City Owes IRS for Profiting on Wastewater Bonds

San Angelo's City Council will consider a report from staff regarding its 2019 Wastewater and Sewer Bonds.  The city made more money on investment proceeds from those bonds than is allowed. 

Since the bonds were issued in 2019 the city made millions in interest revenue, i.e. they made a greater return on the unused funds than they paid out in the bond's 2% coupon (interest expense to the city).

Investopedia notes:

Tax-exempt municipal bond issuers are subject to strict federal arbitrage compliance rules as a condition of issuance requirements, such as bond covenants. Any computed profits, which are called rebates, must be paid to the federal government. Federal arbitrage rules are designed to prevent issuers of tax-exempt bond debt from obtaining excessive or premature debt and therefore profiting from the investment of bond proceeds in income-generating investments.

Money borrowed for projects normally does not sit around for a long period of time, like five years.  The time frame for the borrowing can relate to the asset's future life as revenues from the project are designated to pay associated capital costs, fees, interest and principal repayment.  

Council has this item on the regular agenda under a budget amendment ordinance.  I don't expect much discussion. although it does fit under Council's strategic oversight.  What happened for the funds to sit unused longer than expected so the city could earn over $3.2 million?  

Are there other similar situations where the city has/had outstanding borrowings where the funds sit/sat mostly unused?  Hint:  In February 2023 City Council discussed and later approved borrowing $2 million to renovate the Animal Shelter and install a traffic light.  City Council minutes from 2-21-23 state:

Neighborhood and Family Serves Assistant Director Morgan Chegwidden gave overview of proposed improvements to the Animal Shelter 

Direction:   Consensus of Council was to proceed with the proposed plan of finance as presented.

Staff cited the need for an urgent shelter update due to multiple problems with the facility.  Nearly two years later, this urgent project is yet to go out for bids.

Texas Wants SpacePorts

The Concho Valley's Mission to Space operation kicked off with a state funded feasibility study.  The Texas Space Commission grant will identify spaceport sites in our thirteen county region, according to FoxWestTexas.

The grant applications were approved by the Texas Space Commission Board of Directors on Friday.  The meeting was livestreamed but no video has been posted.  An agenda showed the action item but had no additional information on applicants or the scope of their grant applications.

A confluence of forces are driving economic development in our area include proximity to oil/gas, available renewable energy sources (wind/solar/battery storage) and artificial intelligence's voracious needs for data centers near plentiful energy.  With our open land and greater potential for year around launches it appears the space imperative may join the potential bonanza.

San Angelo's Bright PEU Lights

In November 2024 I wrote about private equity's interest in West Texas energy deals.  Eight days later Businesswire reported:

Wynnchurch Capital, L.P. (“Wynnchurch”), a leading middle-market private equity firm, announced today that it has acquired Principal Industries, LLC (“Principal” or the “Company”) alongside Principal’s founders, Bryan and Blake Vincent, as well as the management team.

The local company received a $550,000 economic development incentive from the City of San Angelo Development Corporation in 2017.  Those funds enabled Principal Industries to move into a vacant building in the city's Industrial Park.

Principal Industries had five funding rounds since its inception and expanded through acquisitions. Principal bought SloanLED in 2022 and the company's website is www.principalsloan.com

The company's acquisition by Wynnchurch Capital, a private equity underwriter (PEU), occurred during a time of increased interest in San Angelo and West Texas, according to Chamber of Commerce VP Michael Looney.  He shared this with Development Corporation Council last October. 

This is the use and parlaying of private investment, private equity, on the projects we have in process or those that we are aspiring to have in process. This serves as an accoutrement to half cent sales tax dollars. We're finding that private equity is very hungry for positions within tertiary markets, like San Angelo, and oftentimes they don't necessarily want to share any market positions with municipalities, which is not necessarily a bad thing.

VP Looney noted: 

We are well into discussions with the development of speculative buildings within the Business Park. That goes along with several private equity investment companies we are working with. 

His "value proposition" close included: 

Access to private equity relationships

I sought public information on PE backed speculative building development in the Industrial Park on 11-6-24.  The city asked for an exception from the Texas Attorney General's Office.  The AG will determine what information the city has to release on 2-17-25.

Exercising political influence and tapping government coffers have been two key success factors for many PEUs.  As Looney noted "they don't necessarily want to share any market positions with municipalities."  If PEUs don't want their information public, maybe they shouldn't seek public subsidies, direct or indirect.   

Update 1-25-25:  Transparency is an issue in Kentucky over illicit handling of state retirement investments by PEUs KKR and Blackstone.  Private equity underwriters consider almost everything they do as a trade secret, even their fleecing of taxpayers and retirees.

