The city may have to pay about $565,000 a year for the next eight years to subsidize the special tax zone for its Town Center unless the city can restructure the debt and extend payments.For years, the zone has not brought in enough tax revenue for required payments, and the situation is unlikely to change soon, City Council members were told Tuesday.
“Up to this point, you’ve already subsidized $3.9 million. If it continues on, it would be another $4.5 million,” David Medanich, with city bond adviser First Southwest, told the council. “What that equates to is 1.4 cents on the tax rate. Now, that’s real money.”
The property tax revenue from the zone would have to grow by about 15 percent to fully cover the 2011 debt payment, “which is probably not going to happen unless you get some substantial growth,” he said.
When the tax increment reinvestment zone was created in 1998, it was envisioned as a retail center in the heart of the city. It stretches from Pate Orr Road on the west to Keller Smithfield Road on the east and just north of Keller Parkway on the north to Bear Creek Parkway, near Keller Pointe, on the south.
The city borrowed about $33 million to finance the construction of Town Hall, the natatorium and other infrastructure amenities, with hopes that the tax dollars raised in the district would pay off the loan, City Manager Dan O’Leary said. Officials hoped that the improvements would attract retailers and restaurants to the zone. To finance construction, the city issued certificates of obligation, which did not require a bond election, but taxpayers are obligated to pay.
“The only way that we could borrow the money for the TIRZ is ask the Keller taxpayer to co-sign the note guaranteeing that they would make up the shortfall the TIRZ had during the course of paying back the note,” O’Leary said.
In 2003, the city collected $865,000 in property taxes inside the zone, O’Leary said. Taxpayers had to subsidize the district $693,000 that year, he said.
“Our annual debt payment was $1.5 million on that $33 million that we borrowed,” he said. “In fact, every year from 2003 to 2010, the Keller taxpayer has had to subsidize the TIRZ because the private development in the TIRZ didn’t grow as expected to meet the demand for the debt payment.”
Medanich presented plans to restructure the debt with a five- or 10-year extension.
“What we are trying to do is give you the option — of course, you are going to hope for the best, but you are going to plan for the worst,” he said.
With minimal growth in the zone, the five-year extension may cause a spike in the city’s debt, Medanich said.
The 10-year extension would alleviate that, he said.
City revenues would be responsible for the debt beyond 2018. Revenue from the district would fully pay the annual debt service, and cash might accumulate within the zone fund, provided that growth occurs.
If the taxing district does not perform and the refunding bonds remain outstanding, the city would have to pay about $744,000 more annually from 2019 to 2028, or $2.77 million more in total net debt service, Medanich said.
“If the TIRZ performs better than previously indicated, which was the 3.5 percent or 5 percent growth, we would accumulate enough cash that we could call the bonds early, which is actually savings of $3.1 million or $2.9 million at the present value basis,” Medanich said.
Councilman Mitch Holmes said the tax zone has been a “sensitive subject.”
“But it is important to point out that it has been good for us, and we do have some infrastructure that we value,” he said. “It was designed to be a cash cow, but it didn’t turn out to be a cash cow. … It turned out to be short of that — but still good for us.”
A public hearing is scheduled during the City Council meeting at 7 p.m. March 23 at Town Hall, 1100 Bear Creek Parkway.
March 4, 2010
The TIF is Discussed in the FWST