With no discussion or questions, the T or C city commission unanimously passed an ordinance that states the city will pay up to 10 percent interest twice a year on $750,000 in general obligation bonds for 15 years.
The bond issuance is the first of four tranches. City voters approved the issuance of $3 million in general obligation bonds last November, $2 million for water and wastewater and $1 million for streets projects.
Thank goodness the ordinance does not match reality.
Full disclosure, I spoke during the public hearing on the general obligation bond ordinance, held during the April 12 city commission meeting. I have been worried for years about the increasing debt burden on local citizens, but more so in recent years as utilities’ failures and rates increase. The ordinance language, even in its shrouded legalese, set off a klaxon in my head.
General obligation bonds are scary because they are “backed by the full faith and credit” of the city, which decoded means the city can increase its property taxes without limit in order to pay off the bond debt.
The interest rate the people would have to possibly pay to bond investors, according to the ordinance, is “up to 10 percent.” That is about three times higher than the average 3.5 percent interest rate paid on municipal general obligation bonds in 2023. I asked commissioners to amend the ordinance from “up to 10 percent interest” to “up to 4 percent interest,” which was ignored.
I also asked if the city had gotten a bond rating and if it was so bad that it had to offer up to 10 percent interest to sell its bonds.
In addition, I asked if a prospectus or official statement revealing the city’s financial condition to investors was available.
The city’s bond consultants answered some of my questions.
The city commission hired Chris Muirhead of the Modrall Sperling law firm in Albuquerque and Mark Valenzuela of Bosque Advisors, also in Albuquerque, as bond advisors. They were hired even before the question of selling $3 million in city general obligation bonds went on the ballot November 2022, which 80 percent of voters approved.
Muirhead and Valenzuela reported what had happened with the bonds in the intervening weeks since the ordinance went to “publication.” (Publication means the ordinance is given public notice via a legal ad in the Sentinel. The ad states the ordinance can be read at the city clerk’s office and will go to a public hearing.)
Although the ordinance states $750,000 in bonds will be sold, the amount will be $790,000, Valenzuela said during the April 12 meeting.
Of that amount $520,000 can be used to pay for nearly anything related to the water and wastewater utilities due to the vagueness of the language in the ballot measure and the related ordinance: “enlarging, improving or extending the city’s water and wastewater system of fire engines and aerial fire trucks for the benefit of the Governmental Unit and its residents.”
Similarly, $270,000 will be used to pay for nearly anything related to the streets department: “laying off, opening, constructing, repairing, and otherwise improving municipal alleys, streets, public roads and bridges, or any combination thereof.”
The good news is the $790,000 in bonds “have been privately placed,” Valenzuela said.
Muirhead informed the city commission the New Mexico Finance Authority bought the 15-year bonds at a 2.03 interest rate.
“Up to 10 percent” interest is stated in the ordinance, Muirhead said, “because that is the maximum rate the state allows.”
So, evidently, the public hearing was just theater and the ordinance language is just boiler-plate. The decisions were already made behind closed doors before the hearing.
Valenzuela went on to explain that no bond rating was sought since it would have cost $15,000 and is required only for public offerings, not private placement of bonds.
If the ordinance can be believed, the bonds are “callable” after 10 years, that is, the city can pay off the principal and accrued interest early.
The people of T or C will pay off the debt through increased property taxes.
At the Jan. 25 city commission meeting Valenzuela said property taxes would increase to 2.5 mills. (The current property tax rate is 2.225 mills for nonresidential and 1.542 mills for residential properties.) But at the April 12 meeting, Valenzuela said the rate was undetermined. It will likely be between 2.5 mills and 3 mills, he said.
The ordinance states and Muirhead confirmed that “if there is not enough property tax revenue,” the bond debt can be paid off from other city funds.
That is not what the people thought they were voting for when they approved the general obligation bond ballot measures.
It was expected that the richer people in town, that is, property owners, would pay off the general obligation bonds.
Historically, utility-rate payers, which include Village of Williamsburg residents and businesses, have borne the debt of T or C utility projects as well as $2 million or more a year in undisclosed city spending. Utility bills hit poor people the hardest. It looks like general obligation bond debt may be added to their burden.
I asked City Manager Bruce Swingle what the bond money will be used for and he responded in an email:
“We have numerous grant applications out, so our plan is tentative at this point. Final determinations will be based on which applications are approved. Our goal is to use bond funds for local match requirements for street, water and wastewater projects. This option will give the community the biggest bang for their buck.
“Thus far, we submitted applications to the NM DOT for Silver St.; Pershing St. and 2nd St. , and Marie St. These projects include new pavement.
“As for water/wastewater, we submitted an application to NMED for $20,000,000 for waterline replacement. This money is being held as local match if necessary. In addition, we are considering using $75,000 for local match on our CDBG [a $750,000 Community Development Block Grant] grant for water meter replacement.
“We will have no trouble using the funds in a purposeful manner.”