Pearland City Manager Clay Pearson and Financial Director Claire Boggard recently outlined a proposal related to the city’s level of debt and how it’s managed. The proposal passed by a narrow three-to-two vote at the first of two readings Monday (June 23). The proposal drew debate that seemed to evoke the ghosts of bond elections past.
In 2007, Pearland voters approved a 25-year-term bond referendum of roughly $118 million for new roads, parks and other large-scale improvements. Add that to 2001 voter-approved bonds and other certificate of obligation bonds and Pearland currently has approximately $294.7 million in outstanding debt. Of that amount, city officials recommended refinancing $69.4 million, or 23.5 percent along with the remaining $37.6 million to a shorter term of 20 years. The move would create a savings of roughly $8.3 million and free up additional debt capacity for future projects, city officials said. The move would also require a 4.75 cent tax increase over two years to the debt service tax rate.
Mayor Tom Reid told the council he was in favor of the proposal.
“I think this is a positive step to make at this point and is the right time to take this step,” Reid said.
However, Councilmember Tony Carbone was strongly opposed to the change.
“It’s going to raise taxes on the debt service side by 10 percent over the next two years. In my opinion, it’s an artificial (tax increase) that is not necessary right now,” Carbone said.
“I don’t know that I want to artificially raise rates now so we can continue spending in the future without as much scrutiny. I understand the opposing arguments but that’s fundamentally where I’m struggling.
“We’re raising taxes now so we can make it easier to spend. We can issue more debt in the future without increasing the tax rate and then I can see it set up nicely for the next bond referendum,” he said. “We can put in new roads and fancy buildings and say ‘Hey, your tax rate is not going up.’ That’s because we’re jacking it up now artificially.”
Councilmember Keith Ordeneaux voiced strong support for the proposal.
“My view is this is what I do with my own finances. In 2007, the bond passed. The tax rate was given and we’re still within that rate and we will be able to pay the debt off five years early. Does that give a council in the future the ability to go out and say ‘We’re building all this for you and it’s not costing you anything’? Yes, but I hope tax payers and voters know you don’t get anything for nothing. Therefore, your tax rate would go down if you don’t vote for it,” Ordeneaux said.
“I just feel the conservative thing and what I’ve been taught is that you pay off debt as quick as you can. Then, it’s up to voters to put the right people on council and vote the way they should on bond issues to keep that conservative thing going. I just don’t buy the argument that ‘Let’s not save money now by doing the conservative thing because somebody might spend it later,’” he said.
“I struggle with the conservative argument of raising taxes right now,” Carbone quickly countered.
“Voters already voted to raise taxes,” Ordeneaux said. “If we were outside of that, I think this would probably be a different discussion.”
“I agree we can raise taxes right now but that doesn’t mean we should,” Carbone said quickly.
Reid jumped in and asked about the specifics of the tax rate increase.
“I think we’re talking about one cent tax rate increase maybe?” he asked.
“We’re talking about 4.75 cent over the next two years which is about 10 percent of the debt service rate,” Carbone said.
“I don’t believe most people move to Pearland because of the tax rate. I think they move here because of the quality of life, the location and what we have to offer,” Reid said and outlined some of the history behind the tax rate and previous bond elections.