More Debt Coming Your Way

Grapevine, TexasWith paint barely dry on the new $14 million (plus interest) Convention and Visitors Bureau (CVB) Headquarters, the City of Grapevine prepares itself to ask you to pay for two new sizable capital projects. Be prepared as the city asks you to take on roughly $33 million for a new police and courts building and an additional $28 million for expansion of the Community Activities Center (CAC).

Yes, we were wrong.  Our estimates on how much the expansion of the CAC might cost were about $10 million too low.  On Tuesday night in the city council workshop, the council was presented with three options for expansion of the CAC which we will refer to as big, bigger, and biggest.  It took the council less than a couple of minutes to skip right over big and bigger to get to the $28 million option.

Note: our estimate was low because we did not include over $7.5 million for a new 7,500 square foot indoor pool fully equipped with lazy river, water slides, and geysers.

And how will the city pay for these expansions?

More debt.

Note: we’ll help you with the easy answers.

A couple of weeks ago, we reported that the new CVB Headquarters was not funded through hotel tax revenues as depicted in signs put up by the city.  It was actually funded (mostly) through new debt.  Debt that carries significant interest.  Debt that you did not get to vote on.  According to the the city budget the interest on the new CVB Headquarters will exceed $4 million.  Does anyone mind if we start calling it an $18+ million facility?

So with cost overruns which typically happen in projects like these (and in fact did happen with the CVB Headquarters), you the taxpayer are looking at estimated costs in the range of $75 million to $85 million (including overruns and interest) for the two new capital projects the city will ask you to vote for.

It is interesting looking back a bit over two years ago at these comments in the fiscal year 2010 budget which stick out like a pink bowling ball in the middle of a pumpkin patch.  In regard to future debt the city budget read:

The City Council has directed staff to implement a “Pay As You Go” financing method for future capital improvements projects and equipment acquisitions. The exception to this practice is a big-ticket item such as large fire apparatus, which typically cost several hundred thousand dollars and have lead times greater than one year. In cases such as this, it is more economically feasible to issue short-term debt.

And this:

There are no other planned debt issues within the three-year planning horizon. However, staff will continue to monitor market conditions and opportunities for refinancing in order to lower the City’s overall debt service requirements.

Well, “Pay As You Go” was obviously a short lived philosophy.

We will see you in November (when you will be asked to vote for funding these projects with new debt).

5 Comments

  1. I find it interesting that the interest rate is high when interest rates are some of the lowest in ages. I think this issue needs to be escalated and pursued more vigorously.

  2. Darren,

    I think it might also be the number of years of the loan, not just the interest rate. But I will look it up.

    Although it covers multiple loans so reaching an exact figure will take some finessing.

    • In rough figures, these are 20 year notes with interest rates of about 3.5%. That’s why the actual interest paid amount seems high.

  3. Yet, interestingly, at a recent tour of the new CVB building for the members of the Downtown Merchants Association, a CVB staffer told the group that the structure cost “$10 million.”

    What do you suppose is behind the continued effort to discount for public perception the real price tag?

  4. My hunch:

    $10 million for the building alone is certainly a more palatable number than the $18 million when you include cost of the land, architecture, interest, and other fees associated with the total cost of buying and constructing the place.

    If you told people $18 million is the total cost, more people might care.

    Of course I have a longer answer, but will save that for another day.