Page 154 - Saginaw FY22 Adopted Annual Budget

CITY OF SAGINAW
FUND DESCRIPTION

2021-2022

DEBT SERVICE FUND

The City of Saginaw's Debt Service Fund accounts for the property tax collections and transfers into the fund
for the payment of principal and interest on general long term liabilities and the actual payments of that
principal and interest on those general long term liabilities.

The Debt Service Fund, also known as the Interest and Sinking Fund, is established by ordinances authorizing
the issuance of bonds and providing for the payment of bond principal and interest as they come due.
Certificates of Obligation (C.O.) are securities issued by the City for the purpose of paying contractual
obligations incurred through construction projects or purchasing equipment. Certificates of Obligation do not
require voter approval. They may be secured by property tax revenue or from other revenue. General
Obligation (G.O.) debt must be approved by the voters. It may be secured by the ad valorem, or property tax,
revenue.

A tax rate is adopted that will produce the money necessary to satisfy annual debt service requirements. The
2021-2022 property tax rate is .479516 per one hundred dollars of value. The Debt Rate is .194458, or 38%,
of the total tax rate.

The Texas Comptroller’s Office issues guidelines (Truth-in-Taxation) for calculating a city’s tax rate. A taxing
entity must adopt its rate in two separate components - one rate for maintenance and operations and one rate
for debt service. The debt service rate is the tax rate necessary to pay the unit’s debt payments in the coming
year.

The Texas Constitution prohibits any Texas political subdivision from incurring “debt” except in certain ways
provided by statute. Texas law defines “debt” as any obligation that cannot be repaid during the current fiscal
year. Therefore, a Texas city may only enter into obligations that may be paid from current fiscal year funds or
are subject to annual appropriation. A Texas city may only pledge future funds to the payment of the following
types of obligations, as provided by statute: bonds, certificates of obligation, and tax notes. Bank loans that
extend beyond the current fiscal year and/or that are not subject to appropriation are likely not permitted for
cities operating under the general laws of Texas.

Saginaw is a Home Rule city. As a Texas home rule city, the City of Saginaw is not limited by State Law in the
amount of debt it may issue. The City Charter places a limit of $1.50 on the total ad valorem tax rate which
may be levied for both operating and debt purposes. With a combined tax rate of $.479516 the City is well
within this limit. Of the $.479516 tax rate 38% is allocated for debt service. The remaining 62% is allocated
for maintenance and operations.

In 2012, Moody’s Investors Service improved the City’s bond rating to Aa3, and Standard and Poor’s rated the
City at AA-. The City’s waterworks and sewer system revenue bond ratings are Aa3 by Moody's and AA by
Standard and Poor's.

The City of Saginaw invests the money held in this fund. The interest earned on these investments generates
additional revenue for this fund.

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