Let’s Just Refinance It Again

Thanks to Jim Carson who alerted me to the fact that the City Council is yet again talking about refinancing the TIF debt, and the consensus is that they will extend the debt out another 10 years past the expiration of the district.  The reason?

The City is currently subsidizing the TIF to the tune of $500,000 a year and that number is going to go up to around $600,000.  I’ve been saying this was going to happen for years and this isn’t a suprise, but instead of just biting the bullet and cutting spending, they want to extend the debt out so our kids can pay it back.  Sounds just like Washington D.C. to me.

They are going to say they are going to stabilize the tax rate on debt because they want to issue another $8,000,000 in debt this year.  Has anybody at City Hall heard of cutting spending?  Maybe the powers that be at City Hall need to take a Dave Ramsey course.  They are also saying that they could pay off the bonds early if the TIF ever turns around.  Have you ever heard of a government entity not spending “found” money on another pet project?

What will this cost us?  $800,000 $2.7 MILLION of extra interest.  Maybe former Mayor Tandy can write a check to cover the difference.

Don’t believe me?  Go watch the February 2nd City Council work session.

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26 responses to “Let’s Just Refinance It Again

  • Randy Leake

    Doug first let me say this TIF was a very poor decision to ever do by elected officials. Such expenditures should have been brought before the voters when this was being entertained by the council that approved this. It was always presented by our former city manager, past mayors and councils that it would pay for itself and wouldn’t cost the taxpayers anything. Well here we all are and it is time to pay the fiddler once again.

    I think this council is being very prudent in trying to spend our tax dollars. I think this is not a bad option to consider if we can get a better rate and this will hold the property tax rate down in a difficult economic enviroment. It is what it is. They didn’t create it but they are trying to make do with the hand they have been dealt.

    I am with you on cutting spending. All avenues should be exhausted first before we issue any more debt for any new projects. Based on this past budget process this council is trying to go in this direction.

  • Doug Miller

    Randy,

    All this does is force the taxpayers to come up with the money to pay back the bonds in the out years. (2019-2028). It effectively takes that money out of future budgets so that the current council can spend money how they see fit today. It is not a prudent move and will cost the taxpayers almost a million dollars in the process.

    It’s selfish and short sighted.

  • Randy Leake

    Wasn’t Carson part of the council that approved the TIF to start with that built Town Center and City Hall?

  • Jim Carson

    The TIF was created and the money was borrowed when I lived in a starter home in East Fort Worth! I was elected in 2006, eight years later.

  • Randy Leake

    Jim are you sure? I thought you led the charge and pushed this burden on to the taxpayer.

  • Jim Carson

    Doug, who gave you the $800,000 interest number?

    I’m looking at the proposal, and under the 10-year extension scenario, the column labeled ‘Net Effect Restructure TIF Debt’ has a total of $2,769,523.

    Year Amount

    2011 (501,726)
    2012 (540,826)
    2013 (568,126)
    2014 (598,076)
    2015 (609,470)
    2016 (614,183)
    2017 (620,914)
    2018 (619,314)

    2019 243,880
    2020 493,880
    2021 838,880
    2022 839,680
    2023 839,480
    2024 838,280
    2025 836,080
    2026 836,118
    2027 839,880
    2028 836,000

    Total for 2011-2018 = (4,672,635)
    Total for 2019-2028 = 7,442,158

    In English, this means we’re borrowing $4.672 milion in the next eight years, which will cost us $7.442 million in the following ten years. The difference is the interest, which is $2.769 million.

    What concerns me most about this whole thing is that we’re saddling future councils with this debt service to “relieve” our near-term budgets of $600,000 per year. But Keller’s annual budget is over $65 million per year, so this whole exercise is for 1% of the budget.

    If we can’t tighten our belts one lousy percent, we’ve got serious problems.

  • Doug Miller

    Jim,

    The $800,000 came from the council work session as stated by the finance people. I have not checked their numbers or yours, I was taking their word on it.

    And you are correct, we are saddling future councils with this debt service.

