A financial presentation to the Lago Vista City Council on Jan. 16, 2025, outlined the city's current debt profile, recent valuation growth and options for financing planned infrastructure.

Thomas Lestraps of T Arena Financial Consulting told council that the city's taxable assessed value rose sharply in recent years, enabling the city to lower its tax rate even as revenue increased. He said that growth has helped the city avoid higher maintenance-and-operations (M&O) tax rates, but it also means that at the current overall tax rate there is little immediate capacity for additional I&S (interest-and-sinking) tax-supported debt without changes.

Lestraps said outstanding general-obligation debt across series from 2006 to 2024 totaled just under $50 million; the city's debt burden relative to assessed value is about 2 percent, which credit analysts view as low. He presented a refunding analysis of the city's 2014 and 2015 bond series that are eligible for current tax-exempt refunding and cautioned that market volatility limits near-term savings. "Gross debt service savings" on a refunding run in the consultant's model was about $313,000 with net present value savings of about $275,000 (2.17%), below the commonly used 3% threshold that often justifies the cost of a refunding when issuance expenses are included.

Lestraps recommended council consider three levers to increase capacity for new projects: (1) transfers from the utility fund or other self-supporting revenues to help repay debt (a "double-barrel" pledge), (2) deliberate reductions in M&O spending so more tax rate capacity can be reallocated to I&S, and (3) continued growth in taxable valuation. He presented an illustrative scenario in which a $30 million bond sold on a 20-year schedule would require roughly $2.27 million in annual debt service (level debt service in his example), which at the city's tax base and rate would represent a multi-penny increase in the I&S tax rate unless offset by transfers or spending reductions.

Lestraps also reviewed rating considerations; the city's bonds were double-A by S&P and he said the city was in a strong fiscal position because the tax base is broad, residential and growing. He offered to run additional scenarios for council's strategic planning retreat to test combinations of value growth, utility transfers and M&O reductions to identify what would be required for a future $30'$50 million program.

Council members asked for more granular dollar charts (I&S and M&O in dollars rather than tax-rate cents) and for a scenario tool to test how much I&S dollars would be required to fund a target bond size and how various offsets (value growth, transfers, M&O reductions) would change the tax-rate outcome. Lestraps said he would provide spreadsheet scenarios for the council's strategic planning session.

Ending: The council asked staff and the financial adviser to provide scenario modeling (dollar-based I&S/M&O comparisons and growth/transfers options) before the strategic planning session so members can evaluate trade-offs in debt timing and structure.