With less than four weeks until the start of early voting, debate is heating up over Galveston’s $62 million bond proposition.

The election is the city’s first attempt in nearly 15 years to issue general obligation debt, a type paid by the city’s tax rate rather than user fees. If the proposition passes, proceeds from the bond sale would go toward capital improvements to the city’s streets and drainage.

But as the election approaches, opponents have become more vocal. At the center of their argument is a 3.5 cent increase in taxes on every $100 of taxable property value. The increase would cost the owner of a $215,000 property — the median value in Galveston — an extra $60 a year in property taxes, according to city estimates.

Opponents argue the city is already supposed to be using its tax dollars for road maintenance and that a bond shouldn’t be necessary.

“They already receive funds to do that, so why are we paying twice for the same service?” said Sandra Arnold, 41, of Galveston. “You’re already paying for this in your tax dollars.”

“Can you imagine going into a restaurant and paying for your meal and you go out the door, and they say, ‘We’re going to ask you to pay twice for that?,’” she said.

City Manager Brian Maxwell has argued that the purpose of the bond is to fix Galveston’s roads and drainage in five years, as opposed to the 15 years to 20 years it would take to service the roads with a “pay-as-you-go” method.

“They’re not paying for it twice, they’re paying for it sooner,” Maxwell said.

Arnold, who owns several rental properties on the island, said she’s seen property values increase significantly over the past few years and knows a tax increase would hurt her tenants, most of whom, she said, earn less than $25,000 a year.

“Most of the time they don’t have a voice because they’re too busy taking care of business,” Arnold said. “That is my clientele, exactly the ones not needing a tax increase.”

Opponents of the bond issue have also questioned the true cost of the infrastructure improvements. Although the bond sale and actual improvements will cost $62 million, interest will compound actual payments to more than $80 million, city officials said.

If the bond sale passes, the city will lock in the current interest rate. That rate would be better than that of construction inflation, Maxwell said.

“As much as everybody thinks it’s a decision about the city raising taxes, it’s really an economic decision,” he said. “I think not passing the bonds is much higher to the average taxpayer.”

The city is also using money from its general fund to offset the money used in the bonds. Up to 8 percent of the city’s general fund will go to infrastructure and paying off the debt from the bond, Maxwell said.

Fixing the roads in a shorter period of time will be a financially better decision for the taxpayers, Maxwell said.

“I’ve been those guys; I’ve sat on the other side of the table and said ‘I don’t want to pay for that, that’s crazy,’” Maxwell said. “However, I can see the long-term gain. The city will be in much better shape.”

Arnold’s husband, Hud Hopkins, former director of the city’s Scholes International Airport, said he would still rather see the city use the pay-as-you-go method.

“Redoing a road, an existing road that I’ve already paid my taxes on, it gives me a lot of heartburn paying for it again,” he said.

Arnold and others still aren’t certain they want the city handling more of their tax dollars.

“My biggest piece is what are you doing with the money you’ve already gotten?” Arnold said. “I don’t want us to get hoodwinked.”

Election Day is May 6. Early voting will take place from April 24 to April 28 and May 1 to May 2.

Samantha Ketterer is a reporter at the Daily News. Contact at 409-683-5241 or samantha.ketterer@galvnews.com. Follow on Twitter @sam_kett.

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(26) comments

Susan Fennewald

I don't see why this article exists. Both Bud Hopkins and his wife have had guest columns in the paper and now you give them another airing.

Tim Thompson

Sigh, this island, I swear, it's always the same thing, islanders like to kvetch and moan about how the island is looking rough around the edges, "could be nicer, like towns in Florida," etc., but when it comes to having to spend money to actually pay for improvements, they balk. You know, all the wonderful street repairs we've seen lately, on the main corridors, or the seawall, etc., in the last 8yrs, that money, I believe, mostly came from FEMA . . . it's not endless, you know, in fact it's drying up, isn't it? People love when improvements come from elsewhere, as long as they don't have to pay for them. I'm voting FOR the bond, because I like the improvements they've been making and I want to see them continue.

Susan Fennewald

There are at least two questions to consider:

Are you willing to raise taxes to fix infrastructure? Some people (Sandra Arnold and Hud Hopkins) say no. I say yes.

Are bonds the best financial approach? Some people (Brian Maxwell for example) say yes. Some say no. Right now I say no. The cost of the bonds seems unnecessary when all projects are small. Mr. Maxwell may be right about the inflation cost of construction - but there's no way for me to know. I do know that bonds are expensive though. Using the same tax increases, but devoting the money to construction rather than debt payment, the $62M worth of improvements could be done and paid for in 11 years. Using bonds the construction lasts 5 or 6 years but the payout continues for the next 25 years.

