The Process of Issuing GO Bonds

McCalpin’s Unofficial Guide to Municipal Bonds
by William "Bill" McCalpin

The Process of Issuing GO Bonds

Generally, the following process is followed in the issuance of GO bonds by the City of Richardson:

City staff drafts the plans for a bond issue, listing what the projects will be and estimating costs. The staff will also estimate if the sale of the bonds will require a tax increase or not.
City Council reviews City staff proposal, suggests modifications, and eventually approves (or dismisses) the bond issue going to the voters.
In a standard election (i.e., handled in the same way as election of Council members, although often not at the same time), the voters approve or disapprove the various propositions that the bond issue is divided into. Note that the bond issue is divided into propositions by category – e.g., parks, streets, buildings, etc.
If the voters approve one or more propositions, then what has happened is that the voters have given permission to the City to sell the bonds and to carry out the project(s) – this does not mean that the bonds will automatically be sold or that all the projects be carried out.
After the bond election, as the City is ready to work on a project, the City will sell some or all the bonds for that project, either all at once or over time, as needed.
The City staff will come to the Council from time to time to authorize specific contracts to spend the money raised by the bond issue on specific projects.

Bonds are sold on the open market at current interest rates through third party companies; currently the City use First Southwest Company as its financial advisor.

To Tax or Not to Tax
When a bond proposition (or series of propositions) are placed before the voters, the voters are told approximately how much the bonds will cost and how that cost will affect the tax rate. If the City Council states that if the City sells all the bonds quickly (i.e., they have a good idea of what the interest rate will be), and the tax rate will need to be increased by a certain percentage to cover the new principle and interest on the new bonds, then these bonds will probably be sold quickly and all at once. This will be the case in 2010 for whatever bond propositions are approved by the voters.

But if the City Council states that they expect they will be able to sell the bonds and pay for them without a tax increase, the Council will often sell bonds over a period of some time, so that the increase in principle and interest never becomes so much that taxes will have to be raised. This was the case in the 1997 bond program. The Council committed to no tax increases, so the bonds were sold slowly over time.

However, in 2000-2001, the economy collapsed in the “dot.com bust”, and the City temporarily stopped selling bonds. By the time that the economy picked up, some projects had changed, and in the end, the City never did sell some $3 million worth of the bonds authorized in 1997. Note that the City Council in 2009-2010 discussed whether to reduce the currently proposed $66 million bond propositions to $63 million and to sell the $3 million in bonds already authorized, but the Council chose instead to ask for voter approval for the entire $66 million; the previously authorized $3 million in bonds remaining from 1997 may never be sold.

Thus, to repeat: when the voters approve a bond package, the bonds are not automatically sold; instead, the voters have only given the City Council permission to decide when, how, and if the bonds are sold. Circumstances beyond the control of the City may cause the Council to change its plans, such as when the economy faltered in 2001, four years after the 1997 bond election.

Reiussing Bonds
When convenient, the City may sell new bonds to retire the debt for old bonds. For example, the City can sell new bonds at a lower interest rate and pay off the older bonds, to save the taxpayer money (see Article 19.01 of the City Charter).

In fact, the City did this in 2009, reissuing some $21 million in bonds at a lower interest rate, and saving the taxpayer just over $250,000 per year in interest costs for the next ten years. See Agenda Item #6 of the April 27, 2009 City Council meeting.

Editorial Note: McCalpin's Unofficial Guide expresses no opinion on the 2010 bond election or any bond propositions – it is purely informational for all residents. All of the information expressed in McCalpin's Unofficial Guides is purely the opinion of the author. The Richardson Echo publishes this as a service but does not endorse nor refute its contents.


	McCalpin’s Unofficial Guide to Municipal Bonds by William "Bill" McCalpin The Process of Issuing GO Bonds Generally, the following process is followed in the issuance of GO bonds by the City of Richardson: City staff drafts the plans for a bond issue, listing what the projects will be and estimating costs. The staff will also estimate if the sale of the bonds will require a tax increase or not. City Council reviews City staff proposal, suggests modifications, and eventually approves (or dismisses) the bond issue going to the voters. In a standard election (i.e., handled in the same way as election of Council members, although often not at the same time), the voters approve or disapprove the various propositions that the bond issue is divided into. Note that the bond issue is divided into propositions by category – e.g., parks, streets, buildings, etc. If the voters approve one or more propositions, then what has happened is that the voters have given permission to the City to sell the bonds and to carry out the project(s) – this does not mean that the bonds will automatically be sold or that all the projects be carried out. After the bond election, as the City is ready to work on a project, the City will sell some or all the bonds for that project, either all at once or over time, as needed. The City staff will come to the Council from time to time to authorize specific contracts to spend the money raised by the bond issue on specific projects. Bonds are sold on the open market at current interest rates through third party companies; currently the City use First Southwest Company as its financial advisor. To Tax or Not to Tax When a bond proposition (or series of propositions) are placed before the voters, the voters are told approximately how much the bonds will cost and how that cost will affect the tax rate. If the City Council states that if the City sells all the bonds quickly (i.e., they have a good idea of what the interest rate will be), and the tax rate will need to be increased by a certain percentage to cover the new principle and interest on the new bonds, then these bonds will probably be sold quickly and all at once. This will be the case in 2010 for whatever bond propositions are approved by the voters. But if the City Council states that they expect they will be able to sell the bonds and pay for them without a tax increase, the Council will often sell bonds over a period of some time, so that the increase in principle and interest never becomes so much that taxes will have to be raised. This was the case in the 1997 bond program. The Council committed to no tax increases, so the bonds were sold slowly over time. However, in 2000-2001, the economy collapsed in the “dot.com bust”, and the City temporarily stopped selling bonds. By the time that the economy picked up, some projects had changed, and in the end, the City never did sell some $3 million worth of the bonds authorized in 1997. Note that the City Council in 2009-2010 discussed whether to reduce the currently proposed $66 million bond propositions to $63 million and to sell the $3 million in bonds already authorized, but the Council chose instead to ask for voter approval for the entire $66 million; the previously authorized $3 million in bonds remaining from 1997 may never be sold. Thus, to repeat: when the voters approve a bond package, the bonds are not automatically sold; instead, the voters have only given the City Council permission to decide when, how, and if the bonds are sold. Circumstances beyond the control of the City may cause the Council to change its plans, such as when the economy faltered in 2001, four years after the 1997 bond election. Reiussing Bonds When convenient, the City may sell new bonds to retire the debt for old bonds. For example, the City can sell new bonds at a lower interest rate and pay off the older bonds, to save the taxpayer money (see Article 19.01 of the City Charter). In fact, the City did this in 2009, reissuing some $21 million in bonds at a lower interest rate, and saving the taxpayer just over $250,000 per year in interest costs for the next ten years. See Agenda Item #6 of the April 27, 2009 City Council meeting. Editorial Note: McCalpin's Unofficial Guide expresses no opinion on the 2010 bond election or any bond propositions – it is purely informational for all residents. All of the information expressed in McCalpin's Unofficial Guides is purely the opinion of the author. The Richardson Echo publishes this as a service but does not endorse nor refute its contents.

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