    Something I wonder and wasn’t mentioned, since the TIF expires in 2018, these out year numbers that you listed above, will they have to be paid back strictly with city tax revenues rather than a combination of City/School District monies? If so, this will burden future councils even further than what they are stating today.

  • Doug Miller

    And a question needs to be asked of the City Manager….will he be around in 2019-2028? He seems to be the one pushing hardest for this refinance.

  • Randy Leake

    Doug what was the $8 million in new debt were you referring to?

  • Doug Miller

    Rufe Snow and North Tarrant Pkwy make up $6 million, about $2 million for water/sewer projects.

  • Randy Leake

    The TIF was a very shortsighted decision pushed by a selfish greedy group that wanted their Town Center at any cost and they got it. We are all having to pay for a project that should have been voted on by the taxpayers including a City Hall that was part of this. Their Vision has failed and we foot the bill. Do we now sacrifice road improvements and water sewer projects to pay for their mess?

  • Doug Miller

    Randy,

    Pay me now or pay me more later. That is the choice we have.

    As Jim said, it’s 1% of the City Budget. I am for tightening our belts and paying the total debt off by 2018 rather than pushing it out to nearly 2030.

    Wouldn’t it be nice to have the great front page story about the TIF and how healthy it was a few years ago? Remember Chicken Little?

    The sky fell and all of the previous council members and mayors have run for cover, while I still am out there pointing out what I have been for nearly a decade.

  • Jim Carson

    Doug, the only $800,000 quote I heard was in a discussion summary by Tom Cawthra, whereby he stated (correctly) that the difference in interest cost between the 5-year extension scenario and the ten-year extension scenario is $800,000. This was at about the 30 minute and 20 second mark on the video.

    But the interest cost for the five-year scenario is about $2 million.

    The true interest cost of $2.7 million was disclosed in a discussion initiated by Ray Brown earlier.

  • Doug Miller

    On the cutting budgets Randy, one further thing….how tight of a budget do we really have? While the private sector is forced to cut staffing levels when things get tight, not a SINGLE person has been cut at City Hall.

    If things are really that tight, they can find a way. This is just a tactic to push the debt on to future councils and City Managers long after they have retired and moved on.

    Hey, it’s the American Way!!

  • Jim Carson

    Randy,

    NO!

    We do not sacrifice road and sewer projects to pay for this mess.

    The first sacrificial lamb in this mess should be the ever-fattening piggy bank that Police Chief Hafner is saving up for a jail that WE DON’T NEED!

  • Randy Leake

    Agree this has become the American Way and I don’t like it. So how do we clean up the mess?

  • Randy Leake

    Jim I agree 100%. By the way I knew you were not part of the TIF. I was just having some fun with you to get you to weigh in on this issue.

  • Doug Miller

    Randy,

    You pay for this now. You don’t push this off to our kids. You tighten where you have to and you bite the bullet.

    This issue will not go away. It will make a good platform for somebody wanting to run for office.

    It’s about responsibility.

  • Doug Miller

    And this isn’t the first time the TIF was refinanced. Last time we borrowed money to make the payments.

  • Randy Leake

    Maybe someone from the Council or City Hall can chime in and give us some further explanation on this.

  • Jim Carson

    I sent the following email to the Mayor and Council and City Manager of Keller last night:

    Dan, would you please correct me if I’m wrong in the following
    analysis of the ten-year TIF restructuring?

    https://beyondrightfield.wordpress.com/2010/02/08/lets-just-refinance-it-again/#comment-868

    Mr. Mayor and Council Members,

    If my numbers are right, is there something else I’m missing?

    Jim

    City Manager Dan O’Leary’s complete response:

    Jim,

    You are correct. Given a set of assumptions about the future, the net cost for extending the debt for an additional 10 years is 2.7 million dollars. A TIF or TIRZ is designed to have the private development in the TIRZ pay the costs for the public infrastructure. In our case that not only included streets, water, wastewater lines, but a Town Hall and a Natatorium.

