Funding District Rehabilitation: Selling Bonds vs. Direct Billing
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Newport Municipal Utility District (Newport MUD) has been responsible for providing water and sanitary sewer infrastructure for nearly 50 years. During that time, the community the District serves has grown to include over 3832 homes within the Newport’s roughly 2,350 acres.
On November 5, residents of the District will be asked to vote in an election to determine whether the MUD will be authorized to issue bonds in several increments, over time, to fund the maintenance, rehabilitation and upgrade of portions of the MUD’s Water, Sewer, and Drainage (WS&D) infrastructure as it ages.
Aging WS&D Infrastructure
As the MUD’s WS&D infrastructure ages, it requires maintenance, rehabilitation, and sometimes, replacement as part of its lifecycle. In order to serve the community properly, the MUD needs to maintain, repair, and replace infrastructure.
The MUD plans to rehabilitate and repair our infrastructure in order to comply with the Texas Commission on Environmental Quality (TCEQ) standards, as well as bring older infrastructure up to modern materials and practices. Newport MUD must expand its surface water treatment plant facilities to meet the mandate of Harris-Galveston Subsidence District.
The projects also include expanding capacity at our wastewater plant, and replacing galvanized pipes and hydrants throughout the District because they are old and deteriorating. The District also needs to repair and upgrade the community’s sanitary sewer system as well as several smaller maintenance projects over the next 10 years.
Bond Financing vs. “Pay as You Go” with Cash
Before an engineering project can be bid (long before it is started), the funding has to be “in the bank”, i.e. pre-funded for each stage of the project. The two primary options available to the MUD for funding are:
- to spread the costs of the projects out over time through the issuance of bonds; or
- to pay for the projects with cash using a “pay as you go” approach requiring substantial increases in water and sewer bills.
The projects outlined above must be completed in order to keep the District’s infrastructure operational, so the choice before voters in a bond authorization election is how projects are paid for, not if the projects will move forward. These projects are necessary to provide water to residents, and without bonds they can only be paid with increased water rates.
Authorizing bonds is much like a line of credit; you only pay for what you use, and you only use it when you need it. Authorizing bonding capacity for a District helps them fund long-term, higher-cost projects without repeatedly raising water rates or holding rollback elections to raise the maintenance and operations (M&O) tax rate.
Funding approximately $10M through bonds means small increases to the annual ad valorem (property) taxes; an issuance that size would mean the annual tax increase on the average home would be around $140 per year (roughly $13 per month), and would be paid back over 20-30 years of debt service through property taxes.
The same amount (approximately $10M), if paid through water rates, means increases of almost $135 per month to your water bill, and would need to be collected in full before the project can be bid.
Impact on the MUD’s Total Tax Rate
Currently, the district’s engineer is projecting most (if not all) the funds will be needed over the next 10-15 years, but there are a number of variables that make it hard to accurately predict when and where the funds are used.
At this point, based on the engineer’s plan and all the information available to the District, Newport would need to sell $10-$12M over the first two years (2020-2021) which would involve a small increase of around $0.075-$0.093 additional debt service tax rate to service that amount of debt (barring any emergency repairs or event). Additional bond issuance would occur periodically through 2030, as forecasted in the Capital Improvement Plan, and in those years there may be a property tax increase.
Again, as in the example above, the same initial funding if paid in water rates would require an increase of $135-$168 per month on the average water bill and require full collection of funds before bidding could begin.
For more information on the tax and water bill implications, residents are encouraged to attend the open house event scheduled on October 16th.
As residents inform themselves regarding the bond election, they are encouraged to reach out to the District for any clarifications they might need by using the Contact Us form on the District’s website.
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Thursday, October 17, 2019 at 3:00 PM
• Agenda (PDF)
Board meetings are held at:
Community Room (next to Fitness Room)
16410 Country Club Drive
Crosby, Texas 77532