Though Mr. Maxwell denies it, I still believe that one reason to go with bonds rather than pay-as-you-go is because a tax increase to pay off bonds does NOT trigger a rollback threat. Taxes to pay debts are not part of the rollback calculation. But a tax increase for pay-as-you-go, is just a tax increase - even if it all goes to infrastructure. And that triggers the possibility of a rollback petition. The city could have raised taxes last year and devoted more money to these infrastructure projects, but instead they elected to have a tax rate just 0.0001 below the rollback rate at which point citizens are allowed to petition to have an election to determine if the tax rate will be rolled back to a lower value.

So, I believe the Mr. Maxwell and the city automatically aim to keep the tax rate below the rollback level by devoting the increase to debt service.

Maybe they can find some way to do creative accounting - so we can use the payment of infrastructure as debt service (maybe a 1 yr debt?) and avoid the rollback threat. Or maybe we can just face the rollback threat - and ask the people to petition for an election if they really don't want the higher taxes that are needed and devoted solely to infrastructure.

Katherine Maxwell

It cost money to pave streets. This has absolutely nothing to do with the rollback rate and has everything to do with the cheapest way to accomplish the mission of fixing the infrasttrcture and it is simple math.

Same projects, using pay as you go spread out for cash flow purposes (to 2037 and beyond) cost almost twice as much with construction inflation. This does not include the cost of repairing the same roads over this period to keep them useable, which further exacerbates the cost.

It also uses all available cash with pay as you go taking away money from ongoing maintenance and pay as you go projects which are factored into the bonds (we plan on leaving 4% of the set aside for pay as you go after bond payments are made annually). Without this, more streets will fail and you fall further behind.

Simple fact, you are way behind on infrastructure. It has caught up with us and it has to be fixed. It takes money to fix it. I have brought forward the absolute cheapest (lowest cost) way to get it done. If the voters want to go in another direction they will certainly be right and we will do it their way, however the math shows it will cost the tax payer much more and will also cause more expensive failures in infrastructure that will also have to be paid for as well.

All this was shared with the reporter in a matrix and I hope to visit more with Samantha and GDN leadership so they can show it in a way the citizens can understand. It truly is much cheaper to issue the bonds as well as doing a much more effective job of meeting infrastructure needs.

Brian Maxwell

Susan Fennewald

I'm pretty good at math - but you're not making your point. There will be $62M in debt service by 2028. If the debt service is devoted to pay-as-you-go instead - then you'll have $62M in 11 years. Some of the projects will be done in teh next 6 years (as with the bond) and some will be later, it's true.

Katherine Maxwell

Knut you don't have it in 11 years because the 5-6% compounded annually for construction inflation erodes the number much faster than the fixed interest rate which does not compound as it is on a declining balance.

This does not include cash flow issues pay as you go causes. If we have a failure in a road or underground utility with the bond, we have the flexibility to make the repair as well as doing maintenance (which because it was never done is why so many streets have failed). You fall further behind. I guess you are saying raise the rate and just don't issue bonds, but even at that rate it costs you more, plus that is the very point of the opposition, the tax rate....which would precipitate the rate staying elevated longer as the projects extend beyond the bond maturation date, again costing the tax payer more money.

Again, this is a complete plan with as much financial analysis as engineering analysis. It is well thought out and planned and offers the best solution to the problem.

The double dipping comment is nonsensical. That assumes the 75-80% of the general fund budget should be going to streets and the city should abandon its parks, police, fire and code functions and just pave streets and do drainage. When you let your assets decline without a long term capital plan, as was the case with the city up until 2 -3 years ago, all of what should have been pay as you go capital has been going to repairs. Without capital infused into the system in an amount large enough to overcome the curve, you continue to fall further and further behind and pay for it with increasingly more expensive dollars (especially in a time of rising rates which is occurring now).

The voters are never wrong and we will carry out our mission, but time is money and the cost of pay as you go, even with an increase in taxes cost you more and for a longer time.

Susan Fennewald

Brian, I would love to meet with you and your finance person and find out where my calculations are going wrong.

Katherine Maxwell

Send me your email address and I will send you the proforma.

Susan Fennewald

My email is susanfennewald@att.net

Katherine Maxwell

Consider it done. I will set it up with Mike Loftin and he will reach to you tomorrow. Thanks Susan!

Lisa Blair

Stop with the "fake news" about why you opposed the bond issue. If your in a business that has small margins every little bit cuts into your bottom line. Just say it. If you can afford to subsidize low income folks as tenants by not raising their rents when taxes and insurance rise then you're being charitable and I applaud you for that. Otherwise you have to change your business model to increase your bottom line. Distrust of government and fear mongering about getting " hoodwinked" is what got us where we are today with an incompetent and dangerous national government. The government is not "them" it's us.

Debra Criss

It is really getting old hearing people claim they are against a bond issue because they are worried about the less fortunate. What you are really worried about is your taxes. It is ok to say that, but not okay to hide behind low income women. Enough.
I cannot agree more with Tim. That is the real story.

