County issues $11.78 million in tax notes to pay for annex, Randle Rather fixes

Gonzales County essentially got $420,000 in “free money” from investors to help pay for renovations to the Gonzales County Annex on Sarah DeWitt Drive and to shore up the Randle-Rather building on Monday, April 28.

Commissioners voted unanimously to issue $11.78 million in tax notes with an average interest rate of 3.687 percent to fund the two projects and will pay back that amount in seven years using an interest and sinking tax rate of 2.89 cents per $100 valuation beginning next fiscal year.

Chris Allen with RBC Capital Markets said there was a great deal of interest in the county’s tax notes — so much so that investors were willing to pay a premium, adding an additional $420,000 on top of that par amount that the county does not have to refund.

“We went out with a scale, which is coupons and yields, and we got really good support, so we were able to lower our projections by about four basis points along the scale,” Allen said. “We had a local bank that came in really strong for the first three maturities — Sage Capital Bank. We were able to achieve a 3.68 percent and the numbers we had projected were at 4.12.

“We had a lot of appetite for your securities and because we had an overabundance of demand, we were able to lower those yields by just under four basis points on average. They wanted a higher coupon, so the par amount they bought for is $11.78 million, but you will be receiving $12.2 million. They wanted to pay more to buy your security, which drove down the par.”

As Allen explained, this brings the total amount the county will receive when the money comes in on May 27 to $12.2 million, which John Duke of CPM, the county’s construction advisor, has indicated will be what is needed to complete both the annex reconstruction and the remediation of the stone that's cracking and falling off the Randle-Rather building so the scaffolding that has been up since December can be removed.

However, the county will only have to repay the par amount of $11.78 million plus $2,326,867 in interest for a total repayment of $14,106,867. This will come out to an average debt service payment of $2,015,267 per year for the seven-year life of the note with the debt retired in 2032.

Had the county had finance the full $12.2 million at the projected average rate of 4.12 percent, it would have been repaying a great deal more in interest plus a higher starting balance. This means investors essentially picked up $420,000 of the cost of the Randle-Rather renovation for the taxpayers.

S&P Global Ratings had assigned a “AA-” long-term rating to Gonzales County with an outlook of “stable.” The county’s strong financial position was noted as the “county’s fund balance has grown consistently over the past decade, supported by conservative spending practices that outperform budget deficits.” Stable economic growth potential and an affordable debt burden were also commended, especially given that the county has had no general obligation issuances in the past 10 years.

Conservatively, the county projected taxable value at just $7,351,348,865 with a tax collection rate of 95 percent. However, the county generates significant tax revenue from oil and gas with production ramping up in the Eagle Ford Shale and the county historically has collected an average of 98.4 percent of its taxes every year.

In other action, Duke told commissioners that Robles 1 LLC of Cibolo was the lowest bidder for selective demolition of the Gonzales County Annex building with a bid of $549,500 and the company expects to begin mobilizing on the property Monday, May 5, by putting up fencing. As for the actual remodeling of the building, the bids are in and final tabulations are being made, but all indications are that bids for the Annex project could actually come in under the projected budget — including roof replacement, which is expected to be about $500,000.

“The goal is to get that wrapped up with a recommendation by the end of this week, and then we'll enter into negotiations with a select contractor on the contract, and that hopefully will take a week or two,” Duke said. “We should have that teed up in plenty of time before when we get the bond fund proceeds next month.”

Duke said Wiss, Janney, Elstner Associates, Inc. (WJE), the project engineer for the Randle-Rather building, was on site Monday, April 21, and was performing testing on the building.

“They also removed some loose stone that they observed that they thought was in danger of falling off the building,” Duke said. “O’Connell Architecture was out last week, too, just documenting the condition of the building, which will allow somebody in the future, whether that's you or somebody else, to restore that.”

Duke said he expected to have a report on WJE’s and O’Connell’s findings on or about Friday, May 9, so they could be presented at the May 12 court meeting.