Page 294 - Watauga FY22-23 Budget

DEBT SERVICE

The Debt Service Fund, also known as General Obligation Interest and Sinking Fund,
was established to provide for the payment of bond principal and interest and for the
payment of fiscal agent fees as they come due. Property tax rates and tax levy are
required to be computed and levied to provide the money required to pay principal and
interest as it comes due. Revenues are collected in the General Obligation Interest
and Sinking Fund for the payment of general long-term debt, principal, and interest.
The General Obligation debt is financed by property taxes and interest earned on
investments. The FY2022-203 tax rate was adopted at $0.5802 per $100 valuation, of
which $0.195013, or 34.2% funds the FY2022-2023 debt service payments. The Utility
Debt Service fund is funded through a transfer from the Water and Sewer Operating
fund from revenues received from residential and commercial utility customers.

Debt issuance finances the City’s purchase of land, buildings, land improvements,
parks, and the construction and reconstruction of streets and drainage facilities. In
addition to infrastructure, debt issuance finances large dollar capital outlay items such
as fire trucks and public works heavy equipment.

The fund is accounted for on the modified accrual basis of accounting. Revenues are
recorded when available and measurable, and expenditures are recorded when the
liability is incurred.

Debt Management

The Watauga Charter provides that any limitation on the tax rate shall be determined in
accordance with the statutory provisions of the Texas Property Tax Code, as now or
hereafter amended by the state legislature, but does not set a limitation on the debt
component. In 1998, $2,000,000 was issued to pay for a drainage management lake
to control flooding in the southern portion of the city. It was determined that for the first
few years of debt payments, funding for this 1998 debt would come from the Bunker
Hill Drainage Impact Fee Fund and, in a limited amount, from the Watauga Parks
Development Corporation Sales Tax operating fund.

A preliminary Capital Improvements Plan identified approximately $11,800,000 in
unfunded street construction and reconstruction. The preferred position of “pay-as-
you-go” was reconsidered due to the number of streets identified and the dollar amount
of the projections. As a result of being able to maintain a constant tax rate in FY1999-
2000 and the ability to lower future tax rates, the City issued debt in the amount of
$4,060,000 in December 1999. Lower interest rates did make it possible for the City to
refinance the majority of this debt ($2,855,000) in FY2005-2006.

The lowering of interest rates and market conditions in 2001 did make conditions
possible for the City to refinance Series 1992 General Obligation bonds.

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