Financing Capital Projects with Tax Bonds
In an on-going attempt to give clear messaging to Newport residents, the Board would like to make sure all residents have the facts regarding the usual, accepted way MUD Districts finance capital improvements.
The most common method of financing major capital projects is with tax bonds. A bond election is a request for voters to approve or deny authorization for the Board to sell bonds to fund District projects. It is similar to a line of credit that a business might use to fund its operations. A bond authorization is not immediate funding; nor is it a “blank check” to fund the entire amount of the authorization without meeting regulatory requirements. While an authorization may be for a larger amount, bonds may only be sold once necessary projects are ready to begin or as needed for repairs and maintenance. The total authorization amount will not be funded all at once.
A bond is similar to a home mortgage. It is unusual that a buyer would pay cash for such a major investment as their home, or purchase it using a 5 – 10 or even a 15-year loan. Most loans are 20 to 30 years. As the homeowner pays down the loan, sometimes they re-finance and lessen the length of the loan. It is much the same principle with MUD Districts. Issuance of bonds allows the cost to be spread for these large capital projects over 20 to 30 years. Costs would be shared by current and future users of the District’s system, including the commercial property owners.
The primary alternative to authorizing the bonds is to fund all necessary projects on a “pay as you go” basis, likely requiring substantial increases in maintenance tax rates and/or water and sanitary sewer rates. Funding projects with maintenance taxes, or water and sewer rates (billed monthly), would require a major increase in the monthly water and sewer rates. This would be necessary in order to collect all the required funds in advance of starting any project.
The “pay as you go” method places the entire cost of the capital improvements in a five-year period, and current residents would be paying ahead for homeowners that come after them. This method places the entire financial responsibility for capital projects on current residents and could create significant delays for the completion of large projects, especially if there was an emergency repair that required immediate expenditures of funds.
The Board understands that improving communication with residents regarding its projects and goals is vital. The Board wants to maintain direct communication with all our residents. To that end, we will be using the District’s website, www.newportmudtx.org along with conversations with residents to ensure residents are able to make an informed decision on November 3rd. To receive District information via email or text, please go to our website, choose the “District Alerts” tab on the left side of the Home page, and follow the instructions to enroll in email and text alerts. The goal is for the residents to have all the information at their disposal when voting approaches. Additional questions can be fielded through the Contact Us Form on the District’s website at www.newportmudtx.org.