Palmview meets with financial adviser, plans to refinance debt

This article first appeared in the Progress Times issue dated Friday, April 5, 2019.

The Palmview City Council wants to build a library, buy more ambulances and fix the run-down Fire Department.

First, though, Palmview must find the money.

City of Palmview LogoFaced with the prospect of higher debt payments next year, which would restrict spending, the City Council met with Bobby Villarreal of Dallas-based financial services firm Estrada Hinojosa on Saturday morning.

“Now, your existing debt is $368,000,” Villarreal said, referring to how much Palmview will pay in principal and interest during 2019. “It’s about to go to $670,000 because there was a new debt issued in this past year. That’s giving you about $300,000 in new debt service that you have to get to.”

Palmview could substantially increase property taxes or slash city spending to cover the cost. City Manager Michael Leo, however, asked Villarreal to discuss a third option.

“You’ll hear them use the term ‘refunding,’ but it’s basically like refinancing — into a lower interest rate, which will in turn reduce our annual payments,” Leo said. “And if we’re able to do that, the next question for them was: ‘Do we then have the capacity to then borrow more to do some of the projects that we’ve been talking about for the last year or so?’”

Based on current market conditions, Villarreal said that Palmview could borrow about $2.25 million at a maximum interest rate of 3.5 percent and pay back the loan by 2031. With the money, Palmview could pay off three old loans, which carry interest rates that range from 5.25 percent to 7.25 percent.

Palmview would save at least $211,000.

About 15 to 20 banks would compete for the city’s business, Villarreal said. The process would take 60 to 90 days.

“Right now, the city doesn’t have a credit rating. But we think that after this, that we will probably go out and ask a credit rating agency to give you a rating,” Villarreal said. “And we think it’d probably be fairly decent.”

With a credit rating and more financial flexibility, Palmview may be positioned to borrow additional money.
Leo said the Hidalgo County Appraisal District provided the city with preliminary data, which show $100 million of new, taxable property as a result of annexations and growth.

It’s a massive increase for Palmview, which had about $460 million in taxable property last year.

“There’s a preliminary — what looks to be an increase of almost $100 million in value, which is huge. But we need to keep in mind, like Bobby said, they’re not certified yet,” Leo said. “People are going to get these. They’re going to contest them. Most likely it’s going to go down. The question is: ‘How much?’”

With more property tax revenue and lower debt payments, Palmview could borrow additional money for big-ticket projects.

Villarreal also presented the City Council with a proposal to borrow about $4.2 million, which would pay for a library, new City Hall, another ambulance, Fire Department renovations and start-up costs for a city garbage collection program, among other projects.

The City Council will determine whether or not to borrow the money and how to spend it.

“The priorities are with you, the policymakers,” Villarreal said. “And we’re here just to facilitate it.”

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