Suppose Kyle decided to go $40 million into debt and no one cared

I was shocked. Astonished. Flabbergasted. Flummoxed. Startled. Aghast. Appalled. Whatever transitive verb you would like to suggest. Here was the City of Kyle holding a public hearing on whether it should increase its debt by more than $40 million and no one — zero, zilch, nary a soul, not one single individual — came forward to speak on the subject.

In fact, at the time Item 11 was being considered, the council gallery was practically empty. At least 95 percent of those individuals sitting on the east side of the dias were either City staff or media.

This is even more peculiar because a week or so ago I attended a City Council candidate debate that featured questions posed by the public. One question asked the candidates was "What would you do to reduce the city’s debt?" and another one was "Would you try to lower taxes?".

Now, here we are, less than two weeks later, and the council is considering going deeper into debt, a move that will significantly increase property taxes, and no one shows up to render an opinion on it one way or another.

Kyle Finance Director Perwez A. Moheet

I am not saying there should have been a massive outpouring of Kyle citizens storming the barricades to oppose the item. In fact, quite the opposite. For reasons I will explain later, using the words of Kyle Finance Director Perwez A. Moheet, this was a brilliant, well thought-out and expertly executed move by the city that, combined with the refunding of other outstanding bonds, will save the city a considerable amount of money over what this issuance (already approved of by voters) would otherwise cost. But there are going to be repercussions. Now full impact of those repercussions probably won’t be felt for about 20 months, but at that time I expect to hear voices rising in complaint. And when that chorus begins to wail, my reaction is going to be "Sorry. You had your chance. That train has left the station."

City Councils conduct public hearings for a specific reason — to solicit and consider public opinion on topics on the minds of the citizens they represent. All City Councils that I know of, and Kyle’s is no exception, has a public comment period at the beginning of each meeting during which citizens came speak on just about any subject they wish, although it’s preferable to speak on items that fall under the purview of the council and not on such items as world peace, universal health care, same-sex marriage, etc. Many councils, especially those that meet all day, often have an another, identical public comment at the end of their meetings. And then often the council will have a public hearing attached to particular agenda items such as proposed ordinances or possibly contentious zoning issues during which citizens came give council members their input on that particular item. And if you’re not going to take the opportunity to make your voice heard, you’ve surrendered the legitimacy to bitch and moan when that policy change returns to seemingly take a chunk out of your financial hide.

Because of the vote taken last night to issue more than $40 in interest-bearing bonds, a property owner with a home valued at, say, $175,000, is going to see their taxes increase at least $175 next year. And I must admit I was shocked, astonished, flabbergasted, flummoxed, startled, aghast and appalled that not one single citizen of Kyle cared enough about that to make the short trip to City Hall to tell council how they felt about it.

Before I go into the specifics of Kyle’s bond issuance, a little background strictly in the most basic of layman’s terms: You’re probably familiar with all those television commercials that claim they provide individuals with ways to determine their credit scores. The higher a person’s credit score, the more that person is able to borrow at a premium interest rate. The same is true for institutions that issue bonds, which are interest bearing notes sold to raise money. When I was a kid, the big deal was U.S. Savings bonds and they were popular birthday presents because you kept them for five years and cashed them in for more money than it cost to buy them. The federal government sold (and still sells) these bonds to help pay for the country’s borrowing needs. They are considered a safe investment because they are backed by the full faith and credit of the U.S. government.

The three largest credit agencies are Moody’s, Standard & Poor’s and Fitch. Collectively, these three agencies account for 96 percent of all credit ratings. Standard & Poor’s issues around 20 different letter ratings that range from AAA (the very best) to D, meaning this organization has defaulted on one or more of its financial obligations. AAA is considered a "prime grade." The next three levels — AA+, AA and AA- — are all considered a "high grade." Kyle’s credit rating is AA-. According to S&P’s definitions, that means Kyle has a very strong capacity to meet its financial commitments. It differs from the AAA rating only in a small degree.

So the city’s excellent credit rating is the first piece of good news. Here, in Moheet’s own words addressed last night to the mayor and the council, is the rest of the good news (I, not Moheet, emphasized the phrases in italics because I consider them especially important):

"You will recall from the March 17 briefing I shared with you a set of objectives or goals/targets that we had set for ourselves for this transaction. Very briefly, there were six of them. We wanted to reaffirm our credit rating that S&P had issued before, which was AA-. We knew all along going in that we would not get an uptick this time around — that the best we could do was reaffirm. Second, we wanted to combine the bond refunding and the new money bond transactions in order to save cost of issuances. Third, we wanted to achieve at least $800,000 in refunding savings for the city and its taxpayers. Fourth, we wanted to structure the new money and the refunding bonds in such a manner that we could achieve a premium on these bonds. You will recall that I shared with you one of the objectives was to be able to sell these bonds at a premium so that we could cover the cost of the issuance from those premium proceeds. And then finally to structure those new money bonds for the road construction in such a manner that we would stay within the 10 cents to the 14 cents we had estimated initially on the property tax rate impact.

"So, with that, let me explain to you what the $42,525,000 bond size — which is the actual bond size we’re going to issue — is made up of. The roads bonds, the new construction money, will be $29,150,000. The refunding bonds will total $13,375,000, which is a sum total of $42,525,000. So the item before you is not to exceed $45 million but the actual transaction will be $42,525,000.

"So what’s the good news? Of those six objectives we had set for ourselves, we hit every single one of them. The city’s bond rating was reaffirmed, as you well know, at AA- by S&P. We were able to combine the two bond transactions, This resulted in an estimated cost savings to the city and its taxpayers of at least $150,000. We were able to achieve a little over $1 million — $1,040,790 in interest cost — on the refunding . And because of the city’s excellent credit rating and its strong financial position we are able to obtain premium on the bonds we priced this morning. In other words, the city will receive more money than the actual par value of the bonds we will issue ($30 million on the $29,150,000 issue). We were able to cover all the transactions and issuance costs by the premium received on the bonds. We were able to put the entire remaining $30,480,00 into the construction account for the road projects. None of that money had to be dipped into for the bond transaction costs.

"The debt service on the new money bonds will begin next fiscal year, 2016. The principle and interest payment on the new bonds for next year will be $2.1 million. This is still within the 10 to 14 cents estimated property tax increase that we had shared with council. That all depends on how the assessed valuation — the certified tax roll — comes in late July. Bond proceeds are expected to be in the city’s bank account on May 14."

At it’s next meeting, Tuesday, May 5, right after the pledge of allegiance and the roll call and the approval of the minutes from last night’s gathering, the City Council will offer a Citizen Comment Period. That would be a good time for Kyle citizens to come forward and acknowledge the above outlined transaction. Of course, given the history of these things, I’m not expecting anyone to do that. As a matter of fact, if someone did I would be completely shocked. To be honest, I would be astonished. I would be flabbergasted. Flummoxed. Startled. Aghast. Appalled.