2023 Bond: Finance Subcommittee

The Finance Subcommittee met on May 22 for introductions and initial Q&A. No formal presentations were given at this initial meeting. However, the group discussed bond funding and debt repayment, including some of these frequently-asked questions:

What is a bond election?

Municipal bonds allow cities to fund major projects such as roads, parks, facilities and other capital expenses. Bonds are issued and repaid over an extended period of time, similar to the way many buyers finance the purchase of a home. This strategy helps keep costs more equitable between current and future residents - after all, many of the people who will enjoy these amenities haven’t even moved here yet!

Before issuing bonds which could potentially impact the tax rate, Texas cities are required to put any bond proposition to a vote. If a proposition receives more than 50% of the vote, bonds may be issued for the purpose specified on the ballot.

Will this bond election raise the City tax rate?

Every bond proposition is assessed for its potential impact to the tax rate. During the public input process, the Finance Subcommittee uses conservative projection data and financial forecasting to calculate potential tax rate impact based on the total bond package being proposed. These are only estimates and do not necessarily result in a tax increase.

For example, the 2016 bond propositions were estimated to have a potential tax rate increase of $0.004 (less than half a cent). Instead, City of Allen's tax rate has decreased by $0.1088 (more than 10 cents) since 2016.

In fact, over the last 30 years, the City of Allen has consistently decreased the tax rate while utilizing voter-approved bond funding for capital projects.

Why does the City use bond debt to fund projects?

The City of Allen uses bond debt only when it’s necessary to fund needed public infrastructure, facilities or capital investments that will service the city for 20 years or longer. Bond funding spreads the cost to as many residents and businesses as possible over an extended period of time such that future residents and businesses also help fund community assets that benefit them. We call it intergenerational equity.

How long will it take to repay bond debt money?

The City of Allen will repay bond debt within 20 years of bonds being sold. In the past, the City has repaid bond debt sooner than the anticipated 20 years. The City also has refinanced the sale of a bond series to lower interest repayment or pay off the debt sooner.

How much will the interest be for bond debt on proposed projects?

The City of Allen will pay interest when the bonds are sold. The market determines the interest rates at the time the City sells the bonds; however, the City of Allen pays low interest rates due to excellent bond ratings. City of Allen’s bond rating is Aa1 from Moody’s Investors Service. The rating reflects strong fiscal management and the steady growth of our tax base. This rating provides significant savings to Allen taxpayers by qualifying the City of Allen for low interest rates.

Does the City have to use bond debt to build new improvements?

Yes. In order to pay for significant capital investments and improvements, all cities must utilize bond funding. The City of Allen implements a public-led bond funding program to determine projects that will be proposed for funding over a period of five to seven years. This package of bond propositions goes to the Allen voters for approval. Even with voter approval, the City of Allen determines the timing for projects in a fiscally conservative manner based on economic conditions, impact to operations and other budget considerations.

Please note this timeline is subject to change.