Editor’s note: We received the following from a reader, who was compelled to research the City of Kerrville’s debt situation after reading how a citizen petition put a stop to a planned Public Safety Complex for the Kerrville Police and Kerrville Fire Departments. We were impressed by the effort, confirmed the details are accurate and have chosen to share it with our readers in an effort to provide a simple explanation to a complicated matter.
by John Harrison
The City of Kerrville has $67 million of debt. There is a feeling by some that the property tax payers in Kerrville cannot afford this amount of debt. That may be a reasonable reaction.
But one can also come to the conclusion that this debt is very affordable when one understands the details.
There are basically three “buckets” of debt that include 12 different debt packages (think separate mortgages). The city took on this debt over time and one would need to look at all 12 “mortgages” to understand the justification for each and every project undertaken. But for this exercise, let's focus on just the three large buckets.
Bucket No. 1 holds $43.6 million in the Water Fund. This debt was taken on over the years to pay for projects to supply water and wastewater collection/treatment and other utility projects for the city. Over the past 15 years I can remember two new lift stations, new water wells, a new ASR well, a treated water reservoir, and special water treatment to remove a contaminant from our drinking water as some of the large projects that required these expenditures. We can argue about whether these projects should have been done, and those arguments took place at the time, but the bottom line they were all done by the city councils in charge. So who pays for this debt? Simply, those that use water and wastewater services in the city and the more water you use, the more you contribute. For some of us, we strive to reduce the amount of water we use and so we let those of you that use a lot of water pay this debt.
Also, non-profit organizations, other governmental organizations, hospitals, universities and churches do pay for water and sewer service but they do not contribute to property tax revenues. So this debt is spread to more that just property taxpayers. Plus the city can and does apply for some grant money from the state each year that offsets some of the debt for a specific project. A little known fact – the City of Ingram is charged for wastewater services, so they too help pay for this debt.
The debt service (for the next eight years, declining thereafter) is around $4.2 million out of around $13 million per year of revenue received by the Utility Department. From my perspective this bucket of debt is in good shape.
Bucket No. 2 is $10.6 million of debt that the Economic Improvement Corporation (EIC) has committed to pay. The City, under a law set up by the State of Texas, created the EIC more than 20 years ago. The EIC is a separate entity that studies potential projects and then makes recommendations to city council for final approval.
The funding for the EIC projects comes from a 0.5-cent addition to the city sales tax, referred to as 4B sales tax. Remember who pays city sales tax – all of us that shop in Kerrville stores, including shoppers that do not live in Kerrville. So thanks to county residents and those from the surrounding area that help us pay for this bucket of debt. State law limits the type of projects that the EIC can pay for.
Past city council members have suggested the city use this money to pay for on-going costs of running the city. This would be against the law. In compliance with the law these monies have been used to support businesses that added new jobs in Kerrville, as well as projects that have improved the overall attractiveness of our city. City Councils in place at the time approved all of these projects. The 4B sales tax amount generates around $3.6 million per year and current debt load is $1.1 million per year. The members of the EIC and city councils have done a good job of managing this bucket of debt.
Bucket No. 3 holds $12.8 million of debt. This debt is paid directly by the city, using property taxes. Of this debt $10 million was taken on in 2019 to pay for street repair.
The street I live on did not need this money, but I am guessing that there were a number of city residents that did have some streets needing repair. The city council reacted to input and added this debt to repair streets.
Maybe we should have raised property taxes to pay the cost of the street repairs, but I think we all know that this would not have been okay with anyone in the city. That leaves only $2.8 million of debt, taken on prior to 2019. This is the bucket in which the Public Safety building financing would be managed within – if we had gone forward with the process proposed by City Council.
In 2010 the city council set a standard that all councils have followed since then. They said that the city will not take on additional debt if it would require an increase in tax rate. This been followed and in fact the tax rate has actually been reduced several times over those years. This bucket is small and has been managed well for the last 10 years. One other note - the average debt cost is somewhere around 3 percent. This is my calculation by discounting the future debt payments.
All of this is laid out in the online budget documents. My conclusion, after studying this in some detail is that the City of Kerrville (City Council and staff) has done a good job of managing debt.
Not only can we handle the current amount of debt, the city could easily take on additional debt if needed to fund the Public Safety complex.