Page 60 - CityofForestHillFY25AdoptedBudget

Debt Service Fund Overview

The Debt Service Fund (Interest and Sinking Fund, or I&S) was established for the purpose of servicing the
City’s general obligation debt. Revenue sources for the fund include the interest and sinking (I&S) portion
of the annual ad valorem tax levy, tax collections penalties and interest, interest earnings, and inter-fund
transfers. Debt service payments are forwarded to the designated paying agent bank as semi-annual
principal and interest requirements come due for each debt issue.

In the current year budget (fiscal year 2024) the City had accumulated fund balance in the amount of
$783,645 from over collections in prior years for Interest & Sinking. The City eliminated the I&S tax rate
at that time and used the fund balance to pay current year principal & interest payments. There is a
projection of $530,129 in fund balances at the beginning of fiscal year 2025, which will be adequate to
cover the bond principal and interest payments for the year.

In fiscal years 2026 and 2027, the amount of fund balance is projected to not cover the amount needed
for principal and interest payments. The City may have to reinstitute the I&S tax rate at that time or fund
the payments from other City revenue sources.

Ad Valorem Tax Rate and Debt Service Limit

The maximum total ad valorem tax rate for home rule cities in the State of Texas (including the
maintenance and operation and interest and sinking portions of the ad valorem tax rate) is limited by
statute to $2.50 per $100 of assessed valuation. A portion of the $2.50 maximum is used for the
maintenance and operations portion of the tax levy. For the issuance of new debt, the State Attorney
General limits the total I&S tax rate to $1.50 (at a 90% collection rate).

The I&S portion of the proposed ad valorem tax rate for 2024-2025 is $0.0000 per $100 of assessed
valuation, or 0% of the total tax rate of $0.724094 per $100 valuation.

Debt Service & Funding Commitments

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