Update 3-5-25:  The AG's office finished their review and the city shared that response yesterday, nearly four months after submission.  The developer of the spec building in the industrial park is Wheelhouse Commercial Development LLC and related company NAI Wheelhouse.  The Lubbock based property developer completed a number of projects in San Angelo, many retail establishments around the Sam's Club.  There were no references to private equity firms in the PIR  release.

Is Stargate Coming to San Angelo?

Capital Brief reported:

Trump said the new company (Stargate) will invest US$500 billion in AI infrastructure, creating over 100,000 jobs, in what he called "the largest AI infrastructure project by far in history, and it's all taking place right here in America". 

(Oracle's Larry) Ellison said 10 data centres are under construction in Texas, with 10 more planned.

The first Texas AI data center is the Lancium site in Abilene, originally developed for bitcoin mining.  Hanwha Solutions was an early backer of the project which leveraged our plentiful supply of renewable energy.  The Lancium Project shifted to Artificial Intelligence in a deal with Crusoe Energy Systems.  It's now part of Stargate.

West Texas is hot for energy projects to support AI and its voracious power needs.  The Concho Valley has both solar and wind energy generation.  San Angelo will soon have a battery storage facility on 28th Street.  The Zeppelin Energy Storage project is private equity backed.  City Council provided a $2.65 million tax break for Peregrine Energy (consent agenda - 9-3-24) before saying it had no funds to keep retiree health insurance benefits static (regular agenda - 11-5-24).  

The project will provide virtually no jobs, normally a requirement for economic development incentives.

Council proved to the big money boys it can play, i.e. help them achieve their investment hurdle rate.  Could San Angelo be in Stargate's sights?  OpenAI CEO Sam Altman noted:

AI is a little bit different from other kinds of software in that it requires massive amounts of infrastructure, power, computer chips, data centers, and we need to build that here and we need to be able to have the best AI infrastructure in the world to be able to lead with the technology and the capabilities.

CBS News reported:

Stargate investment will be directed toward constructing data centers to support AI development, according to the announcement. Already, there are data centers under construction in Texas, with the first one located in Abilene, Oracle's Ellison said at the press conference. 

The goal is to construct 10 data centers initially, with plans to expand to 20 locations of about half a million square feet each, he added.

City Council approved the annexation of 1,200 acres north of town.  The land is city owned. 

 

A one million square foot data center takes up roughly 23 acres.  A half million sized one requires 11.5 acres.

Abilene's Lancium site is 1,100 acres and 800 of that came via annexation.  

The 1-21-25 item came from Council's executive session so the public did not get to hear any discussion or deliberation.  Council approved the annexation under item "Ai."  How often does an agenda numbering convention line up with a business use case?

West Texas is hot for voracious, energy sucking AI.  Will Surprising San Angelo play a role in Stargate, directly or indirectly (energy supply)?  Time will reveal if yet another "boom or bust" commodity is headed our way.

If they do come, I hope Council keeps enough tax revenue to keep promises made to retired employees and maybe reverse the recent harms done to that group of people.

Update 1-26-25:  A California battery storage facility caught fire.  Some characteristics of that project are different than Zeppelin, however it highlights the need for an appropriate fire response, something Tom Green County is not equipped to handle.

Update 1-27-25:  If Stargate AI doesn't pan out the Concho Valley may be a candidate for a SpacePort.  The Texas Space Commission approved a site selection grant for the thirteen county Council of Governments.

Update 3-4-25:  It may or may not be Stargate AI but City Council just approved the sale of 350 acres of land to Skybox Data Centers LLC for $50,000 per acre.  Skybox helps clients curate their best data center solution.

Which City of San Angelo Animal Group?

The "new" Animal Shelter Advisory Committee met yesterday, according to Concho Valley Homepage.  The only new thing since December 2024 was the resignation of ASAC Chair Victor Schultze, DVM.  Otherwise, this is the same ASAC since August 2024 when two new members joined the committee.

CVH reported the committee would "determine how to improve the facility and process and control stray animal populations."  The story seemed to confuse the ASAC with City Manager Daniel Valenzuela's new Animal Crisis Taskforce.  Daniel informed City Council he was close to filling the taskforce at the January 7th meeting.  City Council minutes from that meeting state:

City Manager Daniel Valenzuela provided an update on the Animal Services Task Force and is hoping to finalize the task force and schedule the first meeting within the next week

CVH interviewed Animal Shelter Director Morgan Chegwidden who has traditionally not involved the ASAC in anything strategic, focusing solely on "meeting Texas state law."  

Citizens could easily be confused as to which group is doing what after watching the news story.  A major clue for anyone watching the actual meeting was that members had to pull monthly shelter numbers from the consent agenda to discuss them.  Another clue is Morgan never mentioned Daniel's taskforce, who is on it, the taskforce's aim and how it differs from the ASAC.  Chegwidden also failed to give an update on shelter facility renovations, a project Council approved financing almost two years ago.  Another clue included the failure to mention the resignation of former ASAC Chair Victor Schultze, DVM.

