Whitehouse council reviews $15 million certificates of obligation amid pending Texas debt caps

City of Whitehouse officials discussed a proposed $15 million certificates-of-obligation financing package and how pending Texas legislation could limit the city’s ability to issue debt without voter approval. City staff presented scenarios for debt service, timing for a potential issuance and alternatives if state caps take effect.

The presentation at the May 13 workshop outlined that Senate Bill 1024 and House Bill 19 — both under consideration in the Texas Legislature and likely to be revised as substitute language — would place caps on municipal borrowing by referencing recent debt-service averages or by applying a percentage cap. “There are certain items pending in the Texas state legislature right now that could impact the city's ability to issue future debt,” staff member Black said, urging the council to consider a notice of intent at the May 27 council meeting so the city would remain positioned to proceed if the bills do not pass.

The briefing described certificates of obligation (COs) as a flexible debt instrument commonly used by Texas cities for infrastructure that can be repaid from property-tax debt service (I&S) funds or system revenues such as water, sewer or stormwater fees. Staff presented a financing illustration for $15,000,000 on a 20-year term at an estimated interest rate of about 4.58 percent (458 basis points). Staff said that, under the scenario shown, the city could keep the I&S tax rate flat by using roughly $1 million of existing I&S fund balance as a cushion and by relying on an assumed 5 percent annual assessed-valuation growth through 2033.

City staff flagged risks if growth is lower than projected. “If we don't hit 5% every year between now and 2033, if it's closer to 3%, it requires an additional contribution from our I&S fund balance,” staff member Black said. Staff estimated a roughly $500,000 additional draw on reserves under a lower-growth scenario.

Council members pressed staff on timing, voter-approval mechanics and operational trade-offs. Staff warned that some substitute bill language being discussed could limit COs by tying allowable debt to a three- or five-year debt-service average or by imposing a 20 percent cap; other proposals would move general obligation elections to November or require a larger-than-majority threshold for approval. “By the time we find out, it may be too late,” staff member Black cautioned about the legislative calendar and related deadlines, noting legislators could set an effective date of Sept. 1 for any enacted bill.

Staff laid out a potential local schedule if the council decided to proceed: adopt a notice of intent at the May 27 council meeting, finalize publications and ratings work in June, approve the sale on July 22, and close financing Aug. 21 with the first debt service payment due in February 2026. Staff also said specialized public-finance advisors and the city’s bond counsel would be on hand to present details at upcoming meetings.

Council members asked how the borrowing would affect maintenance-and-operations (M&O) capacity. Staff explained that if the I&S tax rate were used for new debt without a corresponding overall growth in the tax base, M&O capacity for items such as additional police or fire personnel could be reduced — but under the 5 percent growth scenario staff presented, the council could maintain staffing and equipment plans while keeping the tax rate flat.

Council members also discussed project prioritization and sequencing. Staff said the $15 million COs would cover planned projects including city-hall renovations/expansion, a new fire station, several park projects and public-works needs (streets, stormwater, water and wastewater). Staff noted existing sources such as about $1 million remaining from 2018 street/stormwater COs and ongoing grant applications (including CDBG and Texas Parks & Wildlife funding) that could offset some needs. On potential site choices and costs for the fire station, staff said either remodel or rebuild would likely be substantial and that construction-cost inflation could increase total project costs if the city delays.

No formal council action on issuing the bonds was taken at the workshop. Staff asked whether the council wanted a formal notice of intent placed on the May 27 agenda; if the council votes then to proceed, staff said the city would follow the publication, rating and sale timeline outlined.

The workshop closed with a unanimous motion to adjourn at 6:38 p.m.