Keene council directs publication of notice to issue $355,000 certificates of obligation for water system work while weighing cash vs. loan

Keene — On April 15 the Keene City Council voted unanimously to publish a notice of intent to issue $355,000 in combination tax and surplus revenue certificates of obligation (Resolution No. 2025-469) to provide funds for water system improvements tied to a Texas Water Development Board (TWDB) funding award.

The publication is a procedural step that preserves the city’s options while staff continues to confirm whether the TWDB will permit Keene to satisfy the program’s 10-percent requirement with cash rather than the subsidized loan package the board originally offered. Council members spent the meeting weighing two general approaches: accept the TWDB loan structure (a 10% city obligation, 90% forgiveness) and issue certificates of obligation as notice of intent, or attempt to pay the 10% cash if the TWDB will accept that route.

Financial adviser and presenter Charles Williams reviewed options and recommended approaches the city could use to provide the city’s portion without increasing debt service or the tax rate. Williams outlined two options: pay the $355,000 directly from existing reserves (money market) and then replenish that reserve within a year to 18 months, or fund some portion from the general fund and some from water/sewer funds. He said those approaches could avoid raising rates and keep debt service steady.

Williams said Keene has roughly $2 million in reserves; using $355,000 would reduce that to about $1,645,000, and he advised conservative structuring to avoid long-term pressure on debt service. In the ensuing discussion staff and council considered splits of 50/50 or a recommended 65/35 split (65 percent water/sewer, 35 percent general fund). City finance staff estimated current pooled cash at about $3,000,000 with approximately $1,700,000 attributable to water/sewer and $1,300,000 to the general fund.

Jim Sabonis of Hilltop Securities, who arrived later to address the loan side, cautioned that the notice and publication are not a binding commitment to issue debt. He summarized the certificates of obligation language in Exhibit A and the permissible uses: “the money can be used for acquiring, constructing, and installation additions, improvements, extensions, and equipment for the city's water work systems including without limitation, water lines, water well, ground storage tank, pumps through together with valves, fittings, related infrastructure, and the legal and, other fees related engineering fees for the project.” Sabonis also explained federal tax rules and arbitrage-rebate considerations tied to the timing of spending bond proceeds and said the city would work with bond counsel to redraft any resolution language needed after the council selects a final financing approach.

The TWDB program that generated the award was discussed several times. Council was told the program had been presented as a 90% grant/10% loan package, but staff had requested a formal written determination from TWDB staff about whether Keene could instead pay the 10% in cash. The bond adviser said he had contacted TWDB staff and that the TWDB official who had administratively approved Keene’s application would raise the cash-versus-loan question with senior staff; the city expects a determination soon.

City engineer and staff noted the TWDB funds must be used for water projects that reduce water loss (line replacements, meter issues and similar projects). Staff also said the TWDB places spend-down benchmarks on bond proceeds (two- or three-year benchmarks depending on project elements) and that funds are placed in an escrow account and released as work and milestones progress. Council discussed the benefit of moving forward to secure the award and preserve options even while pursuing clarification on whether cash payment would be allowed.

Councilmember Foster moved to adopt Resolution No. 2025-469 directing publication of the notice of intent to issue $355,000 in combination tax and surplus revenue certificates of obligation; Councilmember Smith seconded. The motion carried unanimously by raised hands.

Discussion outcomes and next steps: the council authorized publication to keep the option open while staff and bond counsel seek written confirmation from the TWDB on whether the 10% requirement may be settled in cash. Staff also received direction to pursue the funding split recommended by finance (approximately 65% water/sewer and 35% general fund) as a working option while financial details are finalized. If the TWDB confirms that cash payment is allowed and the council prefers that path, staff said the city will return with the ordinance and any required formal action before issuance.