During a Nov. 22 meeting, City Council unanimously approved a resolution to amend the city’s comprehensive financial management policy statement, which means debt issued as a certificate of obligation should typically have its maturity set at 20 years, but City Council will have the ability to extend the term of the certificate of obligation up to 30 years.
“It provides more flexibility for the city, helps us manage the tax rate and the debt going forward as different projects come up,” Pearland’s financial advisor John Robuck said.
Despite the unanimous approval, not all council members were in support of the resolution specifics. City Council had three options to adopt regarding financing of certificate of obligations, one of which included a 30-year option that would have forced all large capital projects with a useful life longer than 30 years to have been financed for 30 years.
In a 4-2 vote, City Council members voted for the amendment that was adopted. Council Members Alex Kamkar and Woody Owens voted against the amendment to the resolution that was adopted, but both voted in support of the resolution later in the meeting.
“I’m trying to put together something that is a little more taxpayer friendly,” Kamkar said.
In the agenda documents, city staff put together two examples of what the difference between financing for 20 years, 25 years and 30 years would look like.
Using the proposed certificate of obligations in 2022 the cost of it is $16.4 million, which over the course of 20 years will accumulate $7.88 million in interest. That totals about $1.22 million annual debt service. Under a 30-year finance plan, the $16.4 million certificate of obligations accumulates $12.2 million in interest but the annual debt service average drops to $962,693.
Kamkar wanted City Council to approve the amendment option that would have made it that longer projects with a useful life longer than 30 years had to be financed in a 30-year plan.
“Between drainage, parks, facilities, streets all this good stuff ... that number [cost of unfunded projects the city plans to finance] is $437 million. That is real close to half a billion dollars. ... and a lot of that is going to be on [certificate of obligations],” Kamkar said. “ I’m just saying for the taxpayer that will have to foot the bill on this, let's just structure this a little more taxpayer friendly.”
With the amendment City Council adopted, any projects that could be financed for 30 years will have to be approved by the council first.
“I think if [City] Council needs to issue 30-year debt, it needs to do so very, very carefully and very strategically and [make] sure because this is a lot of money,” Pearland Mayor Kevin Cole said. “Four-and-one-half million [dollars] is a lot of money and it may be the same taxpayer paying for this, somebody today as well as [in] 30 years.”