County will issue tax notes in April to fund annex renovation

Gonzales County will use a seven-year tax note to pay for the renovation of the Gonzales County Annex building — a move that will add about 2.8 cents to the county tax rate beginning this fall.

County commissioners voted 4-1 to choose a tax note over either general obligation bonds, which can be paid back over a longer term but require voter approval, or certificates of obligation, which require public notice and could be subject to an election if at least five percent of registered voters petition the county.

Tax notes can be approved through just a majority vote of the court and are repaid by adding debt service to the tax rate for no more than seven years to pay for financing construction of public works, the purchase of supplies, land, and rights of way for public works or to pay for professional services.

Due to the shorter term of the tax notes, the impact to the tax rate is higher in the long term, but results in a lower amount of overall interest paid on principal, said John Duke of CPM Texas.

“It works well for projects with immediate needs and clear cost estimates like the annex project, and it's also fiscally conservative, again because of the overall cost,” Duke added. “CPM strongly recommends issuing tax notes for the following reasons: they're the fastest and most cost effective option. No election is required, minimizing the risk of delay. It ensures funding aligns with the construction schedule and it limits the long term financial burden of taxpayers.”

An $11.5 million tax note financed at an expected 3.33 percent interest rate would require about $2.3 million in interest during the seven-year life of the note, compared to a certificate of obligation or general obligation bond with a 4.43 percent interest rate, which would see about 1.2 cents added to the tax rate over the course of 25 years, resulting in up to $8.89 million in total interest paid — a difference of about $6,588,000 in interest paid out.

The county would be paying only $815,400 per year on a 25-year certificate of obligation, but that adds up to a total payment of $20,385,000, as opposed to a $1,971,000 yearly payment on a tax note that would add up to a total payment of $13,797,000.

Duke said with a tax note, a $100,000 home would see an increase of about $28 per year on its taxes, or about 2.33 cents per month, for just seven years, while a certificate of obligation would increase taxes on a $100,000 home by $12 per year, or about $1 per month, over the course of 25 years.

With a tax note, the county could sell the notes by April 14 and receive the funds as soon as May 13. With a certificate of obligation, after publishing the required notice for two weeks in the Inquirer, the county could sell the notes by April 22 and get delivery by May 22, but that assumes that voters do not petition for an election. Having to have an election either through a petition on COs or by seeking to issue GOs would mean holding a November election, with the sale of bonds and issuance of proceeds not taking place until early 2026.

Precinct 2 Commissioner Donnie Brzozowski questioned whether the county would do better to pay the lower yearly payment for a longer amount of time and offset the difference with interest the county makes on its checking accounts, certificates of deposit and TexPool investments.

“I'm just thinking about the interest offseting the seven year and the 25 year. It would cut our payment down, plus we may growing up interest to offset that other payment,” Brzozowski said.

Treasurer Sheryl Barborak said the county’s TexPool investments are generating about 4.37 percent interest at this time, while CDs are generating between 4.75 to 5 percent. She said last year, the county made $810,000 in interest on its checking accounts and CDs at South Star Bank, which is the county’s official depository bank.

“I can't predict five years from now, but I'm making as much interest as I can, you know, with our money. To me, it's always better to pay something off sooner and save your interest because, I mean, your taxpayers are going to be, what, burdened for 25 years (with a certificate of obligation)?” Barborak said.

Chris Allen with RBC Capital Markets told commissioners the county could call certificates of obligation in at the 10-year mark to pay them off or reissue new bonds at a lower interest rate if one is available, depending on how the markets do, while the tax notes are locked in at seven years.

“We do have the option to buy a call feature, but it may not be cost effective, but at 3.3% interest, I mean, that's cheap money,” Allen said. “On a CO or GO, you’re paying double the interest and it's out for longer. Right now, if you were to issue tax notes, you're actually borrowing at a percentage and a half less than what you're making on your funds that are sitting in the bank, so it makes sense to use their money.”

Brzozowski also brought up the possibility of not fixing the annex, but instead building a new annex on the current site of the Precinct 3 barn on Water Street in Gonzales and buying another property out in the county for the barn.

County Judge Pat Davis said doing that would mean the county would be wasting its best and possibly only chance to get a grant from the Texas Historical Commission that would pay up to $10 million of the $13 million it would cost to have the Courthouse renovated because they would not have anywhere to move county employees in time to meet THC’s timelines.

When it came time to vote, Brzozowski was the lone vote against issuing tax notes, while Davis, Precinct 1 Commissioner Tony Matias, Precinct 3 Commissioner Roy Staton and Precinct 4 Commissioner Collie Boatright all voted for them.