Bond Financing

I recently voted to support a proposal by the city manager that will save the city about $10 million next year in debt service.  I want to tell you about it because it allows us to proceed with needed infrastructure improvements while taking advantage of lower construction costs.  I had not supported the issuance of this additional debt prior to this proposal.

In 2006 the citizens of Dallas voted for a package of $1.3 billion in bonds for streets, flood control, parks, libraries, public safety and a variety of other initiatives. Since then, the economy has taken a nosedive leading to both problems and opportunities. 

The problems relate to debt service – the additional cost of paying off the bonds that comes from our tax revenues.  It is difficult to add more debt service when we are short on revenue for our operating budget. 

The opportunity is that it is cheaper to build during a recession.

During last summer’s budget deliberations I did not support the issuance of $354.7 million in bonds (from the $1.3 billion 2006 bond election)  because it would have resulted in $16.9 million more in debt service payments (principal and interest) in next year’s budget (FY 10-11). 

Given the budget difficulties we expect for next year, I did not want to build in $16.9 million more for next year.  I would have supported a lesser amount but lost on a vote to approve the $354.7 million.

The new proposal will reduce the amount of new debt to be issued to $297 million and initially fund it with certificates of obligation instead of bonds.  This is a short-term, less expensive form of debt that is issued just as each project is ready.

Debt is issued in smaller “chunks” and less interest is paid.  Eventually these small “chunks” of debt will be refinanced with long-term debt.  This will result in substantial savings and an increase of about $500,000 next year (instead of $16.9 million).

We also get to take advantage of reduced construction costs.  For example one major street project – The Routh Street Thoroughfare from Woodall Rodgers Service road to Flora was estimated to cost $1.52 million but was bid at $1.15 million – 24% below the estimate.