Round Rock may call fall election to fund projects

A generation of students has passed through the halls of Round Rock's schools since the city last called a bond election. Only one current member of Round Rock City Council, Mayor Alan McGraw, held office the last time the council presented a bond proposal. To put it another way, it has been a while, almost 12 years, since the residents of Round Rock were asked to consider allowing the city to take on large amounts of debt.

Faced, however, with the strains on infrastructure from a population that has grown by more than 40,000 residents since the 2000 census and a continuing decline in sales tax receipts originating from Dell Inc., Round Rock's city leaders are now considering calling the city's first bond election since 2001.

"Every community, school district and county at some point has to issue debt to take care of larger capital items. That is not unique to us," McGraw said. "From our standpoint it has been 12 years, and there are some needs out there."

Foremost among the needs cited by council members and city staff are improvements to the city's parks, outdoor sports facilities, land for additional fire stations, and training facilities for the fire and police departments.

"It is simply budget pressure," Round Rock City Councilman Craig Morgan said regarding a bond election. "We are growing so fast, and there is not enough money to cover all of the things we need and will need for the future growth. [A bond election is] something that needs to be looked at."

Changing finances

When a city calls a bond election, it is essentially asking to take on debt at residents' expense. If voters approve a general obligation bond package, that allows a city to borrow money to fund specific projects and pay the money back through increased property taxes. The bond's interest rates, not unlike home or car loans, vary depending on a city's credit rating and the length of time it takes to pay back the loan.

In the recent past, Round Rock's leaders have held the enviable position of avoiding taking on new debt due in large part to the substantial sales tax base the city has built. Unlike neighboring cities such as Pflugerville and Hutto, the City of Round Rock budgets the majority of its general fund revenues—51 percent in 2013—from sales tax collection. This allows the city to maintain a property tax rate that is 17 cents per $100 of property valuation lower than Pflugerville's and 10 cents less than Hutto's.

"Fortunately we have been able to stay out of the bond market for the last 12 years and have paid cash for about $75 million worth of improvements that probably most cities in the country would have had to have issued debt for," Round Rock City Manager Steve Norwood said.

Round Rock owes a great deal of its financial success to Dell Inc., which relocated its headquarters from Austin in 1994. According to city receipts, since 1994, Round Rock collected more than $151 million in sales taxes generated by Dell. For the 2013 fiscal year, the city budgeted for Dell to supply one-third of its sales tax revenue and 17 percent of its general fund, which includes all the property taxes, sales taxes and franchise fees generated by the city.

Since Dell arrived, the city's sales tax collections have annually exceeded the budgeted expenditures. The excess revenue has allowed the city to fund projects such as a new police station and improvements to City Hall—all paid for in cash.

Dell Inc., however, is in the process of a corporate restructuring that could dramatically affect the tax revenue it brings into the city. The company's founder, Michael Dell, is attempting to finalize a private acquisition of Dell Inc. with the long-term goal of converting the company from its origins as a computer hardware manufacturer into a global information technology solutions provider. Any loss of computer sales originating in Round Rock, however, would directly cut into the city's sales tax collection.

"There may not be as much funding from Dell; we still don't know," Round Rock Financial Director Cheryl Delaney said. "I think at this point Dell is an unknown factor."

Potential cost

Round Rock's city leaders say a bond package is needed to fund high-cost projects regardless of sales tax collection.

"The Dell model is changing, but we have sufficient fund balance or a rainy day fund to withstand that. It is not a 'Chicken Little, the-sky-is-falling' situation," Norwood said. "We are talking about pretty big–ticket items. When you start looking at a new main library and branch library and public training facilities, you are starting to get into more than a half-million dollars here and there."

Round Rock officials, however, say it is too early in the process to start estimating the total cost of the bond package.

"The first order of business is not to say, 'We don't want to exceed $50 million or $100 million.' That is doing it backwards," Norwood said. "What are the needs for this community? Once you've tallied it up and seen what the financial impact is, you can say, 'Yes, I feel comfortable with this,' or, 'No, this is a little bit too much.'"

The process

The City of Round Rock officially began the bond proposal process March 14 when City Council appointed 13 residents to serve on a General Bond Advisory Commission. The commission is expected to begin meeting in April and will be charged with studying the list of proposed projects that could be included in the bond package.

"We are at the early stages of this," said Mike Freeman, a 23-year Round Rock resident nominated by the mayor to serve as chairman of the bond commission. "We have a diverse group of citizens who have a lot of time invested in the community and have served on many levels. I think [the commission] will get together and do what is right for the citizens of Round Rock and make the best decisions."

Former Round Rock Mayor Charlie Culpepper was nominated by Councilman Joe Clifford to serve on the commission. Culpepper also served on the city's prior bond commission in 2001.

"We have to listen and be the eyes and ears of the community and decide what is important," Culpepper said. "I am not going in with any prejudged ideas about requirements."

The commission is expected to provide a bond package recommendation to City Council by late July. Council members will have until Aug. 26 to consider changes to the recommendation and adopt an ordinance calling for a November election.

"This isn't something the city does regularly," Morgan said. "We're not putting bonds out there every other year. There is a need out there for it to be looked at and examined. This possible investment in the community will allow for the expense of growth and meet the demands. Our current residents will benefit, and the future residents will as well."

Bonds on the horizon

In addition to the city's proposal, Round Rock voters may be asked to consider a variety of bond packages.

• In September 2012, the Round Rock ISD board of trustees reached a consensus to explore a bond election this November to fund facility improvements.
• The Austin Community College board of trustees on March 4 appointed 25 members to a Bond Program Advisory Committee to consider a bond election to fund facility improvements and other programs.
• The Williamson County Commissioners Court assembled a bond committee March 19 to study the need for a bond election to fund capital projects.