said.
“It’s our deficit spending that’s the issue here?” Nettleton said.
“Yes,” County Judge Lewis G. Owens Jr. replied.
“It appears that the last time they rated you, this was something that they took notice of,” Gonzalez added, noting without the detailed report from the rating agencies it would be hard to pinpoint the exact reason for the note.
Nettleton asked Gonzalez to obtain the report and provide more details about the challenge note.
Gonzalez called both ratings “very high.”
Gonzalez then presented three different scenarios “for discussion purposes,” for possible debt packages of $20 million, $30 million and $40 million.
“These are just to give the county an idea of what you would be looking at if you were to move forward with projects in the near future, with the different dollar amounts and what kind of tax impact would those mean,” Gonzalez said.
Owens directed the commissioners’ attention back to the page of the presentation listing the county’s debt service profile, saying that in 2024, the county will be done paying on a 2016 tax note, for which it now sets aside $448,000 a year. The following year, the county will have finished paying the $6 million bond for reconstruction of the county library, at a savings of about $693,000 a year.
“And that’s what he was talking about, that we have $1,122,630 in two payments that are fixing to come off between ’23 and ’24, and the other,” Owens said.
“So you can either drop your tax rate or you can . . . finance capital projects,” Gonzalez added.
“Since the library was a bond election, and the voters approved a tax increase to cover it, does that, when it comes off, do they automatically get a (tax rate) reduction because it was a bond election?” Nettleton asked.
“That depends on what the county does going forward. If the county commissioners court wants it to come off, then it’ll come off,” Gonzalez replied.
“But is it required?” Nettleton asked.
“It’s not required. When you’re done paying the bond, you’re done paying the bond, but you can issue (debt for) additional capital projects going forward, so you can keep tax rates level going forward,” Gonzalez said.
Nettleton asked that the issuance of the library bond be reviewed, so the court could be reminded of the requirements of the bond.
“I think we wrote it to where we could leave it in there and not take it out (once the bond was paid), but I just don’t remember,” Owens said.
Gonzalez said he would meet with the county’s bond counsel to discuss the issue.
Gonzalez then walked the court through each of the three debt scenarios he presented, discussing prospective annual payments and tax rate increases that would be required to service the debts.
Nettleton noted that the cost of borrowing money woud keep going up over time. He also asked Gonzalez to come back with options the county could use to pay back bonds for different types of projects, such as using hotel occupancy tax monies to pay back a bond for construction of a sports venue.
County Commissioner Pct. 4 Gustavo “Gus” Flores asked what the best option is for the county to borrow money. Which option, he asked, would give the county the best rate?
“As far as the best rate, it’s pretty much the same thing, because at the end of the day, whether it’s a bond or a CO (certificate of obligation), whether it’s approved through a bond election or through a notice of intention in the local paper, at the end of the day, you’re pledging the same thing, which is property taxes, so when the ratings agencies actually sell the bonds, to them, to everybody that’s investing, buying, selling these bonds, it’s the same thing, so you wouldn’t get a different rate for a bond that was voted on versus a bond that issued through certificates of obligation because the pledge is the same, which is your property taxes,” Gonzalez said.
Nettleton suggested the county begin looking at a list of projects, adding the next few years will pass quickly, and having specific projects ready will streamline the process. He noted that undertaking a large project is a lengthy process.
“2024 is not that far off,” he added.
Following the meeting, Owens said some of the projects the court could consider are the construction of a county judicial center, some type of large sports complex or a “fairplex” and additional improvements at the fairgrounds.
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