County Bonds - Not going to happen. What a dilemma!

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Earlier this week, the Montgomery County commissioners drew up a bond proposal to consider for the coming budget process. $300+ million is needed to finance a fairly long slate of needed county road major projects. Here in The Woodlands, it would involve the replacement or resurfacing of Grogan’s Mill, West Panther Creek, Woodlands Parkway, and possibly others. Although we need some work on all of these, and with the extent of traffic volume on Woodlands Parkway, the price is just too high to issue such a bond right now. The county judge says, “it isn’t going to happen.”

We do have some advantage of doing this now. Construction bids are coming in about 30% down from last year. However, now is simply not a good time to do it. It is a risky proposal, given the state of our economy and the related voter apprehension. We cannot afford a failed bond issue at the polls. Increasing taxes by 7-9 cents (or 17%) would be exceptional, especially in this soft economy, which has not yet recovered from a near disaster. “There is at least one respected financial analyst predicting that the economy will almost totally fail, that the disaster has not been averted, and that that we are still headed for a depression.” noted County Judge Alan Sadler.¹. He went on to say “This bond will not happen”, meaning that the county will not go forward with such a bond. The judge is concerned that there is just too much risk of the bond failing. We need to find alternatives and find some means to fix our roads. “For example, the asphalt-constructed Walden Rd is having significant problems and needs to be replaced with a concrete construction. Yet when we first built this road according to state specifications, the state funded 80% of it. Now, we have to pay for the entire replacement road without that subsidy. This is a big dilemma for all of us.”

We are between a rock and a hard place. What happened in Austin in this legislature has hurt our county. How is it that we had federal bailout money injected into expansion projects and we are now sitting in this position to maintain our existing roads?

Today, there is no pass-through money available from the State of Texas for our bonds. TxDOT has absolutely nothing for us this time. That means we will have to finance all of it ourselves without any subsidies. We get no help. When we originally constructed Walden Road, we got 80% of it financed by the state. If existing residents have to pay for the county’s growth, something is wrong. Just imagine. A resident moves here and is asked to fund road maintenance at a high tax rate. The payments should be spread out over 20 or more years of tax base. Interest rates are low. High routine maintenance costs also drive taxes up, so we have to invest in quality projects. We need durable quiet roads. Contractors and their equipment burden some of the roads, causing wear and tear that residents eventually must pay. Roads decline because of subsurface material and they simply fail because we use them so heavily. Who rightfully pays? The county would construct a class “B” concrete road to replace the asphalt Walden Rd, which lies on top of clay. That would have one layer of iron rods, not two as in Class “A”, but strong enough to hold together on top of a clay roadbed.

What to do? Go to the hard place or go to the rock; either way it seems to me that we are in the middle and squashed.

Maybe we could get the commissioners out together on each proposed road with a budget cap of $160mm and come up with a “now” proposal with a limited budget? That would probably be well worth the effort. I think that might fly. Face it, the current proposal will not fly and the commissioner's court sees that. Maybe there are even alternatives to repairing some roads. Then after all the economic issues subside in three years, try again. Keep the property tax below $.049! Isn’t it a good idea to have very stringent criteria for inclusion of projects and a budget cap for the bonds. It isn’t so much that we have some repair to do, but it is the extent of it. We have people here on fixed incomes. We have people here worried about keeping their jobs. It is definitely a time to be conservative! Maybe not everyone is equal. Some people can afford it and some cannot. Homes continue to increase in value. Each taxpayer is paying more to the county even without an increase in the tax rate. Tough choices are coming in the county budget meetings.

Yep, truly a dilemma! We all are in this together. Hopefully, there will be some middle-of-the-road compromise. And yes, pun intended!

