The following document was presented at the June 20th roads meeting:
Alan T. Matlosz
First Vice President
George K. Baum & Company
FINANCING ROAD IMPROVEMENTS IN THE TOWN OF FOXFIELD
The Town has four financing options available to finance the road improvements:
1) General obligation bonds of the Town;
2) General obligation bonds of a General Improvement District (only applicable for some area smaller than the entire town);
3) Special assessment bonds (like those used for the water project); and
4) Sales tax revenue bonds.
Each of the options has limitations. In reverse order, sales tax revenue bonds are repaid from sales tax revenue only. Currently, the Town does not have sufficient sales tax revenue to support a bond issue. Special assessment bonds are an expensive form of financing and the assessments are not deductible for income tax purposes. Forming a general improvement district is useful only if you wanted to limit the property owners who are repaying the bonds. Otherwise, using Town general obligation bonds makes the most sense.
General Obligation bonds are an obligation to pay bond principal and interest secured by a pledge of the ?“full faith and credit?” of the town. The bonds are secured by irrevocable covenants to levy and collect ad valorem property taxes, without limitation as to rate or amount, upon all taxable property in the town until the principal of and interest on such general obligation bonds are paid in full. The issuance of general obligation bonds is required to be approved at an election because, through the issuance of general obligation or unlimited tax bonds, the governing body of a town unconditionally commits future governing bodies and future taxpayers to pay the principal of and interest on such obligations.
One benefit of general obligation bonds is that these bonds have the lowest possible interest rates available to the Town. Based on today?’s interest rates, the rate on these bonds would be below 5%. Individual property owners would see an increase in property taxes; the amount would depend on the value of their property. This means that the owner of a $600,000 home pays twice as much property taxes compared to the owner of a $300,000 home.
Regarding general obligation bonds, there are four other important facts to consider: 1) If the Town generates other revenues that could be used to pay back the bonds, the property tax levy could be reduced; 2) The Homestead Exemption offers property tax credits for those residents over the age of 65 who have lived in their homes ten years or longer; 3) Property taxes are tax deductible for income tax purposes; and 4) As other development occurs in Foxfield, the individuals resident?’s share of the tax increase is reduced.
For a road project of $2.8 million, the tax impact would be as follows:
Foxfield Annual Annual Annual Annual
Project Term of Interest Annual Assessed Mill Levy Cost Cost Cost Cost
Amount Bond Issue Rate Payment Valuation Increase $300k home$400k home$500k home $600k home
$2,800,000 10 years 4.00% $ 345,215 $ 11,825,400 29.19267002 $ 801.34 $ 1,068.45 $1,335.56 $ 1,602.68
$2,800,000 15 years 4.50% $ 260,719 $ 11,825,400 22.0473726 $ 605.20 $ 806.93 $1,008.67 $ 1,210.40
$2,800,000 20 years 4.80% $ 220,885 $ 11,825,400 18.67886076 $ 512.73 $ 683.65 $ 854.56 $ 1,025.47
