Frequently Asked Questions (FAQs) Regarding Certificates of Obligation
The FAQs have been provided by the City's Bond Counsel
Q1. What are Certificates of Obligation (“COs”)?
A1. COs are a debt instrument, like general obligation bonds, that can be issued by the City of Castle Hills (the “City”). Unlike general obligation bonds, however, cities are authorized to issue COs without an election. The COs are sold to investors to generate proceeds to be utilized for certain projects.
Q2. How is the debt created by COs repaid?
A2. Principal plus interest on the COs is amortized over a period not to exceed 40 years, and generally limited to the average useful life of the projects being financed. The debt could be paid from ad valorem (property) taxes, other revenues generally available to the City, or a combination of both. However, the underlying security for the COs is ad valorem taxes, along with a particular designated revenue source (in the City’s case, certain surplus revenues, if any, received from the City’s municipal drainage utility system).
Q3. What projects can COs be issued for?
A3. State law authorizes COs to be issued for a broad scope of projects, including: (1) the construction of any public work, (2) the purchase of materials, supplies, equipment, machinery, buildings, land, and rights-of-way for authorized needs and purposes, and (3) the payment of contractual obligations for professional services, including those provided by tax appraisers, engineers, architects, attorneys, map makers, auditors, financial advisors, and fiscal agents.
Q4. Why is the City currently looking to issue COs? In what amount?
A4. The City would use proceeds from the sale of the COs currently being contemplated to construct drainage, street, curb, and sidewalk improvements at various locations in the City. Because no election is required to issue COs, none of the time constraints associated with an election are applicable. This is beneficial to the City for two primary reasons. First, the City is able to borrow money at current market rates and avoid the risk of rising interest rates. Second, the City is able to obtain the necessary funds relatively quickly to begin constructing the improvements. Should the City approve an ordinance authorizing the issuance of the COs, the maximum amount that could be borrowed is $7,000,000, as stated in the “Notice of Intent” posted on the City’s website and published in the San Antonio-Express News on March 16th and March 23rd.
Q5. Has the City of Castle Hills ever issued COs?
A5. Yes. On October 14, 2020 the City of Castle Hills delivered Certificates of Obligation for the purpose of constructing street and drainage improvements