¹ Judge Alan B Sadler’s profile

Woodlands Taxes and Budget 2010 - thoughts

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After reviewing the "alphabet soup" budgets of 2009, as a resident, I concluded that we needed some sort of consolidated view of them. So I generated one. Now I am sharing the experience with you and maybe you will have an easier time getting acquainted with this subject also. It is my hope that I can get more residents interested in this year's budget process. Later this month, the township will be providing us with information, but it may not provide an easy-to-assimilate view. So embedded in this article are several tools to help - a summary, several spreadsheets and some text of what I have learned. Also is a simple "what if" scenario on taxation. In late August, the township must complete its budget and establish a tax rate. Tom Campbell issued this communique just recently: "There are so many things to work on to complete the establishment of our new government that The Township will have six meetings on each Wednesday at 9 AM from July 22 through August. July 22 will be a regular business meeting. July 29 through August 19 will be budget work. August 26 will be a regular business meeting and the setting of the first property tax rate. Of Course, there will be public hearings announced on the proposed property tax before it is approved. However, you will have your chance to influence the development of this budget at the July 29 Town Hall Meeting."

Summary - Budget 101
This year, the budget process is earlier because of the taxing process. In past years, we operated independently and could schedule everything on a calendar year. Now we must account for the county's process and fit into their schedule. The township has to develop a budget now to set an assessment rate for 2010, in order for the county to administer the assessment process and collect taxes. Remember, we will receive a tax bill this year from the county, not from The Woodlands Association. That bill will contain the normal county and school taxes plus our assessment taxes.

The Woodlands Township will conduct a town hall meeting at the end of this month to present the budget and strategic plan. This will give residents an opportunity to give our feedback. I expect the township to link strategies to budget line items in order to place financial value on the strategic plan or value on the strategic plan, which is composed of community values. How that will be accomplished is unclear to me now. My guess it will be presented in a broad view of the plan. I am positioned to attempt doing the same and may do it in a separate article, just as a exercise to understand the fit and personally share with others.

For now, all I want to do is get the information to my readers and enable you to start formulating your own opinions on what needs to be done, on what tax rates are acceptable and what questions you want answered. I will share some of my own opinions as we go along.

According to my calculations, the consolidated 2009 budget totaled $63.9 million. The consolidated 2009 revenue from all sources was predicted to be $58.4 million. The deficit was made up with reserves as the associations began to execute their plans to dissolve themselves. The TWA had a budget carryover from 2008 and that was not included.

As most of you probably know, an expense budget is composed of two parts - (1) Capital - that which is an asset investment, adding value to the asset, and (2) Operations - that which is required to finance the operation of the asset. To levy a tax for required expenses, a taxing authority must establish what is needed to operate and what can be deferred. In our case, the revenue will be generated by a state sales tax and by an assessed value property tax. Other revenue is generated, just like it is for a resident, including fee collections, bank interest, and other sources. The business of running a municipal government is, in a single breath, to provide value to residents and businesses, to control expenses through leveraged service contracts & process management, and to provide services for safety and to preserve property value. It exists to provide a safe, economical and prosperous haven to live, play and work.

This last year of transition to a new government will bring four operations together under one umbrella operation. Today, the associations have a service company, The Woodlands Operating Company, which they share together, under contract. Service costs are proportionately allocated for the service company to recover its costs to administer the service programs under its contract umbrella. This accounts for the majority of expenditures in each association, but there are also direct costs. I will not go into this aspect of the budget at this time. You can look at the published budget sheets to review what is direct and what is not.

Budget for 2010
Currently, the township is preparing a budget for review by residents and businesses. Village associations are being queried for needed improvements in the villages, so that capital requirements can be determined and projects prioritized. This is the same procedure that has been followed for years. It is also preparing operational scenarios to determine tax rates. I want to be able to correlate the old to the new. As a reminder, we will go back to the original proposal in 2006 to form a township and remind ourselves what tax structure was "promised". Most of us knew at the time that there were some unknowns, and all we had were some rough estimates. Nevertheless, we developed expectations of how we could survive financially with a taxing authority. Many people were nervous about that. Nothing has changed as of this particular moment, but details are being collected and readied for presentation. We should expect government entity consolidation to create a number of opportunities for operational efficiencies within the next two years. I will refer to my original article which supported the formation of the township as the premise for bringing this up now.⁶ There is a need to hold our leaders to a responsible position on their promises. Our leaders include our precinct commissioner, our state representative, our state senator, our county tax assessor and others who helped to formulate the financial view of the proposed township and means to fund its operation. We wrote based on statements made, that we would realize a 31% direct + indirect reduction of assessments through this new organization. Right now, I doubt that we will realize this, based on what I have seen and heard, but from the numbers produced below, that realization seems feasible to me. We will be able to claim our assessment taxes to the IRS, but if you have already been doing that, you obviously will not realize any additional saving from that change in collection. I expect a 32% taxation rate, but hope for less. That will be about the same as before the township was formed. Now to present the spreadsheet.

