I have been asked several times recently if property taxes will go down this year because Placitas and Algodones east of I-25 have been removed from the ESCAFCA boundaries. The short answer is NO, as part of the compromise bill HB 306 ES-CA taxpayers are responsible for the $6 million in bonds that were approved in 2008. Steve Barro wrote an excellent summary of what we can expect in the future and with his permission, I am including it for your information.
ESCAFCA’S PROPOSED NEW BOND ISSUE AND ITS
IMPLICATIONS FOR PLACITAS TAXES
Stephen M. Barro
June 25, 2011
At the ESCAFCA board meeting on Tuesday, June 21, the directors resolved to proceed immediately to issue the second $3 million of the $6 million in bonds that ESCAFCA voters authorized in the election of November 2008. They did so notwithstanding that $2.5 million of the initial $3 million borrowed in 2009 still sits unused in the bank, and that there is no prospect of using more than a minor fraction of it before the proposed date—this September—at which the second $3 million would become available. Under the ESCAFCA legislation that took effect in April, Placitas taxpayers are obligated to pay debt service taxes on the whole $6 million, even though Placitas is no longer part of ESCAFCA. This note summarizes the information now available on the size and duration of that obligation.
Mr. Erik Harrigan of RBC Capital presented to the board a rough, preliminary finance plan for the second $3 million bond issue. He outlined several possible approaches to marketing the new bonds, but the option that he recommended relies on financing through the New Mexico Finance Authority (NMFA). The board voted to accept this recommendation and intends to submit an application to NMFA this week. NMFA is a state agency that provides loan financing to New Mexico local authorities, generally at interest rates lower than those obtainable in the private market. The main characteristics of the proposed bond issue (clearly not yet finalized) are as follows:
• Duration of loan: 12 years. (For reasons unknown, it appears that no other duration, either shorter or longer, has been considered.)
• Repayment schedule: Large principal payments (“front loading”) in the first two years, amounting to more than $1.2 million of the $3 million borrowed. This would be followed by very low payments in the next two years, with payments then rising thereafter. Note: The rationale for this odd-sounding structure is that it would leave room for ESCAFCA to issue more bonds in 2013 and thereafter without having to raise the debt service tax rate. The premise is that ESCAFCA’s remaining voters, residents of Bernalillo and Algodones, will vote in 2012 to authorize additional debt. Placitas taxpayers would not pay for any such subsequent issues but nevertheless will be affected by the structure set up to accommodate them.
• Interest rate: Variable, with lower rates applicable to funds to be repaid in the first few years and higher rates to funds to be repaid later. RBC estimates that the average annual interest rate with NMFA financing would be 3.11 percent, but the illustrative principal and interest figures that RBC provided to the board are based on a higher assumed rate of 3.50 percent.
Based on the preliminary RBC plan, total annual ESCAFCA property taxes for Placitas taxpayers would be approximately as shown below. However, because the RBC figures for the new $3 million bond reflect conservative assumptions about both the bond interest rate and the rate of tax-base growth, it is possible that actual taxes could be somewhat lower than the amounts given here.
Tax year 2011 (property tax bills to be sent out this November):
Debt service tax rate: 2.446 mills
Operating levy (per statute): 0.50 mills
Total ESCAFCA tax rate 2.946 mills,
This translates into a tax of $289 on a home with full assessed value of $300,000. For comparison, the total ESCAFCA tax rate this year (TY 2010) is 3.104 mills, consisting of 2.444 mills for debt service and 0.66 mills for operating.
Tax year 2012
Debt service tax rate: 2.442 mills
This translates into a tax of $239 on a home with full assessed value of $300,000.
Note: Placitas taxpayers will pay no ESCAFCA operating levy in 2012 or thereafter.
Tax years 2013 to 2018
Debt service tax rate ranges between 0.9 and 1.0 mills, which translates into a tax of $88 to $98 per year on a home with full assessed value of $300,000.
Tax years 2019 to 2022
With the initial ESCAFCA $3 million bond issue completely paid off, the debt service tax rate falls to between 0.6 and 0.8 mills, or $59 to $78 per year on a home with full assessed value of $300,000.