Bond effect on county debt addressed
From Conroe Courier By Catherine Dominguez | Posted: Saturday, April 25, 2015 2:29 pm
As Montgomery County preps to send its $350 million road bond referendum to voters May 9, some community leaders are questioning the financial health of the county and whether it can handle the additional long-term debt.
The Woodlands Township board member Gordy Bunch, owner of The Woodlands Financial Group, and former state Rep. Steve Toth, both opponents of the bond, believe there are bigger issues with the bond than just the controversial extension of Woodlands Parkway from FM 2978 to Texas 249.
Toth and Bunch question the projections the potential bond would have on the county’s bottom line and taxpayer pocketbooks. But according to the county financial adviser, the projections are conservative despite the county’s forecasted growth.
In February, Montgomery County commissioners unanimously approved placing the $350 million road bond referendum on the May 9 ballot. Early voting starts Monday. The bond includes 77 projects across the county. Precinct 1 and 2 will receive $80 million, Precinct 3 will receive $105 million and Precinct 4 will get $85 million.
The numbers
Last year, the county’s financial consultant, Ryan O’Hara with Frost Bank, provided the county with projections on how issuing the $350 million road bond could affect tax rates.
“The county saw over 11 percent value growth from last year to this year and we see continued growth for next year based on forecasts,” O’Hara said. “Over the past 10 years, the county has averaged 9 percent value growth, even including a year of negative growth (minus-2 percent) due to the national economic crisis of 2008-09. This recent growth and the historical average were the basis for the growth rate assumption in the financial analysis.”
O’Hara’s original calculations projected a 5 percent increase in growth through 2025. Those projections showed a $300 million road bond would cause a tax rate increase when issuing $60 million in bonds annually over five years.
According to County Judge Craig Doyal, the county asked O’Hara to redo the projections with a more aggressive growth rate using a $350 million road bond. Using an 8 percent growth rate, O’Hara projected the county could issue the bonds at $70 million annually over five years and not be forced to raise the tax rate.
However, Bunch reads the county data differently.
“My concerns are we are projecting well above our actual five-year average of 5.4 percent,” he said. “And if you track the five-year trend lines, they are all pointing to a negative trend line. They say we are using current economic conditions; and if that were true, the initial 5 percent projections reflect the current actual performance and trends.
“We have also just entered into an oil slump that has already dramatically impacted projected growth locally. None of us know the impact of all the layoffs and $50 to $60 oil prices being more than 50 percent down from this time last year.”
During the Montgomery County Commissioners Court meeting Tuesday, Doyal asked O’Hara about financing some projects in the bond on a shorter term basis.
“We have all kinds of flexibility,” O’Hara said. “If the voters approve the $350 million, this court decides when and how much we sell.”
O’Hara said the county could do $50 million over seven years, which would have “a little less impact on our debt structure.”
According to historical data from Montgomery County’s annual reports on assessed value of taxable property from 1994 to 2014, the 20-year average increase in total property dollar value was 9.0 percent; the five-year average from 2010-14 was 5.4 percent (down from the five-year average from 2009-2013 of 6.5 percent).
With a recent declining trend in property value growth, as well as the home appraisal hikes that residents are experience now, Bunch is concerned the message that the bond will not cause a tax increase for residents is misleading.
“There is no disclaimer that they mean tax rates and that they are projecting an 8 percent appraisal value increase that will surely equate to paying more taxes every year,” he said. “The checks we citizens write are going up and they should admit that versus misleading the citizens whom they work for.”
Too much fat
While opponents of the bond questioned the effect it would have on residents, Toth noted the bond included $100 million of “pork” that could be removed to lower the bond amount and added the referendum should not include maintenance projects such as road re-paving and ditch cleaning. Toth also said that while residents won’t see a tax rate increase, the rise in property appraisals will cause tax payments to rise.
“Seventy-nine million out of $350 million is going to paving roads and cleaning our ditches,” Toth said. “It’s like buying a car to last 10 years and taking 30 years to pay for it. It’s a misuse of funds.”
However, Doyal said the maintenance projects in the bond are actually major projects and rehabs of roads that commissioners aren’t able to address in their annual budgets.
“It’s more than fixing potholes,” Doyal said.
Historically, county commissioners allocate about 25 percent of their budget for road maintenance.
Doyal said while serving as commissioner for Precinct 2, his annual budget only allowed him to pave about 10 miles of the more than 800 miles of roadways in his precinct.
To handle all rehab projects out of a commissioner’s annual budget and not use the bond funds, Doyal said residents would see a tax rate increase in order to do that.
“It could be done, but there could be a tax rate increase,” he said.
Bunch argued that maintenance, resurfacing and undefined “TBD” projects do not belong on a 30-year bond.
“The useful life of these projects is limited to up to 10 years,” he said. “This short-term benefit using long-term debt should have been disclosed. … ‘The Bank of the People of Montgomery County’ need to reject this loan request. Ask HGAC if they match maintenance projects? We can leverage our funds better on higher-priority needs.”
Toth said he knows a bond is necessary for the county but said more planning is needed before it goes to voters.
“I really want us to pass a bond,” he said. “A clean bond that will bring back as many state dollars as possible so we aren’t doing it with our own bond dollars.”
The bond referendum includes projects that will be partnerships with other entities, including the state of Texas and Harris County Precinct 4. According to Doyal, the $350 million bond will leverage about $650 million in construction projects for the county.
The county budget
According to information from County Auditor Phyllis Martin, the county is in “good shape” with debt service only 7.25 percent of the county’s $279 million fiscal year 2014-15 budget. The county’s taxpayer-responsible debt is at $421 million, down from its debt level of $446 million last year.
“We dropped $25 million last year,” Martin said. “That’s pretty good.”
Doyal said the debt is actually lower because $29.6 million is associated with the Montgomery County Mental Health Treatment Facility. According to Martin, the county has a contract with the state, which pays the county to house its prisoners.
“So far, to date, that contract has paid every dollar of debt on that facility,” said Martin, adding the debt on the facility will be retired in 2039.
In addition to the MCMHTF, $50 million of the $421 million debt is related to the pass-through toll program for the flyovers at Interstate 45 and Texas 242. While the amount the county receives is less than the debt issued for the flyovers, Martin said the county was aware of that from the beginning.
“That was brought to the voters and the voters approved that program,” Martin said.
Martin added the county’s current bond rating is AA1 from New York-based Moody’s and AA+ from New York-based Standard and Poor’s.
“For both (ratings), we are just one notch below the top rating,” Martin said.
Doyal said the county has a balanced budget each year.
“I think the county is in strong financial shape,” he said. “To say we are drowning in debt is simply not true.”