San Angelo Mayor Brenda Gunter expects a quick turnaround from the City Manager's Animal Crisis Taskforce, thirty to forty five days.  The next ASAC meeting is scheduled for March 20th.  A group meeting once every two months will not fill the Mayor's desires to address the city's loose animal crisis in an urgent manner..  

I don't blame CVH for being confused.  It's hard to paint the big picture when information is kept piecemeal and doled out sparingly.  That has been the case with Animal Services for quite some time.

Update 1-21-25:  City Manager Daniel Valenzuela released the composition of his Animal Services & Control Taskforce.  ConchoValleyHomepage made it their top story.  FoxWestTexas ran a piece as well.  The members include:

• Judge Allen Gilbert
• Assistant Police Chief Adam Scott
• Dr. Catie Morris
• Heather Hegwood
• Kris McGuffin
• Sharon Halfmann
• Mary Golder
• Kim Spooner
• Mark Lack

Interim Neighborhood & Family Services Leadership

With the departure of Neighborhood & Family Services (NFS) Director Bob Salas two managers have assumed interim roles.  NFS Assistant Director Morgan Chegwidden is now Interim Director while WIC Manager Angela Bloss took on the Interim Assistant Director role.

Both Morgan and Angela have been promoted internally prior to their new assignments.  Morgan went from Budget Manager to NFS Assistant Director in June 2017.  Her primary focus was Animal Services and she served three roles on the Animal Shelter Advisory Committee, Staff Liaison, Board member and Shelter Director.  She completed the Executive Leadership Certification from Southern Utah University with tuition funded by Best Friends Animal Society.

Angela went from Deputy City Clerk to WIC Manager and was named the City's ADA Coordinator in an October 2024 City Council meeting.

The city is yet to post a press release regarding the interim assignments.  The information on these changes came from the City of San Angelo website.

These moves are important given City Manager Daniel Valenzuela has likely recruited a mix of local citizens to advise him and City Council on San Angelo's loose animal crisis.  Morgan oversaw the Animal Shelter for the last seven years, a period that dramatically choked off shelter intake, saw a significant rise in loose dogs on city streets and increased dog-on-dog bites, as well as animal-on-people bites.  The horrific dog attack on a City Animal Control Officer prompted Council to take action.

Council decides the employment of the City Manager but no other roles.  Council has been mostly effusive in their praise for Chegwidden despite crisis after crisis after crisis.  They also had no issue with her referring an upcoming Council meeting as "a show" in a communication with Best Friends leadership.  

Shelter Adoption coordinator Concho Valley PAWS simultaneously faces challenges.  Executive Director Jenie Wilson's husband was arrested in August 2024.  He provided website services for the PAWS and had done similar work for the city in the past.  

Many changes are afoot.  Whatever is decided by city management and Council, it took years to get into San Angelo's loose animal crisis and it will take years and a much better game plan to get out.

Update 1-11-25:  Bob Salas introduced Morgan to the Development Corporation Board in their December 2024 meeting as his interim replacement given his retirement "early next month (January 2025)."    

Animal Crisis Taskforce Update

Mayor Brenda Gunter asked for a rapid formation of the Animal Services Taskforce and production of recommendations on 12-3-24.  She set a 45 day turnaround expectation.

City Manager Daniel Valenzuela offered an update in today's public comment.  He is close to naming the nine people to serve on the taskforce and listed a number of goals for the group.  

• reduce the free roaming dog population
• reduce citizen dog bites
• increase spay/neuter rates
• manage shelter capacity
• encourage responsible pet ownership
• create and enforce policies and ordinances
• foster collaboration with animal rescue groups

That list sounds like the daily job of Animal Services.  What happened over the last seven years that caused these problems to grow exponentially and put many citizens at risk?  

Shelter Chief Morgan Chegwidden began her role in June 2017 and may soon rise to Director of Neighborhood and Family Services, given Bob Salas' announced retirement.  

It would be an odd note in the middle of the taskforce if one accountable person got to avoid examination by virtue of promotion.

Update 1-17-25:  Concho Valley Homepage ran a story on the "new Animal Services Advisory Committee" which met yesterday.  The piece seemed to confuse the ASAC with Daniel's new Animal Taskforce.  CVH interviewed Animal Shelter Director Morgan Chegwidden who has traditionally not involved the ASAC in anything strategic, keeping in the "meet Texas state law" box.  A citizen could easily be confused as to which group is doing what after watching the news story.  A major clue for anyone watching the actual meeting was that members had to pull monthly shelter numbers from the consent agenda to discuss them.  Another clue is Morgan never mentioned Daniel's taskforce, who is on it, the taskforce's aim and how it differs from the ASAC.  Chegwidden also failed to give an update on shelter facility renovations, a project Council approved financing almost two years ago.