Without bond funding, the City would have to utilize other funding options for large capital projects which would be calculated into setting the tax rate.
Municipal infrastructure is expensive. The multitude of city assets such as roadways, sewer/water infrastructure, facilities, parks/trails, public safety equipment/technology and quality of life amenities all require millions of dollars in investment or reinvestment to build or maintain to the high standards set by the Allen community. The city budgets for many capital improvements on an annual basis for facility repairs, roadway and traffic signal upgrades, sewer/water infrastructure maintenance, and technology and vehicle replacement needs.
Beyond some of the smaller capital improvements that are included in the City’s annual budget, there are three ways to fund more expensive or larger capital improvements:
- The sale of voter-approved general obligation bonds – This method spreads the cost to as many residents and businesses as possible over an extended period making it an affordable option and resulting in the expense being shared by current future residents and businesses that will benefit by the new or improved asset. It funds the purchase or development/construction of the asset at the time it is needed based on current market conditions.
- Cash reserve financing – This allocates a portion of the City’s budget to a cash reserve fund for a designated future capital expense (and factors this into setting the tax rate). This results in residents paying taxes for capital expenses long before they are ever needed. It subjects the cash reserve savings to inflationary conditions that may reduce the City’s purchasing power at the time the purchase, development/construction is needed. It is also difficult to project large capital expenses 15-20 years ahead of when they may be needed due to many economic conditions, changing community demographics and needs, and advances in technology and service delivery.
- Cash financing – This requires the City to cash fund more projects on an annual basis which increases the budget and the tax rate accordingly. This option limits the scope and types of projects that can be funded on an annual basis due to state-mandated tax revenue caps unless the tax rate increase over set thresholds is voter approved. Even with benefit of a voter approved tax rate, it would be difficult to cash finance a significant capital expense such as a major park redevelopment or new police headquarters within an annual budget.