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The City issues bonds to finance projects that will benefit the City for decades, allowing the cost to be spread across the useful life of the project. It would take many years to accumulate enough funding to pay for these projects as we go and during that time the cost of construction would likely continue to increase. Additionally, if the City continues to lower its property tax rate as it has historically done, the City will not be able to pay cash for these projects.
Historically, construction inflation has far outpaced interest costs. Additionally, the construction costs are not fixed as the interest rate of the bonds will be. The City’s high credit rating results in low interest rates which allow the projects to be financed economically over an appropriate period of 20 years.
Should voters approve both bond propositions, Rosenberg is not expected to see an increase in the City’s tax rate. Over the past several years, the City has paid down existing debt and would be able to absorb the debt service costs associated with these two bond propositions without increasing the tax rate.
The bonds are not expected to have a property tax impact and are not expected to create a tax increase.
The interest rate is set by the bond market at the time the bonds are issued. Since the City carries an excellent bond and credit rating, the interest rate is likely to be among the lowest available for municipal bonds. Rosenberg would issue bonds based on a 20-year maturity schedule, with nearly half of the principal expected to be paid off in the first 10 years. This repayment schedule would minimize the interest cost that must be repaid. Additionally, the bonds would be callable in ten years or less and the City would have the option to pay off the bonds early at that time.
The bonds would be structured with a callable date in 7 to 10 years, allowing the City the option to pay off the bonds at that time. The most beneficial call date will be selected when bonds are issued.
Property taxes are the main source of funds used to repay bonds issued through a General obligation bond. General obligation bonds are backed by the full faith and credit of the issuing jurisdiction, in this case the City of Rosenberg. This means the City is obligated to pay back the bonds plus interest by pledging revenue from ad valorem taxes. The City levies a property tax annually with a portion of the tax rate dedicated to the interest and sinking debt fund to repay general obligation bonds in the form of annual principal and interest payments.
The City currently has approximately $38 million in outstanding principal on debt issued by the City which will be retired over the next 13 years. All City debt (including GO bonds and Certificates of Obligation) is backed by property taxes. Property taxes are the main repayment source for the city debt. However, the $38 million of outstanding debt includes debt supported by the water/wastewater utility system and the Rosenberg Development Corporation. Due to the growth within the city, the City currently has enough debt capacity to issue these bonds without increasing the current tax rate.
Issuing additional bonds would not affect the bond rating as long as there is a sound financial plan to support the bonds.