DALLAS - North Richland Hills, Tex., plans next week to offer $7.5 million of debt in the largest issue in state history backed solely by a sales tax.
The city will become the sixth Texas issuer to sell long-term bonds with that pledge since Amarillo began the trend in 1991.
"We're seeing more people looking into it," said Chris Evangel, assistant vice president at Moody's Investors Service. "It's been a long time since they've had a new revenue source."
Following in the footsteps of the five agencies that sold $10.5 million of debt since Amarillo's deal, North Richland Hills and two other issuers expect to sell more than that next week in deals backed only by a sales tax.
For starters, the city-created North Richland Hills Park & Recreational Facilities Development Corp. is planning the biggest deal, with its 20-year, $7.5 million issue.
Also next week, Keller Development Corp. is planning a $1.8 million deal and Mansfield Park Facilities Development Corp. has scheduled a $3.6 million sale.
Voters in many Texas cities were first given the authority to back such deals with a sales tax in 1989, when lawmakers allowed them to enact a half-cent sales tax for city parks and recreation. That legislation was part of a plan enabling Arlington, Tex., to fund construction of a new sports stadium for the Texas Rangers major league baseball team.
In June of this year, Arlington sold the largest deal in Texas secured solely by the new tax, with the city's sports authority selling $135 million of taxable variable-rate notes.
Lee Maness, finance director for North Richland Hills, a Tarrant County City of nearly 50,000, said the sales tax meant the difference between building the public park system quickly or over a number of years.
"We could have done it without [the tax], but it would have taken many, many years, " he said yesterday. "Land is going so fast over here that there might not have been enough left. "
North Richland Hills will use proceeds of the $7.5 million bond sale to finance the purchase of at least 145 acres and to begin developing new parks.
The estimated $3 million a year the half-cent tax should generate will give bondholders coverage of 3.1 to 3.8 times debt service, he said. The city will use $690,227 a year to retire the bonds and use more of the cash flow for pay-as-you-go financing of the parks.
Already, the city expects to return to market next year with a $5.5 million-to-$6 million sales tax issue for additional parks projects. Voters ratified the half-cent sales tax to remain in effect as long as the city's corporation has outstanding debt.
Effective in January 1993, North Richland Hills will have a combined sales tax of 7.75%, with 6.25% going to the state, 1% to the city general fund, and proceeds from the half-cent tax to the park corporation.
Other Texas cities are beginning to benefit from the ability to ask voters to approve an optional sales tax of up to 0.5 cent for economic development purposes.
Amarillo, one of the largest cities in the Texas Panhandle, was the first to issue bonds for economic development that were secured solely by the sales tax. The city sold the $6.5 million deal in January 1991.
While few cities have issued debt backed by the sales tax, several have enacted the tax to help raise cash to pay for economic development efforts.
David Wright, finance director in Abilene and president of the Texas Government Finance Officers Association, said the sales tax has been embraced by his own city council.
"It will give us $4.1 million a year for economic development we've never had before," he said.
A spokesman at Texas Comptroller John Sharp's office, which monitors taxes and other fiscal indicators, could not say yesterday how many cities have enacted the tax.
Moody's said the number of cities using the optional sales tax will grow if local officials have their way. "Some cities felt like they got left out." said Evangel. "My understanding is they are going to change the law to lower the [population] threshold for the tax."
Several local officials interviewed suggested that the optional half-cent sales tax illustrates the need for the state to give localities new revenue sources that are broader than the property tax system.
Lawmakers gave local governments a share of revenue when they enacted the original sales tax in the 1970s. In the 1980s they provided a drainage fee that can be used only for flood control or similar projects, and most expanded the use of the sales tax with the half-cent option.
"I've been in this business almost 20 years, and I've only seen three new revenue streams," said Maness. "I think this shows that we can use new ones."