George Croix

Incompetent and dangerous national government?
Yep.
That's exactly why a third term of the same was voted out.....[innocent]

Chuck DiFalco

Galveston people, enjoy the debate and express thankfulness that you have an opportunity at direct democracy. Here in League City, we don't get any bond issues on the city ballot.

Steve Fouga

Mr. Maxwell, it seems like most of the justification for the bond, as opposed to pay-as-you-go, is construction inflation. Since, as you say, the inflation is compounded, it's VERY important to use a valid inflation index in our calculations.

I'm no expert on construction, but a quick bit of research shows that nationally, since 2000, the cost of non-building heavy construction has grown at less than 2.5% per year. True, that period included several years of low inflation generally, and inflation is predicted to rise. But 5-6% per year? Maybe a little high? Or is construction cost in Galveston predicted to rise faster than nationally?

Would you mind sharing how your inflation index was chosen?

Katherine Maxwell

We use the TxDot table for this area. It is at 5%.

Katherine Maxwell

Should have finished my thought.....it's at 5% over at least 10 years. You have to take the longer average to smooth out spikes and valeys. The city has a source document that it provided the reporter.

RonShelby
Ron Shelby

For bond issues that have to be done for infrastructure, this is the BEST time, from an interest rate standpoint, to issue that debt. The current rates for issuing debt haven't been seen since the 1940's. This is the best time to do it with the least impact on your taxes. Waiting to do it in the future, ...and still issuing debt,...will mean a higher tax bill. The Fed has made it clear that it wants to raise rates and will continue to do so to provide itself room in case the economy heads into another downturn.

As for whether this stuff needs to be done,...just look around. Road work is expensive and the money is not there right now. It's hard to blame IKE for roads that were already in terrible disrepair before IKE because administrations all the way back to Fiedenburg ignored a lot of the less visible infrastructure work. You've got a mayor...and a city manager...right now that are some of the best at designing long range plans to meet current and future infrastructure needs. I watched them do it for 15 years at the county...can you imagine NOT having the justice center today if it had been put off as a pay-as you go? All of that would not have still fit at the old courthouse.

You elected/hired them to begin cleaning up what's been ignored for so long like sewers, roads, etc.. Let 'em do the work they need to while its still cheap to do. Otherwise...it will definitely cost us all more in the future as rates rise. And future city council's may then prefer to ignore the infrastructure needs again as it gets more expensive to do.

Steve Fouga

Thanks for your answer to my inflation question, Mr. Maxwell! Maybe 5% is reasonable.

Ron makes a compelling case, most of which I agree with. Especially the part about rising interest rates. Inflation will rise, too.

But I also see his comment about Council in another, almost opposite, way. What if future Councils have different priorities, and decide not to implement what's left of the current Capital Improvement Plan when they take office? What if they decide to do something different with the money?

If I knew we would always have our current mayor, council, and city manager, I would probably vote "Yes," because I (mostly) trust them based on the good experience of the past few years. But in fact I KNOW we won't always have them due to term limits, personal decisions, external job offers facilitated by their good work here in Galveston, etc.

If there were language on the ballot locking in the projects listed, I would probably swallow hard and vote "Yes." If, as I've been told, there will be no such language, I'll probably swallow hard and vote "No."

Katherine Maxwell

The bonds are for roads and drainage, it is in the language and will be in the covenants. Not much else they can do with the money other than to use it to pay off the bonds if it doesn't go to the listed purposes.

RonShelby
Ron Shelby

That's correct. Bond covenants, which are outlined in the offering documents, are pretty explicit. Those purchasing the bonds want to know what they are funding with their money. They, and the rating agencies, have the same concerns about how an entity uses the money. The final use of the funds also impacts the tax status of the issue. You really can't mess with it.

Steve Fouga

So road-by-road, culvert-by-culvert, I can count on the listed projects getting done for $62M in a relatively short time span? -- within reason, of course. I understand that things happen.

So where did City government's reputation of promising one thing then doing another come from? On other forums I see a serious lack of trust in City government. I've only lived here 5 years, yet I've already observed two drastically different mayor-council-manager combinations. Those are the two sources of my concern: online complaints about City government and my own limited experience.

I guess I need to make sure I'm comparing apples to apples; i.e., how has Galveston performed on prior bonds, not just on promises in general...

RonShelby
Ron Shelby

As a comparison, you'll want to see how Galveston County performed with its bond issues from about 1994 to 2010. All of the bond projects were directed by then County Judge James D. Yarbrough. He was well known for lighting a fire under people and ensuring things were done right the first time. Mr. Maxwell managed many of the building construction projects and has a lot of experience and knowledge in managing them. Its a good team.

Jarvis Buckley

Brian is it true Galveston still has underground water lines made out of
Cypress wood?

Katherine Maxwell

We have pulled wooden storm drains out of the ground while doing projects. Hopefully most have or will be replaced. We are also working to remove bridge blocks as well.

Jarvis Buckley

When our President lays out his infrastructure plan try to get on
board with it & be ready to submit
some shovel ready projects, that will
Improve our island .

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