Certificates of Obligation VS GO Bonds

For a $450,000 home in Jersey Village, $44M in Certificates of Obligation (COs) over 40 years could increase annual property taxes by $918–$1,031 (no exemptions) or $735–$825 (20% homestead exemption), assuming 4.5–5.5% interest. General Obligation (GO) bonds, with lower rates (4.0–5.0%), would cost $845–$975 annually (no exemptions) over 40 years. Over 25 years, GO bonds result in higher annual costs due to shorter repayment: $1,051–$1,200 (no exemptions) or $841–$960 (exemption) vs. COs at $1,154–$1,296 (no exemptions) or $923–$1,037 (exemption). Concerns include transparency, preference for voter-approved GO bonds, and vague CO notices risking fund diversion. A petition needing 275 signatures by July 21, 2025, aims to force a vote, with a signing event at 8325 Achgill St, Saturday, 9 AM–6 PM.

 Math Comparison: $44M Certificates of Obligation (CO) vs. General Obligation (GO) Bonds

Assumptions:

• Tax Base: $1.35 billion.
• Bond Amount: $44M ($20M water/sewer, $24M Civic Center).
• Repayment Period: 40 years.
• Home Value: $450,000.
• Homestead Exemption: 20% (taxable value: $360,000).
• Properties: ~3,000 (2,500 homes, 500 commercial).
• Interest Rates: 
  • CO: 4.5–5.5%.
  • GO: 4.0–5.0% (lower due to voter approval, lower risk).
• Utility Impact: Negligible for both ($2,000 surplus pledge for CO, assumed none for GO).

CO Calculation:

1. Annual Debt Service: 
   • Formula: $44M × (Rate / (1 – (1 + Rate)^(-40))).
   • 4.5%: $44M × (0.045 / (1 – (1.045)^(-40))) ≈ $2,770,020/year.
   • 5.5%: $44M × (0.055 / (1 – (1.055)^(-40))) ≈ $3,110,008/year.

1. Tax Rate Increase: 
   • 4.5%: $2,770,020 / $1.35B = 0.00205187 (0.2052%).
   • 5.5%: $3,110,008 / $1.35B = 0.00230371 (0.2304%).

1. Tax Impact ($450,000 Home): 
   • No exemption: 
     • 4.5%: $450,000 × 0.00205187 ≈ $923/year.
     • 5.5%: $450,000 × 0.00230371 ≈ $1,037/year.
   • With exemption ($360,000): 
     • 4.5%: $360,000 × 0.00205187 ≈ $739/year.
     • 5.5%: $360,000 × 0.00230371 ≈ $829/year.

GO Calculation:

1. Annual Debt Service: 
   • 4.0%: $44M × (0.04 / (1 – (1.04)^(-40))) ≈ $2,550,016/year.
   • 5.0%: $44M × (0.05 / (1 – (1.05)^(-40))) ≈ $2,940,008/year.

1. Tax Rate Increase: 
   • 4.0%: $2,550,016 / $1.35B = 0.0018889 (0.1889%).
   • 5.0%: $2,940,008 / $1.35B = 0.0021778 (0.2178%).

1. Tax Impact ($450,000 Home): 
   • No exemption: 
     • 4.0%: $450,000 × 0.0018889 ≈ $850/year.
     • 5.0%: $450,000 × 0.0021778 ≈ $980/year.
   • With exemption ($360,000): 
     • 4.0%: $360,000 × 0.0018889 ≈ $680/year.
     • 5.0%: $360,000 × 0.0021778 ≈ $784/year.

Comparison:

• No Exemption ($450,000 Home): 
  • CO: $923–$1,037/year.
  • GO: $850–$980/year.
  • Difference: CO is $73–$57/year higher (8–6% more).
• With Exemption ($360,000): 
  • CO: $739–$829/year.
  • GO: $680–$784/year.

Certificates of Obligation (CO):

• Range: 4.5–5.5% (assumed for Jersey Village’s $44M COs, based on municipal bond market trends and your provided notices’ illustrative 4.75% rate).
• Source Context: No specific 2025 CO rates found in recent data, but municipal bond yields for similar credit profiles (e.g., Texas cities) typically range 4.5–5.5% for 40-year terms, reflecting higher risk due to lack of voter approval.

General Obligation (GO) Bonds:

• Range: 4.0–5.0% (assumed for Jersey Village, reflecting lower risk due to voter approval and full faith/credit backing).
• Source Context: Historical data suggests AA-rated GO bonds (like Kansas City’s, similar to Jersey Village’s potential rating) averaged 4.37% for 20-year terms over the last 20 years, with recent tax-exempt GO bonds near historic lows (3.5–5.0% for 20–30 years). For 40-year terms, rates align closer to 4.0–5.0%.

Math Comparison (from prior):

• Tax Base: $1.35B.
• Home Value: $450,000 (20% homestead exemption: $360,000).
• CO (4.5–5.5%, 40 years): 
  • Debt Service: $2.77M–$3.11M/year.
  • Tax Rate: 0.2052–0.2304%.
  • Tax Impact: $923–$1,037/year (no exemption); $739–$829/year (exemption).
• GO (4.0–5.0%, 40 years): 
  • Debt Service: $2.55M–$2.94M/year.
  • Tax Rate: 0.1889–0.2178%.
  • Tax Impact: $850–$980/year (no exemption); $680–$784/year (exemption).

Notes:

• CO rates are higher due to market perception of risk (no voter approval). GO bonds benefit from tax-backed security, lowering rates.
• Rates are estimates; actual rates depend on Jersey Village’s credit rating and market conditions at issuance (July 21, 2025). Your transparency concerns highlight CO risks.
• Utility impact negligible ($0.67/property/year for CO, none for GO)

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