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Schertz considers bonds to pay for road, sewer improvements

Richard EricksonMay 21, 2019

The city of Schertz took its first steps toward issuing nearly $8 million in certificates of obligation bonds.

The council voted unanimously at its May 14 meeting to publish an “intent to issue” notification in local newspapers this month before officially deciding to take on the additional debt.

Proceeds of the bond package, not to exceed $7,925,000, would be used to make local road improvements ($3,050,000), to purchase a replacement aerial fire engine ($1.2 million) to fight fires in large industrial and warehouse buildings, and to improve the city’s sewer system ($3,675,000), explained James Walters, the city’s finance director.

No increase in local taxes or sewer fees would occur from issuance of the bonds, Walters said.

The notification, he told council, was legally required to provide local citizens time to potentially protest the bond sale.

For that protest to be effective, a petition opposing the bonds signed by at least 5 percent of all qualified Schertz voters would need to be presented by July 23. That date is when council is scheduled to vote on selling the certificates of obligation and select a financial institution’s competitive bid, according to W. Jeffrey Kuhn, a partner with Norton Rose Fulbright, the city’s bond counsel.

If a successful petition is presented, the bonds would then need to be put to a city-wide vote before they could be offered to financial markets, Kuhn said.

Several councilmen asked for clarification on exactly how the bond money would be used.

“It’s not my intention to disapprove this resolution because there are a lot of good things in here,” said Councilman David Scagliola. “I don’t want to send this back to the drawing board. Things aren’t going to get cheaper if we delay it.”

But, Scagliola said, he had some questions regarding the potential closure of the sewer treatment plant that now serves the city’s Northcliffe subdivision, located near Interstate 35 and FM 1103. Current service to the approximately 2,000 area residences would be shifted to an existing Cibolo Creek Municipal Authority (CCMA) treatment plant.

CCMA charges a connection fee of $1,800 per household, and, under the current plan, $3.6 million of the bond proceeds would be dedicated to covering the cost of those new connection fees.

“Closing that (old) facility solves a problem because that facility is aging and it has exceeded its life expectancy,” Scagliola explained in an interview after the meeting. “But another problem is that the treated wastewater sent to that plant, the grey water, is used by the Northcliffe Golf Course as irrigation. I believe there are a number of options available to us that need to be explored.”

Scagliola specifically wanted to know if the city was absolutely locked into the published notice. “How binding is this intention?” he asked Kuhn. “Specifically with the verbiage we’re using here, can the dollar amounts and the project strategies be changed as we move further down the line?”

Kuhn confirmed that, under state law, the notice of intent nails down the overall amount of the bonds to be issued, but “there’s nothing in this document that ties a specific dollar amount to any one of the projects the staff has presented.”

Kuhn did caution, however, that if there was doubt that Schertz intended to sell those bonds, the earlier it reached that decision, the better it would be for the city’s reputation. “So if there’s any doubt you want to go forward but are now telling the market you are going to sell certificates of obligation on July 23, you should stop that process,” Kuhn said.

“Not going out to the market but getting bidders coming in submitting bids and then saying, on July 23, you’ve changed your mind, we don’t want to do that,” he added. “That historically has not been done.”

Councilman Scott Larson questioned the use of bond money intended for street repair, to be repaid over 20 years, saying that the actual repairs potentially could not last as long as it would take to repay the bonds.

An overall capital improvement program for roads paid for through the city’s general fund is currently being put in place, explained Brian James, assistant city manager. The bond money would be directed toward specific larger projects, “those that we would get the full 20-year life out of,” he said.

Until collected general fund money is sufficient to do those projects, “we don’t want things to fall apart too much, and so we are being very thoughtful with the bond money we are taking in,” James added. “We think it is a more sustainable path.”

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