Hays County Courthouse, San Marcos, TX – Hays County refinanced $41,745,000 in bond debt Wednesday, lowering its interest rate to 2.859 percent from between 4.5 to 5 percent according to County Auditor Bill Herzog. The new interest rate is expected to save $3,089,096 over the course of the 14 years left on the bond term. Two independent rating agencies, Fitch Ratings and Standard & Poor’s, maintained the County’s Bond rating at AA.
The Commissioners Court authorized the refinancing at its February 17 meeting after hearing from its bond advisor, Dan Wegmiller, Managing Director of Specialized Public Finance, Inc., that the timing was right for a bond sale to lower the interest rate.
The debt accrued by Hays County government is about $294 million as of October 2014, County Auditor Bill Herzog said, with $133 million of that expected to be paid back to the county by TxDOT as roads financed by the County’s pass-through program are finished. Herzog noted that while ratings agencies do not include pass-through revenues until the projects are complete and accepted by TxDOT in their comparisons, other agencies that perform debt comparison such as the Bond Review Board and the Comptroller’s Office have no means of reflecting those reimbursements when comparing debt among government entities. “This causes a distorted view of a government’s actual debt,” Herzog said.
With an estimated population of 176,000 people, the per capita debt resulting from County borrowing alone is about $1,670. A 2014 report by Fitch noted that the per capita debt is about $7,400 when including debt from all taxing entities in the county.
“In Texas, so much debt is funded on the local level rather than by the state that local governments (schools, counties, cities and special districts, etc.) tend to have higher debt levels when compared nationally, and national comparisons are what the rating agencies use for their comparative data,” Wegmiller said. “The County’s rating is very strong at AA and sits only two notches from the highest rating possible of AAA, which permits the County to borrow at a very low interest rate. This is a great position to be in while making the capital investment that this County is making.”
Wegmiller noted that the agencies provided written reports which cite the County’s adequate economy and budgetary performance and very strong budgetary flexibility, liquidity and management, as well as a strong institutional framework.
“Conservative budgeting for many years has allowed Hays County to add to its financial reserve, putting us in an excellent position financially,” Herzog said. “As we take on debt to keep up with current growth and prepare for future growth as one of the fastest growing counties in the state, the incoming population will be helping to pay the costs of our improved infrastructure.”
Wegmiller also said that a shift from a “positive” to a “stable” AA rating was not troubling, since rating agencies typically make that change within two years from the previous rating outlook change. “In this case, S&P was not yet ready to upgrade its rating on the County and the economic growth indicator was not yet where it needed to be for the rating upgrade,” Wegmiller said.
According to the S&P report, “S&P believes that the county’s economy will likely continue to grow and that budgetary performance will likely experience sustained improvement within the two-year outlook period. We could raise the rating if the county’s economic metrics, budgetary performance, and debt profile were to improve.”
The report from Fitch noted, “The County’s financial position is solid, aided by prudent financial management and conservative budgeting. High reserve levels and ample liquidity have enabled recent pay-go spending on capital improvements.”