The Duncan Banner

May 7, 2013

Property owners to foot the bill if $9m bond passes for road repairs

Mike Smith
The Duncan Banner

DUNCAN — When city officials in Duncan sought public approval to borrow money for a major street improvement effort in 2007, they gave voters two options to pay for it.

 One called for a $20 million bond to be paid through higher property taxes. The other would have funded the street work through a half-cent increase in the city’s sales tax rate.

A majority of voters balked at both of them.

Now, six years later, the city is asking voters to approve a $9 million general obligation bond that would be repaid over 10 years through additional taxes on property owners.

There is no sales-tax option this time, though some believe it would be the more equitable route to take because more people – not just property owners – would share in the debt burden.

“We need street repairs but that needs to be more of a shared responsibility,” said Peggy Davenport, an insurance agent in Duncan who helped defeat property tax bond issues sought by Duncan Public Schools in 2010 and 2011.

City officials, however, say their proposal makes financial sense on several levels.

The sales tax rate in Duncan is now 8.7 percent. It was 8.55 cents on the dollar before voters in Stephens County approved an additional 0.15 percent county-wide to provide more money for fire departments and senior nutrition centers.

The sales tax rate is still lower than the 8.88 percent in Lawton, but is higher than the 8.25 percent rate in Wichita Falls, Texas. Because of their size and proximity, those cities compete with Duncan for retail dollars.

Chris Deal, president of the Duncan Chamber of Commerce, said if sales taxes in Duncan go much higher, retailers here would take a hit because folks would shop for some products elsewhere. And that could mean less sales tax revenue for Duncan.

Proponents of the street proposal also say that bonds backed by property taxes draw better interest rates than those backed by sales taxes or utility payments. Property taxes are considered a more stable source of revenue because they are less susceptible to swings in the economy.

The average interest rate assumed on the proposed 10-year bond issue is 2.89 percent.

And because interest rates have remained at historically low levels for some time now, it’s a good time to borrow money.

It also makes sense to pay back the money over a 10-year term, city officials say, as opposed to doing it in five years or 15 years.

Allan Brooks, an attorney with Public Finance Law Group that is helping advise the city, explained that rationale to the Duncan City Council this way:

“If the term is too short, we were concerned about the debt burden,” Brooks said. “If the term was too long, we did not want to do street improvements that would be worn out before the debt was paid off.”

Under the proposal, the average additional tax on a house worth $150,000 would be about $98. That’s $8.17 more per month on average.

For a house worth $100,000, the annual tax bill would be about $64 higher. For one worth $250,000, it would be about $169.

Of the costs, $7.8 million would go toward construction, $943,000 for engineering and $176,000 – or 2 percent – for financing. The projections assume 3 percent for inflation.

Under the plan, only property owners – and perhaps some renters if landlords pass on the higher property taxes – would foot the bill.

And that bothers Davenport.

“This is something that the whole community benefits from and the streets need to be repaired, but at the same time we should all share in that,” she said.