Consolidated Budgets	WCA	TWA	WCOA	Town	Totals
	$mm	$mm	$mm	$mm	$mm
Operating Budget 2009	12.72	14.78	2.00	26.00	53.04
Parks Care and Administration	3.605	4.214	0.458	0.994	9.271
Solid Waste pickup/disposal	2.520	2.493	0.044		5.056
Streetscape Maintenance	1.070	0.918	0.289		2.277
Public Safety	1.069	1.415	0.247	4.675	7.406
Covenant administration	1.016	1.150	0.190		2.357
Firefighting and rescue	0.475	0.721	0.138	14.725	16.059
Streetlights Power/Maintenance	0.473	0.500	0.077		1.050
Other allocated	0.442	0.617	0.111		1.171
Neighborhood services	0.258	0.332	0.058		0.648
Community relations	0.201	0.258	0.043		0.502
Other expenses	0.053	0.056	0.001	0.045	0.155
Payments to Conroe, Houston				0.959	0.959
Transition to new govt				0.600	0.600
Marketing &economic development				0.933	0.933
Community&Environmental Svcs	0.218	0.284	0.050
General Administration	0.893	1.122	0.199	2.383	4.597
Other associations (Carlton)		0.186
Transportation (trolleys_etc)					0.00
Other_Operations&staff	0.429	0.517	0.094	0.685
Capital_Budget_2009	1.80	2.10	1.90	2.54	8.34
Park projects	0.702	0.808	1.891		3.400
Pathway Projects	0.750	0.578			1.328
Pathway improvements	0.000	0.335	0.008		0.343
Landscape improvements		0.080			0.080
Aquatics Facility Improvements	0.226	0.097			0.323
Signs/StoneWalls/Landscape	0.078	0.123			0.201
Athletic Facility Improvements	0.038	0.073			0.110
Other	0.003	0.003	0.004		0.010
Transfers and Capital				2.540	2.540
Total Budget 2009	14.52	16.88	3.90	31.08	63.92

Discussion

There are several assumptions made to produce this table. It is only created to put together the numbers from the published 2009 budgets^1,2,3,4 and provide a means to assimilate all of them in one concise view. I encourage all interested parties to review those documents as well, but this should be the quickest way to get your feet wet. Different account models are used in the association and the township. The association uses an older self-developed model, while the township uses a method known as the GASB method.⁵. In doing so, the township does not present the information in the same way, so I have chosen to do that as close as I practically could without losing information. The Chart of Accounts of all merging entities are being merged into one Chart of Accounts as part of the transition, so I hope to see this same information in a more readable format from the accounting system in the near future.

There are one time and ongoing expenses which are expected once again to be in the township budget. In 2009, we had a line item for $600,000 in the township budget as a one time expense. I did not back that out in my 2010 "guestimate". I did back out interest accumulated by the WCA financial reserves, since they no longer will exist. WCA had a low assessment rate for 2008 and 2009 because of their strategy to spend down the reserves before dissolving as a governing body. Therefore, to obtain an idea of what the income would be under normal circumstances, I normalized the income to an assessment rate of 32 cents per $100 assessment. I did that for WCA and WCOA. I also added in a guess for property value increases into the equation, as well as a guess for sales tax revenue growth.

