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City of Kingsville, Texas
General Obligation
Case Study: Comprehensive plan of finance for the City of Kingsville
Client Since: 2001
Projects: Improvements to municipal facilities and infrastructure
Kingsville, Texas, is home to 27,000 residents and is located in Kleberg County about 157 miles southeast of San Antonio and 48 miles southwest of Corpus Christi. FirstSouthwest has served as the city of Kingsville’s financial advisor since 2001. From 2001 to 2009, FirstSouthwest completed six bond issues totaling more than $25 million in principal amount for the city. The bond issues ranged from $1.2 million to $11.8 million and have been used for multiple purposes including:
- Water and wastewater system repairs and replacements
- Solid waste improvements
- Vehicle and equipment purchases
- Improvements to city buildings, streets and drainage systems
In January 2009, FirstSouthwest assisted the city with the issuance of $4.2 million in certificates of obligation. The city needed funds for various landfill enhancements, including the development of a new cell and equipment for the solid waste department.
In connection with the issuance of the certificates, FirstSouthwest helped the city obtain its first rating with Standard & Poor’s (S&P) by compiling the city’s quarterly investment report, fund balance policy and debt management policy. Standard & Poor’s gave the city an ‘A’ rating and made positive comments about the city’s financial position and management practices.
FirstSouthwest worked closely with the city to determine each project’s useful life, so that the life of the bond issue would not exceed the useful life of the assets funded. We also helped the city analyze the security for repayment, being aware of the defined debt service target.
Ultimately, the certificates were issued with a 12-year structure, which wrapped around the city’s existing tax supported debt, in order to minimize the tax rate impact. The certificates had a true interest cost of 2.62 percent which was well below projections.
In April 2009, FirstSouthwest discovered a refunding opportunity for the city. The city’s series 1998 and 2001 bonds were callable and interest rates at the time provided an economic benefit to the city.
As the city analyzed this data in conjunction with its excess general fund balance, it decided to use cash from the general fund to defease the final 2011 maturity of the series 2001 bond issue. Considering the city’s earnings rate on the excess fund balance, the refunding was further optimized by incorporating the defeasance into the overall plan of finance.
The series 1998 bonds were refunded with targeted savings in fiscal year ended 2010 in order to minimize the tax rate impact created by the certificates of obligation, series 2009. The series 2009 refunding bonds produced net present value savings of $83,764, reflecting 4.54 percent of par refunded. The combination of the cash defeasance of the 2011 maturity and the refunding produced sufficient savings for the city, which ultimately eliminated the need for a tax rate increase in 2010 in connection with the certificates of obligation, series 2009.