On April 22, 2002, the City Council of North Richland Hills approved the sale of $6,745,000 in Certificates of Obligation at an Interest Rate of 4.8396% over a 20 year redemption period. In effect they created nearly $7 million dollars that will be paid back by new property tax and fee increases beginning next year. The funds are to be used for moving a fire station, refurbishing a fire station, acquisition of unspecified "right of way", median construction and probably some general revenue additions. Don’t believe the old addage that "you cannot teach an old dog new tricks" if anyone is talking about politicians. They seem to have an endless imagination as to how to spend your money before they have even collected it. First of all, if you want to trick the taxpayers you need to change the words you use. This is a lot like being politically correct as it applies to increasing your taxes. Up until 1999, local governments and taxing authorities had to have voter approval to issue Bonds. A Bond being a debt instrument that has historically been utilized to fund major construction projects. People buy the bonds and the city or taxing district pays interest on them until they buy them back at their face value. The problem with Bonds is the voter approval part, which is not always received. If a bond issue gets voted down, the politician is denied the right to spend lots of your money like he or she wanted to. So back to the trick. In 1999 the State Legislature set up the necessary law to allow cities and other taxing authorities to issue bonds without voter approval by simply calling them "Certificates of Obligation". These are instruments exactly like bonds in that they bear interest, are issued for up to 20 years (or possibly longer) and are redeemed like bonds. They are obligations secured by your property taxes and possibly other sources of revenue for the city like fees for water and sewer. They can apparently be issued for any reason by the city and if not totally used as initially issued for, apparently the "excess" money can go into the general revenue funds. Now we all know that the intent of the Legislature had to be to "help us out". While I do not know the logic behind the legislation, it is relatively easy to see the winners and the losers. With this power, the city and taxing authorities can now essentially create money whenever they want. If there is a tax shortfall for some pet project in the current year, they can just whip out some "Certificates of Obligation" and get as much as they need. Since these are paid back in future years, they many not even have to look at how much new tax revenue will be needed in future years to retire this possibly extravagant new vehicle. The losers as always are the taxpayers. Did I forget to mention that these certificates are secured by your ad valorem taxes – better known as property taxes? This is another really neat feature of these funds. Since the certificates become "debt" to the taxing authority, they become part of the first part of the tax rate calculations for subsequent years. As an example lets say you incur $10,000,000 in debt by issuing certificates of obligation this year. If the payment for principal and interest is $1,000,000 per year beginning the next year, you simply add the required percentage rate (as applied against all taxable properties) to collect the $1,000,000 as NEW property taxes. Since it is a debt requirement, the required increase in property taxes does not count against the calculation of the Roll Back rate. To say this better, Certificates of Obligation automatically allow unregulated and uncontrolled property tax increases to pay back the principal and interest. Just think, all of this new money and all of this new tax revenue and no voter involvement! But wait, our legislature didn’t entirely forget the voters. They did provide a way to petition to stop the sale if only 5% of the total voters in the taxing area sign such a petition and submit it prior to approval of the ordinance to sell such certificates. The only problem with this is that most city councils are elected by less than 5% of the eligible voters so it would take more voters to get an approved petition than to elect a new city council! Pretty safe bet that the voters don’t have a way to stop this practice. Would you believe that our Legislature did provide for disclosure by publication. In the case of North Richland Hills, they got the whole job done in 22 days. First publication was on April 1st in the legal notices section of the Fort Worth Star Telegram. The second publication in like manner was on April 8th. You would need your magnifying glass to read the notices but they were legally there. From start to finish, the NRH City Council was able to spend nearly $7 Million dollars without a lot of nonsense from the taxpayers. By the way, this was all done at the last city council session prior to an election – i.e. a "lame duck" session. The bottom line is that our local city councils now have a way to really spend a lot of your money if you are not diligent about watching what they are doing. North Richland Hills will not be the first or only city to take advantage of this new ability to issue debts to fund their pet projects. If you see the words "Certificate of Obligation" be aware that these are bonds by another name and that they are paid for by increases in your property tax rates or increases in other fees. By law, the debt obligation creates an automatic tax rate increase, even if taxes would otherwise be reduced. The more debt service a city or taxing district has, the more of the tax rate that they can blame on debt. Your local property tax rate has two components that make the total rate. One component is controlled by law with caps in place. It is the Maintenance & Operations Rate. The second component is debt service and it has no limits. The law mandates that the debt rate be sufficient to pay committed outstanding obligations. If you are still reading this at this point, don’t be totally discouraged. There are actions you can take to help stop this type of hidden tax increase. None of the actions would fall under the classification of fun and some require some self-sacrifice. First of all, start to monitor the agenda’s of your local city council meetings. This is always published prior to their meetings. Second, attend a few and meet your elected officials. Third, when you see something going the wrong way, tell others about it. Visit local web sites that report on local issues and contact them. Write letters to the local newspapers about the abuses. All of this new legislation should be classified as stealth type legalese. It is all designed to keep you from having a say in government. If you make enough noise, you may be able to defeat this type of hidden tax increase when it is first presented. The last step is to write to the Texas Legislature and ask them to put limits on the size, use and frequency for issuance of Certificates of Obligation. Also ask them to change the petition requirements to 5% of number of voters who voted in the last election for the taxing body. If only 10% of the voters elect the city council then only 5% of 10% of the eligible voters should be required for signatures on a petition to stop the issuance of Certificates of Obligation. At this time of year, ask any candidates where they stand on this issue. To be able to keep our property without being taxed out of it, we may all have to become a lot more active in monitoring all of our elected officials. |
