MERCEDES — After seeing their homes inundated by floodwaters numerous times over the past few years, residents here may soon have some peace of mind after the Mercedes City Commission greenlit four drainage projects during a recent meeting.
Along with giving city staffers the go-ahead to begin pursuing the projects, the commission during an April 6 meeting also approved funding streams for some of the projects by approving the issuance of additional debt to pay for them.
Officials hope some of the projects can be completed in time for hurricane season, while the largest will see the city finally address the lack of infrastructure in a neighborhood it annexed into its territory more than a decade ago.
“This has been well thought out. It wasn’t something we threw together,” Mayor Oscar Montoya said, addressing the public after the commission had heard from staff and a financial adviser regarding the project list.
“I think it’s a great opportunity to move forward on the projects that we owe the people, especially some of the stuff that we’ve owed for the last 10, 11, 12 years,” he said.
Montoya spoke of Capisallo Terrace, an area on the north side of town that was annexed years ago, but for which the city has never installed sewer infrastructure.
One of the projects approved Tuesday night includes funding and installing that infrastructure in Capisallo Terrace. Three others include replacing a water pump, and two retention pond projects.
“If you look at the big picture of all of those projects, the two RDFs that are coming up later in the agenda, which I’m recommending be approved, the COs (certificates of obligation), which address Capisallo Terrace … and then the pump station, these are four very important projects, three of which can be helpful and impactful before we go into hurricane season,” City Manager Kevin Pagan said.
For the largest of the projects — Capisallo Terrace and a pump at Walter Collier Sports Complex — the city plans to issue debt in the form of certificates of obligation to pay for them, Pagan explained.
The city has agreed to partner with a local irrigation district to partially fund and complete the remaining two projects.
Previously, the city had hoped to fund the Capisallo Terrace improvements by applying for a loan from the Texas Water Development Board, which offers low- or zero-interest loans to local governments for water infrastructure projects.
However, Pagan explained that the cost savings the city might realize from such a loan might be mitigated by the time the city waits to learn if they can be approved for a loan.
“… (Because) interest rates are so low, that the potential cost savings of doing that versus just going out in the market on certificates of obligation would be minimal,” Pagan said.
“And while we’re waiting, costs continue to increase, and the project continues to not get done.”
Instead, Pagan advised the city to take advantage of low interest rates, which have plummeted since the start of the COVID-19 pandemic to what the city’s financial adviser later referred to as “historic lows.”
Though the city has often treaded carefully around its finances, with the commission parsing through the budget line by line during budget discussions each summer, both Pagan and the city’s financial adviser assured officials that Mercedes is in a good position to afford the projects.
The city has been rated A-plus by Standard & Poor’s. And though it currently maintains a debt load of approximately $32 million, Mercedes is scheduled to retire some of that debt by next year. That will allow the city more flexibility in financing new projects.
“In the current fiscal year, 2021, we’ve got an annual debt service of approximately $3.163 million,” explained R. Dustin “Dusty” Traylor, managing director of RBC Capital Markets, the firm Mercedes has tasked with advising it on its public debt.
“But, that is going to decline next year to $2.85 million. That gives you a significant amount of capacity to consider financing these projects without necessarily the need for a rate increase. You slide it right into your existing debt profile and out to be able to handle it that way,” Traylor said.
If the city can issue the bonds with a 2.25% to 2.5% interest rate by this June, then it will be able to pay off the debt in 20 years at a rate of about $165,000 per year, Traylor explained.
After hearing from both Pagan and Traylor, the commission unanimously approved issuing $2.5 million in COs to pay for Capisallo Terrace and the Collier Park pump.
The commission also unanimously approved entering into an interlocal agreement with the Hidalgo and Cameron counties Irrigation District 9 for the construction of five water retention ponds, which will be completed in two distinct projects.
The first project includes the construction of four small retention ponds inside Collier Park, while the second includes a larger regional detention facility at the corner of Maryland and 14th Streets, Public Works Director Jose Figueroa said.
“The district will do the heavy lifting, but the final grading will need to be done by the city, as per the agreement,” explained Isaac Huacuja, an engineer with Sigler, Winstead, Greenwood & Associates, the firm which handles the city’s infrastructure projects.
“Four of those ponds are very small ponds that are gonna be in the park that are going to become part of the landscape,” Huacuja said, saying that, unless it rains, the ponds will remain dry and usable as recreation space.
