October 24, 2018

Planning for a Potential 2019 Bond Program

Our major capital improvements are accomplished through successive bond programs over many years, addressing our infrastructure needs systematically in order of greatest urgency.  Even as we were developing our current Bonds for Better Bellaire 2016, we were already targeting 2019 for the next round.  Maintaining the same pace of work as its predecessors, BBB16 provides funding for three years’ worth of street and drainage infrastructure, and water and wastewater utility projects.  All of those are proceeding right on schedule, so it’s time to start thinking about a potential BBB19 to keep the progress going, and even accelerate it.

This week the City Council, City Manager and department heads kicked off the discussion with a half-day planning session devoted to the subject.  It was a high-level conceptual workshop to receive information and provide feedback and guidance to staff.  Certainly no decisions were made and there are plenty of details left to be worked out, but the overall consensus of Council is that current planning efforts are on the right track.

As presently contemplated, a 2019 bond program would focus solely on our most critical infrastructure needs:  streets and drainage, water and wastewater.  Consistent with public input since Harvey and at the urging of our citizen Flood Hazard Mitigation Task Force, we’re aggressively prioritizing local drainage improvements and our participation in regional flood control efforts as much as possible.  Funding for these projects would nearly double the pace of BBB16, by further deferring other, unfunded items in the Capital Improvement Plan, namely Evergreen Park, the Library and Public Works administration building.

Top of mind for everyone involved are our overall debt and affordability concerns.  Yes, we carry a lot of debt, but we also have a lot of unmet capital needs.  It’s no secret we’ve had a real can-kicking problem in Bellaire, and for decades.  It has finally caught up with us, and we’re now left essentially subsidizing all those years in which neither work was getting done nor funds were being set aside.  That’s reflected in our current level of indebtedness and financial projections for the foreseeable future.

As such, much of the workshop presentation and discussion centered on the financial impacts of additional debt.  Our analysis is not only based on conservative assumptions, but also covers a long enough time horizon that the next, next bond program (perhaps in 2022, if we stay on a three-year schedule) has been penciled in for purposes of running the numbers.  Emphasizing these are conservative projections, total indebtedness would peak at around $160 million in 2025, and then decline to its present level by around 2030 and continue declining as old debt is retired.  The effect on property taxes would of course follow the same trend:

While our debt capacity and AAA bond rating—which take into account assessed value and per capita income relative to outstanding debt and total tax burden—compare favorably to those of other cities, no doubt we’re talking about a lot of money here.  That’s because it’s going to take a lot of money to address our outstanding infrastructure needs throughout the City.  The total price tag is estimated to be as high as $350 million to get it all done over the next several decades according to the City Engineer.  Can we afford to do it (keeping in mind our property values)?  Can we afford not to do it (keeping in mind our property values)?

That’s really where our decision making ought to start:  Are we committed to tackling our infrastructure challenges?  If the answer is yes, then the next question is how we want to finance those projects.  If we can’t stomach the amount of debt (and associated interest) it would take, then our other alternative is to not have any more bond programs at all and instead simply pay cash (pay-as-you-go).  Just be aware your annual city tax bill would have to go up 60% to fund the same level of improvements.

If we are to pursue a 2019 bond program, the necessary decisions will have to be made and an election called in August.  By then we hope to have a better idea of where we stand on our pending flood mitigation grant applications, as well as opportunities for cost participation in regional projects.  The latter are especially important, as we know we won’t solve the biggest problems all on our own.  The regional approach should feature prominently in the next bond program and moving forward, as the best and most effective use of our tax dollars.  The workshop included an update on ongoing and productive discussions with the City of Houston and Harris County Flood Control District toward the development of mutually beneficial projects and how they might be funded.

In the meantime, staff will continue preparing a bond proposal based on Council’s feedback from the workshop, all subject to further discussion and refinement, with public input.  In addition to the input already incorporated in existing capital plans, including from the Task Force and citizen boards and commissions, and general public comment, look for open house and town hall opportunities in the coming year.  Plus, the city staff is always available to receive comments and answer questions, and will continue providing information and regular communications through a variety of channels.

I strongly encourage you to review the workshop notebook, which contains detailed information about our capital plans, financial projections and other important considerations in evaluating a potential BBB19 bond program, and as always welcome your active participation in the process.