    Since the beginning, the TIRZ design has not paid the costs for this debt. The General Keller taxpayer has had to pay substantial shortfalls between the revenue generated by the TIRZ and the debt payment. The Keller taxpayer is now subsidizing the TIRZ somewhere between 400-600 thousand dollars a year. The general Keller property taxpayer could face additional subsidies of a half million dollars a year for the next several years.

    The attractiveness of the debt restructure is this:

    1. Get the TIRZ on a payment plan that will have it pays its own way instead of asking the Keller taxpayer to subsidize its debt. The outer year payments(yr 2019-2030) will equal the amount of taxes the private property in the TIRZ would pay in city property tax each year.

    2. Be conservative in the probable development likelihood of the TIRZ from this point. The scenario you ask about is based on an assumption that between 2016-2025 the value of property in the TRIZ will increase by 1% and 0% for 2026-2029.

    3. Make the debt callable after 5 years. That is, if the TIRZ actually does develop, the TIRZ will accumulate cash greater than the debt payment and could allow the Council to pay off the debt early. This would decrease the 2.7 million cost.

    4. If the TIRZ develops at a greater rate than our conservative assumptions, the TIRZ revenues will increase beyond the cost of the debt payments. If that happens, the Council will have options with the revenues in excess of the payments. They will have the option to 1. Pay off the debt early. 2. Use the proceeds to do another project in the TIRZ, or 3. Use the revenue to pay back the General Fund for some of the subsidy the taxpayer has already made over the last several years.

    The choice the Council faces is this. Do we want to restructure the TIRZ debt to continue the plan of having the TIRZ support itself by refinancing for a longer period, or have the Keller taxpayer continue to subsidize the debt of the TIRZ for the next several years.

    Now having said that, there is an additional subsidy that the Keller taxpayer is making to the TIRZ. The TIRZ is designed to use all the property taxes collected to pay the debt of the TIRZ. The Keller taxpayer subsidizes the other general services the City provides the TIRZ properties (Police, Fire, Parks, etc.) This is how a TIRZ is designed. This subsidy decision was made at the TIRZ inception. The amount of that subsidy is hard to quantify.

    Dan O’Leary
    City Manager
    City of Keller, TX
    817-743-4007
    doleary@cityofkeller.com
    http://www.cityofkeller.com

  • Doug Miller

    Dan’s response to Jim and my response to him:
    The attractiveness of the debt restructure is this:

    1. Get the TIRZ on a payment plan that will have it pays its own way instead of asking the Keller taxpayer to subsidize its debt. The outer year payments(yr 2019-2030) will equal the amount of taxes the private property in the TIRZ would pay in city property tax each year.

    What is left out of this equation, is that the money that in the out years that is going to pay off the debt would be going into the General Fund. Thereby, limiting future councils and City Managers of those funds.

    2. Be conservative in the probable development likelihood of the TIRZ from this point. The scenario you ask about is based on an assumption that between 2016-2025 the value of property in the TRIZ will increase by 1% and 0% for 2026-2029.

    I applaud them for finally being conservative in the assumptions, the first time in 12 years. Especially since the TIF is over 70% builtout

    3. Make the debt callable after 5 years. That is, if the TIRZ actually does develop, the TIRZ will accumulate cash greater than the debt payment and could allow the Council to pay off the debt early. This would decrease the 2.7 million cost.

    But you are relying on Politicians to pay off a debt early. How often have you ever seen that happen?

    4. If the TIRZ develops at a greater rate than our conservative assumptions, the TIRZ revenues will increase beyond the cost of the debt payments. If that happens, the Council will have options with the revenues in excess of the payments. They will have the option to 1. Pay off the debt early. 2. Use the proceeds to do another project in the TIRZ, or 3. Use the revenue to pay back the General Fund for some of the subsidy the taxpayer has already made over the last several years.

    If the TIRZ develops at a greater rate, if we do absolutly nothing, it will assist future councils in paying off the debt by 2018.

    The choice the Council faces is this. Do we want to restructure the TIRZ debt to continue the plan of having the TIRZ support itself by refinancing for a longer period, or have the Keller taxpayer continue to subsidize the debt of the TIRZ for the next several years.