Scenario I	WCA	TWA	WCOA	Town	Totals
...............................................	$mm	$mm	$mm	$mm	$mm
Normalization for 2010
Normalize WCA @ 0.032/100	13.62
Normalize WCOA @ 0.032/100			2.83
Reduce incomes from banks	(0.24)
Added  assessments guess	0.68	2.47	0.21		3.36
Added sales taxes guess (5%)				13.08
Guestimate income change	0.45	2.47	0.21	13.08	16.21
2010 guestimate Operating Budget					58.35
2010 guestimate Income					71.01
2010 guestimate reserve build					3.00
2010 guestimate available for capital					9.66

The scenario presented here has a large increase in operating budget for the first year of operation. That is, the consolidated budget is increased by 10% in the spreadsheet, yielding a generous $58.35 million operating budget, increased by more than $5 million. The scenario assumes a 10% increase over the 2009 normalized budget in revenue. There are certain complications in the changes that are to take place, so here we are just showing that income should be increasing by more than just sales taxes, but it is unclear how much, therefore the scenario assumption. An assumption is made that $3 million is sufficient for establishing a first year operational reserve. That will supplement the existing reserve. Then a capital budget exceeding 2009 is placed into the budget. If cuts are to be made at this time, it would likely be in the capital budget. As you will notice, I have not included a municipal office building for the government and will likely be part of the budget proposal. Another significant expected increase in service that will be costly will be the additional police protection likely to be proposed. I do assume we can become more efficient by this merger, so in 2010, I would expect to see contracts leveraged better and township operating costs reduced per household to begin the process of becoming more efficient.

So this is my current take on the budget, just to get my and hopefully your feet on the ground, to have a reference point for the coming discussions. I have not run additional scenarios but may do so soon. To expedite this information into the hands of residents, I will go ahead and publish this as it is.

Resources

¹WCA 2009 Budget
²TWA 2009 Budget
³WCOA 2009 Budget
⁴WoodlandsTownship 2009 Budget
⁵GASB Model of accounting
⁶Commentary Article on expectations of a new government - Tuesday Elections 2007
⁷My Decision and what I considered in reaching it

Let me know if you want more or have feedback on this subject. Most of you know how to reach me and if not, it is in my profile. If you want to post notes in Facebook, you are welcome to do so in The Woodlands Commentary. Just look it up in Facebook.

Woodlands Township Meetings venue

As one might guess, there is something to say about the current controversy on meeting places and times of The Woodlands Township. We as a community are in transition from an association paradigm to a government paradigm. In that, I recognize the desire of those who serve now, to do so in day time hours at a convenient location. In this interim transition, the Township board has decided to conduct business later in the day, at 9AM instead of 7:30AM, which is personally OK with me but not so for some others. Additionally, to compensate for not being available to some residents, the meetings will be video taped. Additional services are being provided such as quarterly public meetings to provide an additional venue for residents to discuss their issues and the board to connect to issues on the minds of residents. Budget meetings will be held at 9AM. Although not optimum, this may be fine for now but I believe it is far short of what is needed by the year 2010.

The idea that the operation of the government should be established equal to other towns of this size is not a very good one. The operation should be based on the needs of our community, not the needs of other communities. We are unique, and we can design an operation around that uniqueness. We do not need to be like other communities of this size. We need to be our own community based on our demographics and needs.

These changes passed at the last monthly Township meeting are all good but again, insufficient for the long term. What we need is to totally reset the venue. The current location is too small. My suggestion is to have one meeting per month now in the evening in a location where residents can participate, maybe even a local school would suffice. Proceedings must be open and transparent. Transparency is provided through the video taping of the proceedings, openness is not.

Why would this be so important here in this little community? The town has a large population of professional people who commute to downtown Houston and other locations outside of The Woodlands. Morning meetings are out of the question for many. The reason our town continues to grow and flourish, even in poor housing development times, is the oil industry. The oil industry is booming! Most people living here and working in the oil industry commute during hours before dawn. They typically arrive home in the rush hour with everyone else so that their family life is in sync with children sports and other activities. We have to consider that those things which affect our homes and family lives are attached to the governing body of our hometown. In in the past, that personal link from our leadership has been provided by the association in the evenings. In the future that link becomes the Township.

I am firmly for the new changes but call for a stronger availability of our government to the residents. The changes made in this month's meeting to improve meetings are but a step in the right direction. Our village associations will certainly need to play a stronger role in providing residents a better quality of life, but the government must be available to the residents as well, and we cannot afford to leave out the backbone of our community, those who commute to work. Decisions are not made quarterly. They are made in special and regular meetings monthly.

Township reference link: Newsflash