If someone earned $58,000 a year, and took out a mortgage on a modest $105,500 home, would you call that person irresponsible? What if that mortgage was a 15 year mortgage instead of a 30 year term? What if this person had the highest credit score possible, and was able to get a 3.98% interest rate? What if that person also had a savings account with $26,700 just in case cash flow got tight? Would it make any difference to know that this person pays cash for their cars, saving enough money each year to have money for a new car when one is needed? Would it help to know that this person never charges minor purchases and never pays their monthly bills with a credit card? What if this person also sat down each year and wrote a budget, and stuck to it?
Would you call this person irresponsible? Would you say they had too much debt? Should they go on a diet of beans and ramen noodles, and live like a peasant?
I think it's safe to say that our hypothetical person is pretty responsible to buy that $105,500 home, even though it means a little debt. After all, if they weren't able to get that mortgage, they'd be wasting money in rent.
Well, the City of Lewisville has a similar situation to the above, but words are cheap for come-lately City Council Candidate Steve Hill, who doesn't mind disparaging his own city in exchange for a few votes from the uninformed.
In order to know the city's situation, you need to have a look at the Comprehensive Annual Financial Report: (Download PDF)
The City of Lewisville's situation is basically identical to the hypothetical situation above; just multiply the numbers by 1,000.
In 2010, the City of Lewisville's general fund had total net revenues of $58 million, spending only $56.2 million, ending the year with a general fund balance of $26.7 million. The city had $105.5 million* in outstanding bond debt, which was used for major projects like new streets and street repairs, drainage, parks, facilities, and other improvements with a long service life. Further, $40.7 million of that debt related to water and sewer infrastructure to be paid out of the utility revenues. By my calculations based on principal and interest paid, the City's debt has an average interest rate of 3.98% and would be paid off in just over 10 years if we stopped selling bonds. (Of course we would end up with some pretty awful streets, and the water and sewer service might not be reliable.) This year, the City of Lewisville earned the top credit rating of AAA from both Fitch and Standard and Poors. Only 16 cities in the state of Texas earned that rating.
Here are a few things Fitch said in its rating:
The city's financial profile continues to be a positive credit consideration, a major factor behind the rating upgrade to 'AAA' from 'AA+'. Despite a flattening of general fund revenues since fiscal 2006 the city managed to add to reserves each year from fiscal 2006 to fiscal 2009; the unreserved general fund balance at fiscal 2009 year-end totaled $31.7 million or roughly 52% of spending. The unaudited fiscal 2010 results include a decline of roughly $5.2 million in reserves due to one-time outlays, but fund balance will remain sizable. Likewise, liquidity remains healthy, with fiscal 2009 general fund cash and investments totaling $33.8 million or more than 7 months of operating expenditures.
Sales tax revenues comprise nearly one-third of total general fund revenues and are the second largest operating revenue source. Receipts dipped more than 6% in fiscal 2009 to $17.7 million but rebounded in fiscal 2010 to $18.6 million, a 5% increase (preliminary). Management projects flat sales tax revenues for fiscal 2011, and Fitch notes the solid performance of this revenue source given the challenging economic environment. Projected fiscal 2011 general fund results point to a modest general fund balance increase, despite the TAV decline, no increase in the property tax rate, no layoffs or furloughs, a modest compensation increase for staff, and increasing pension and health insurance costs.
Lewisville's direct debt position remains moderate, although the overall debt burden is well above average due to Lewisville ISD's (unlimited tax bonds rated 'AA+' by Fitch) ongoing borrowings. Debt service as a percentage of operating expenditures is manageable at less than 12%, and principal amortization is well above average at 75% in 10 years. The city's debt position also benefits from annual general fund transfers to capital projects; Lewisville maintains a policy of transferring a sizable amount of surplus revenues, primarily for street and drainage improvements. The city has $23.5 million remaining from previous authorizations, but no additional borrowings are planned presently. The slowdown in growth has lessened the demand for additional infrastructure, and management prefers to wait for further evidence of a sustained economic/tax base rebound before proceeding with additional borrowings.
Friends, this is what fiscal conservatism looks like. If the Texas Legislature or the United States Congress came back with a financial report as good as the City of Lewisville, the Tea Party wouldn't exist, and we might just have to consider organizing a parade to celebrate the achievement. Steve Hill is not just uninformed, but he is also spreading myths about the city being in too much debt. Hill's type of ignorance is doubly dangerous because he doesn't know what he doesn't know. After just a few months of attending a few Council meetings, and no experience serving his city at all, and a history of not even voting in local elections, he wants a seat at the big table, where the uninformed decisions have adverse consequences for all of us.
Lewisville has a good thing going. We have great parks and amenities that increase our property value and quality of life. We have excellent services like police and fire, and public works that generally get the job done efficiently and without controversy. Certainly things are not yet perfect, and we have things we can improve on as a city - like preventing decline in our older neighborhoods. We certainly don't get that done by frivolous and unnecessary cuts that only serve someone's ideological agenda. We need to stay the course. We stay the course by electing citizens to our City Council who have a proven commitment to the City and to staying informed, and who will stick to the plan.
In City Council, Place 3, we endorse T.J. Gilmore, and urge you to vote for him on May 14th.
* Direct debt is the total of GO bonds and Water and Sewer bonds. TIRZ #1 and voter-approved 4B fund obligations are component units not paid from the general fund.
- Qualifications for Lewisville City Council
- TJ Gilmore
- Steve Hill