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Waco officials outline phased "CO note" to finance Baron's Branch downtown revitalization; modest utility rate impact forecast
Summary
City staff proposed a phased certificates-of-obligation direct-note program to fund Baron's Branch parks, streets and utility upgrades. The plan would draw funds as construction occurs, an approach city staff said could save an estimated $30.4 million in interest and add about $0.67 per month to the average utility bill.
City officials on April 21 presented a phased certificates-of-obligation (CO note) financing plan intended to fund infrastructure for the Baron's Branch downtown revitalization.
Assistant City Manager and Chief Financial Officer Blue Costich described the structure as similar to a construction loan: rather than issuing the full long-term bond up front, the city would draw funds as work proceeds and convert the short-term note to long-term debt once construction finishes. Costich said that approach is designed to limit immediate debt service burdens and align borrowing with actual construction activity.
"By doing this approach ' taking out this almost construction loan ' and then fixing it out later as long-term debt, we're actually saving about ... $30.4 million of savings in interest over the life of the project," Costich said. He said the program would fund parks, streets, drainage and utility work in the Baron's Branch area and that the financing package relies on two primary sources: tax increment financing (TIF) proceeds (about $120 million) and utility-backed funding (about $58 million).
Costich told the council the plan spreads the cost so that most property taxpayers outside the TIF district would not see a property-tax increase attributable to the project; however, because water, wastewater and drainage improvements are utility-funded, he estimated an average increase of about $0.67 per month on utility bills for ratepayers citywide.
Costich added the bank-negotiated terms for drawn funds would target an interest rate lower than conventional CO financing and that the phased drawdown aligns costs with what the city is actually building. "On the drawn funds that equates to about 3.62% ... way better than the 4.01%" quoted for a full upfront bond in current markets, he said.
Mayor Jim Holmes and other council members praised staff for exploring the approach; Holmes said the structure offered additional protections because the city could stop draws if a phase proved impractical. Council members asked for details about the timing of utility-rate changes; Costich said modest increases would begin in fiscal year 2027 as interest payments on drawn funds begin and noted staff will continue to review the rate model during the budget process.
Next steps: staff will return with final loan terms and related resolutions. The council did not take a final vote on financing during the April 21 work session.
