The Levelland City Council approved ordinances No. 1096 and No. 1097 for the issuance of certificates of obligations (CO’s).
Levelland resident Pete Cunningham participated in the public comment portion of the meeting to express his concerns on the City’s spending. His concerns began with the City’s credit score in regard to the current spending and how it will hold up if the trend continues. Highlighting the additional funds the City has had to seek for the rising costs of the new wastewater treatment plant, Cunningham felt that a clause should have been in the contract locking in a price ceiling to avoid having to seek additional funds. The second concern was the amount of funds being sought to replace the current animal shelter.
“I am really concerned that it is going to hurt this city down the road in the future if we continue to spend the way we are spending right now,” stated Cunningham.
Jason Hughes with hilltop securities presented the item related to the two CO’s to discuss the financial impact and layout moving forward if approved.
Hughes began with a recap stating on June 2 the Council approved the notice of intent which was the first step to issue the CO’s. In that notice of intent, the maximum amount that was authorized was just over $11.4 million. Hughes noted that the amount to be recommended was well below that amount.
From a credit rating perspective, Hughes explained that the process includes ascertaining a rating based on finances, the general economy and then management. In turn, the City scored high, receiving an A+.
“That was an affirmation of your current rating, so very happy with that and then the other thing just like we did on the past CO issuance is we actually applied for insurance,” noted Hughes. “That carries a higher credit rating and as that credit rating goes up the interest rate goes down.”
Hughes stated the first CO that sold was the tax exempt 2025 A. The final paramount Hilltop was seeking for the Council’s approval was about $3,030,000 and that produces $3 million in project proceeds to the city. The final true interest cost was 4.45%. Wanting to be conservative in their estimation, Hughes and Hilltop had been estimating roughly a 5.1% interest.
“We’re about two-thirds of 1% less so, very happy with that,” said Hughes. “What that directly means is you have a little under $400,000 less in debt service and then from an annual basis it’s almost $20,000 less than what was projected.”
As Council has discussed in several meetings prior, the CO 2025 A amount is set to be allocated to the planning and construction of a new animal shelter.
Next, Hughes highlighted CO 2025 B which are taxable certificates of obligation for the new wastewater treatment plant. Hilltop produced $7 million in project proceeds with Council’s approval the total came out to $7,165,000 which included the project proceeds plus all of the cost of issuance on that taxable 2025 B.
Since it is taxable, an interest rate of 5.48% was secured, but is lower than the estimated 6.6% projected by Hughes.
“We came in a full 1.1% less and what that translates into is $1.3 million less in debt service and $65,000 less on an annual basis,” stated Hughes. “Again, very strong pricing that the city received today.”
Hughes also mentioned that the CO’s are callable on August 15, 2035. This allows the City to retain the flexibility and the right to take those CO’s away from the current investors at that time and could refinance similar to refinancing a home mortgage if there is a lower interest rate.
“All of the costs associated with these are contained if you will within these certificates of obligation. Said another way is if you didn’t have any funds coming out of your general fund and water and sewer fund to pay the cost,” explained Hughes. “It was all wrapped into these certificates of obligation.”
The tax-exempt debt service averages about $235,000 a year. Hughes noted it’s very conservatively structured so it’s level from year-to-year as there’s no increase in debt service. Additionally, the taxable debt service follows the exact same format in 20-year total payment with a fixed rate or fixed interest of approximately $590,000 from yearto- year. Hughes reiterated there will be no increase in debt service and no long-term debt service beyond those 20 years.
“I was very happy with the sale results. Again, they were much better than what I had projected as far as interest rates which leads to that lower interest rate and lower debt service,” said Hughes.
Following the presentation of the CO’s, Mayor Breann Buxkemper stated she was thankful to be moving forward with the needed change at the animal shelter while also reaffirming her disappointment in having to take on additional debt for the wastewater treatment plant.
“As I’ve said sitting up here for about five or six times, we were backed into a corner I never wanted to be in and the City of Levelland never wanted to be in,” said Buxkemper. “This wasn’t a contract that we could just negotiate that way, sadly. City contracts have to be put out for bid, and it came in much higher than what we were initially told. We were very upset about that, and we had multiple meetings saying how upset we were about that.
“While still very upset about it, I need the toilets to flush. These new businesses that are coming in on Highway 114 need their new toilets to flush and if we want new housing in this community we have to move forward.”
Buxkemper continued adding that the situation was never wanted while adding that City Staff attempted to work through various scenarios to avoid the CO route.
“We’ve said the only thing we can do to move forward is to finish the wastewater treatment plant,” said Buxkemper. We’ve set out to aggressively market our community and that’s the attitude that we’re taking to figure out how to move forward.”
Hughes noted that situations similar to the Council’s have become common amongst his clients as project costs rise considerably from the project amounts in original estimates.
Councilmen Michael Stueart and Buxkemper thanked Hughes for his work in securing a lower interest rate in both CO’s in addition to the work he provided during the Council’s navigation of the situation.
Wrapping up the items, both CO’s were approved by the Council. Councilman Bill Powell did not record a vote as he was absent from the meeting.