Cisco Mayor Explains the City’s Current Outstanding Debt

Cisco Mayor, James R. King, posted the following on social media to answer questions about the City’s current outstanding debt:

In response to recent concerns about local government debt levels and in the interest of transparency, the following is an explanation of debt currently outstanding for the City of Cisco. This information was taken (in part) from the City of Cisco Annual Financial Report (Audit) for the year ended Sept 30, 2016.

“The City had seven outstanding long-term liabilities in the forms of general obligation and revenue bonds issued in 1986, 1987, 2001, 2008, 2014 and 2016 that were originally issued to finance infrastructure improvements in the water and sewer fund. The city also had one outstanding long-term liability in the form of a public property finance contract note issued in 2016 that was originally issued to finance water meter purchases and installation. During the year, the City issued $17,453,750 in new debt and retired $277,616 in principal (along with interest of $186,400) from a combined beginning balance of $5,873,471 to a combined ending balance of $23,049,606.” (Note by the Mayor: This figure does not include projected interest costs, but the projected interest is meaningless as is explained below.)

“As discussed in the notes to the financial statements, the City water plant was completely destroyed by a catastrophic flood in June, 2016 which has significantly affected the cost structure of the City until a new water plant can be constructed. Cash costs incurred through the end of September, 2016 totaled $785,490 with insurance recovery received of $138,568.”

“The City was awarded FEMA disaster assistance as a result of the flood and should realize significant funding from the federal government as a result. Additional insurance proceeds not yet received for items covered by loss should also help mitigate expenses and replacement costs. Future recovery proceeds from federal assistance and insurance are estimated to approximate $3 million.”

“Until those funds are received, the City obtained financing for the construction of a new water treatment plant in July, 2016. Total cash financing received was $16 million of which a portion has been used for ongoing flood expenses related to system repairs and rental of a temporary water treatment plant.”

Note by the Mayor: There was outstanding debt on the water treatment plant of approximately $4.3 million because the plant completed a major renovation in May 2013. That debt will be paid early through the receipt of insurance funds, therefore the interest paid will be much lower. This will take time however, as Texas Water Development Board rules do not permit us to prepay as early as we would like. The $16 million loan taken out in July, 2016 is a temporary loan to cover construction of the new plant and other flood related costs while waiting for insurance, FEMA funding and other disaster assistance from various state and federal agencies. FEMA will reimburse 75% of all authorized costs not covered by insurance or other funding sources. Those proceeds will come in over the next couple of years, be applied to the $16 million debt, and the remaining $3-4 million will be refinanced through the Texas Water Development Board at 0% interest. The 0% interest rate has already been approved through TWDB for final funding of the Water Treatment Plant.

Also not reported is that approximately $3.5 million of the $16 million has already been repaid as cost estimates of water plant construction have changed, and another $246,000 of debt has been pre-paid on other long term debt.

I hope this answers the questions of our constituents. We have worked long and hard to recover from this disaster without incurring a large amount of debt and while continuing to provide the best services to our citizens that we can under the existing conditions.

Sincerely,

Mayor James King
City of Cisco, Texas