Hidalgo County contends with funding in courthouse plan

McALLEN — Hidalgo County continues to massage the numbers for its new courthouse after Edinburg reneged on its promise to help fund the costly nine-figure project, hoping to save taxpayers a rate increase in the process.

In short, the county is attempting to determine how to make up for the $45 million the city was supposed to contribute to the project over a 30-year period. Edinburg’s annual $1.5 million contribution would have helped the county pay its biannual debt service payments, which currently stand at about $23 million per year.

County leaders remain confident the county can afford the project — with or without Edinburg’s help — but say it’s going to take some adjusting, including debt restructuring, to do it.

Noe Hinojosa, the county’s financial adviser, gave a roughly 45-minute presentation to commissioners court earlier this month that outlined a possible plan of action that would require the county to borrow $188 million over the course of five years.

However, not all of the funds would be used to finance the courthouse — $48 million would be allocated for roads and $4 million would fund other capital improvement projects.

As part of the plan, the county would issue bonds for $149 million this year, $24 million in 2020 and $15 million in 2022.

“Jacobs, as of today, they believe the hardcore dollar for the project is about $116 million not inclusive of (furniture, fixtures and equipment). That number can either go down or go up,” Hinojosa said about the courthouse project manager. “They have a contingency of about $11 million. So what they are asking us to do is to go forth with a project of about $127 million.”

The county will have to borrow the money this year before knowing exactly how much the courthouse will cost.

“And that makes us a little bit concerned because it is our practice to normally have a bid on hand before we borrow the money,” Hinojosa told commissioners. “We want to do one borrowing.”

The contractor, Morganti Texas, is slated to provide the county a guaranteed maximum price for the courthouse in early October, but the county has to set a tax rate by Oct. 1.

“You can’t set a tax rate, unless you know specifically what your debt payment will be in 2019,” Hinojosa said.

Still, county leaders believe they will have plenty of information to make an accurate cost estimate because Morganti will provide 50 percent of the construction documents in early September.

The beauty about this plan is that we’re not doing anything until September. So we will have a better idea what that value is going to be for 2019,” Hinojosa said about the debt service payments.

Of the 58 cents the county collects per $100 valuation, about 6.88 cents go to the interest and sinking (I&S) fund, which is the pool of money the county uses to pay its debt, while 51.12 cents go to the maintenance and operations (M&O) fund, which is used to pay for payroll and services.

With about $31 billion worth of taxable property, the 6.88 cents the county collects for its I&S fund equates to about $22.6 million per year, Hinojosa said.

As of May 24, the county owed about $211 million in principal, and that alone requires a $23.5 million debt service payment in 2019.

And even though it may seem like a huge debt, the county is on par or below when compared to other counties.

“When you look at debt-to-population ratio, you are among one of the lowest,” Hinojosa said. “In other words, you don’t have a lot of debt compared to the number of people you serve.”

Under Hinojosa’s plan, the county would borrow $149 million this year, but would only pay interest on it for the first two years in order to keep the current tax rate at 58 cents. In 2021, the county would begin paying principal “at very nominal amounts,” Hinojosa told commissioners.

Hinojosa said the county won’t start paying “real juicy principal payments” until 2030 — 12 years from now. “Why?” he asked rhetorically. “Because we’re trying to walk around what today happens to be a 23-million-and-change payment and take advantage of our payment structures on the back side.”

So as the county pays off what it already owes, the money that it saves will go toward payment of the proposed new bond issuances. That money, coupled with an estimated $1.25 in annual court filing fees, should help the county meet its annual debt payments, even if there is no discernible growth in the tax rolls.

The county, however, expects the tax rolls to grow by 4.1 percent next year, bringing the county’s taxable assessed value from $31.4 billion this year to $32.7 billion in 2019.

“Historically, over the past five years, the (taxable assessed value) has been growing at a 4.4 percent, and over the last 10 years at a 3.45 percent,” Hinojosa said. “So we’re using a 4.1 (percent) as sort of a guesstimate.”

Under the proposed plan, the county’s annual debt service payments would range between $23 million and $26.7 million for the next 12 years before dropping significantly to $18 million and below in 2033.