    This is not entirely an honest statement. As I said before, if this debt is refinanced, future citizens of Keller, those in the out years will be subsidizing the TIF payments by having those dollars go to pay off debt instead of going into the General Fund

    Now having said that, there is an additional subsidy that the Keller taxpayer is making to the TIRZ. The TIRZ is designed to use all the property taxes collected to pay the debt of the TIRZ. The Keller taxpayer subsidizes the other general services the City provides the TIRZ properties (Police, Fire, Parks, etc.) This is how a TIRZ is designed. This subsidy decision was made at the TIRZ inception. The amount of that subsidy is hard to quantify.

    And by extending the payments for another decade, the Citizens will be forced to subsidize those items for another decade.

    Purely and simply this is a horrible plan to push debt out further rather than just suck it up and pay it off by 2018.

  • Doug Miller

    So, using their numbers, we are spending $2.7 million to keep from having to subsidize $4.7 million.

    So, basically we are borrowing more money to make the payments on the TIF district. And it’s going to cost us 58% of the cost of the principal to do it.

    So, Randy, do you still think this is a prudent decision????

    This is the same as being eight years from paying off your house and refinancing the whole thing for 20 years. Sure, your payment is lower, but what kind of financial sense does it make?

  • Randy Leake

    Doug and Jim: What was the consensus of the council from the Feb. 2 meeting on this issue?

  • Doug Miller

    Unanimous in favor, including the Mayor. Jim Thompson wasn’t there and I haven’t gone back to look at the tape from the meeting before when they discussed it to see his response.

  • Jim Carson

    Here’s my response to Dan, which echoes some of Doug’s good points:

    Dan,

    For too long, the City of Keller has treated its Town Center TIF [TIRZ] as some ne’er-do-well brother-in-law to whom we grudgingly loan money in hopes that maybe someday he’ll pay us back. The Town Center TIF was, is and always will be a project of, by and for the City of Keller. Everyone understands that the school district gave up 20 years of incremental tax revenue in return for a Natatorium. The Tarrant County entities signed on as a calculated bet that their tax revenues would be dramatically higher after twenty years of forebearance.

    But it was the City of Keller that held all the cards. It was we who took the risk. It was we who would have reaped the rewards. And it is we who must now accept responsibility for its failure. The first order of business is for the city council to dispense with this talk of “subsidizing the TIF” and replace it with “paying for our losses.” It is just wrong to say “the TIRZ design has not paid the costs for this debt.” Intellectual honesty requires that we now say “our TIRZ design has not paid the costs for our debt.”

    You did not create this mess. Neither did I. And sadly, neither did the voters of Keller, as they were never offered a vote in the matter. But the voters, and you, and I, inherited this problem. It is not fiscally responsible to punt our problem to a council and taxpayers a decade from now. Nor is it a “no brainer,” as the mayor suggested.

    Many of the arguments you and the council members have offered in favor of this proposal amount to “these are conservative estimates, and if the TIF outperforms then we’ll be able to call the debt early and not incur so much interest.” This argument is both circular and specious. If the TIF begins to outperform, you’ll be able to make up the very shortfall you’re trying to wish away with debt. You will have solved a non-problem.

    Your final paragraph disappoints me greatly. If the TIF had succeeded, would some other entity have provided the fire, police and other services? It is ridiculous to call this a subsidy. Again, we have met the TIF, and he is us, not our brother-in-law.

    I strongly supported you as city manager, and still do, but it hasn’t escaped my notice that your only proposed solution to the TIF shortfall is the one that makes your job easiest. I would suggest that it is your responsibility to offer alternatives to the city council, and the people of Keller, that include cost-cutting measures in lieu of additional debt. I would be happy to offer some off the top of my head, or even sit down with you and the mayor and staff and go through the budget.

    Several times in Keller’s recent history we have had Town Hall meetings to discuss specific spending increases. Is it not time to hold some Town Halls to discuss specific spending decreases?

    Jim

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