McLennan County commissioners received good financial news Tuesday when they learned the county received a strong bond rating and was able to issue an almost $10 million certificate of obligation with a 1.97 percent interest rate — lower than the 3 percent interest rate commissioners expected.
The county’s financial adviser, Mark McLiney, with SAMCO Capital Markets, reported that eight companies put in a bid for the county’s certificate of obligation. McLiney said they originally projected the county being able to issue the bonds at a 3 percent interest rate.
He said the county is doing dramatically better than projected and scored an Aa1 bond rating from Moody’s Investors Service, demonstrating a strong ability to meet financial commitments.
“The Aa1 rating reflects the county’s large, growing tax base anchored by the presence of Baylor University, diverse economy, strong financial position with robust reserves, and manageable debt and pension burden. The rating also reflects the county’s below-average resident wealth levels,” according to the Moody’s report.
McLiney said the county’s reputation, recent bond rating and the amount borrowed attracted interest from across the country. The bids came from across Texas, New York, Tennessee, Oklahoma, California and elsewhere.
County Judge Scott Felton said the county has spent the last few years trying to get control of its expenses, from making significant cuts to the budget to increasing taxes in 2013 from 48.4258 cents per $100 of property value to 53.5293 cents. Since then, the county has adopted policies to keep itself in good financial standing. Felton said Moody’s praised the county’s requirement to keep 25 percent of annual expenditures in a fund for emergencies, a policy adopted in 2013.
Felton said the county will consider raising the minimum emergency fund percentage higher in the following year. Commissioners Friday filed the proposed fiscal year 2017 budget with the county clerk for public review.
The court plans to adopt the budget Aug. 26 for fiscal year 2017, which starts Oct. 1. The proposed plan includes an estimated ending fund balance of $29.06 million, which is 29.23 percent of annual expenditures, higher than the 25 percent requirement.
Roads and ADA
Felton said the county plans to use the bond money on three road projects and to correct some of the more than 350 violations of the Americans With Disabilities Act that the Department of Justice found in county facilities.
“We’re looking forward to getting the budget behind us. We have a lot of work to do this coming year,” Felton said.
Commissioner Ben Perry said the county had a lot of debt five years ago, and its reserve fund balance was hovering around $10 million and in jeopardy of continuing to decrease.
“Fast forward to today. What’s changed? We now have no short-term debt, only long-term debt. We have a 29 percent fund balance, and we are aggressively paying down any debt we can. That’s what catches the attention of rating agencies,” Perry said. “Just to know that we’ve come that far in a five year period is exciting.”
Perry said one reason the county opted not to further reduce taxes in the fiscal year 2017 budget is that tax cuts started the county’s downward spiral a few years ago.
The proposed fiscal year 2017 budget includes lowering the tax rate by 1 cent per $100 of property value. If approved, the tax rate will go from 53.5293 cents per $100 valuation to 52.5293 cents. A McLennan County homeowner with a house valued at $100,000 would pay $525 per year in taxes to the county.
The county will collect more in property taxes even with the lower rate because property valuations increased significantly.
Small incremental changes to the tax rate create far less collateral damage, Perry said. It is dangerous for the county to try to outpace the economy, he said.
Perry said the court has done a lot of hard work and made difficult decisions in recent years to improve the county’s financial position.
Felton said he is pleased with the higher-than-normal bond rating.
“It’s wonderful news,” he said. “We didn’t expect rates to be as low as they are.”
McLiney said the bond rating agency was “very, very complimentary on y’all, what y’all have done and what y’all have managed” financially.
Aware of plans
He said the bond rating company is aware of the county’s intentions to issue further bonds when setting the Aa1 rating. Commissioners plan to issue about $50 million in certificates of obligation during the next three years, including the $10 million already approved. The court will consider issuing another $20 million in bonds in each of the next two years.
“We wouldn’t be breaking 2 percent or have so many bids without y’all running a house like you do,” McLiney said.