Keene council authorizes notice to issue $355,000 certificates for water system work; leaves cash option open

The Keene City Council on April 15 voted unanimously to publish notice of intent to issue $355,000 in combination tax and surplus revenue certificates of obligation to fund water system improvements, a preliminary step necessary to keep options open while the city awaits final direction from the Texas Water Development Board (TWDB).

Council adopted Resolution No. 2025-469 directing publication of the notice of intent; the action does not itself issue debt. "Doing the notice now just says you still can go forward under what has been approved and we have time to seek alternatives," Jim Sabonis, a Hilltop Securities representative who arrived late to the meeting, told the council. Sabonis and city advisors said publishing notice preserves the city’s ability to issue the certificates if needed while staff pursues whether the TWDB will permit the city to meet the TWDB condition with cash rather than taking a short-term loan.

Financial consultant Mr. Williams presented two financing options and recommended funding the $355,000 without increasing rates or debt service by using cash from the city’s reserve or money-market accounts. Williams said drawing the amount from reserves would reduce the city’s reserves but could avoid long-term borrowing and additional interest expense. "These are viable options that we can do as of today without touching interest rate, without touching any of the interest payments or debt service," Williams said.

City staff and the council discussed alternatives including borrowing for 30 years with a subsidized loan (the TWDB’s standard program was described to council as 90% grant/10% loan) versus advancing the 10% from city funds and later seeking TWDB approval to treat that 10% as a cash payment. Sabonis told the council the TWDB’s initial approval was based on a 10% loan with 90% forgiveness but said he would seek a final determination from TWDB leadership this week on whether the city could instead provide the 10% in cash. Councilmember Foster moved to approve the notice; Councilmember Smith seconded.

Council and staff discussed how the $355,000 is intended to be placed in an escrow account and spent on identified water system projects in phases (planning, design, construction). Sabonis explained federal- and state-debt-related tax rules and arbitrage-rebate considerations tied to investing borrowed proceeds, and the city engineer said the money is earmarked for high-priority water-loss mitigation projects such as line replacements that appear on the city’s capital improvement plan.

City finance staff provided current balances and proposed split options for funding the $355,000 if the council elects to pay cash: the presenter said the city’s pooled cash includes roughly $3,000,000 overall with about $1.7 million in the water/sewer fund and about $1.3 million in the general fund; one suggested split was approximately 65% from water/sewer and 35% from the general fund.

The council’s vote was to publish the required notice of intent rather than to finalize a borrowing or cash payment. Council members said they prefer to keep both options available until the TWDB provides written guidance. "If you decide to go forward, you issue on that date. You wanna delay, you can actually take action to delay to a date specific... and if you just don't take action that day, it dies for lack of action," bond counsel (presenter) said regarding the legal timeline and petition rights. The motion passed by unanimous voice vote.

City staff said they will continue discussions with the TWDB and bond counsel and will return to council with a definitive financing recommendation pending written confirmation from the board.