Frequently Asked Questions - Q18


Question:

Texas law and Houston city ordinances require that water and sewer revenue bonded debt can only be serviced from water and sewer net revenues (operating revenues less operating expenses). Won’t this proposed City charter amendment hamper or prevent the City from maintaining sufficiently high water and sewer rates? Won’t the proposed amendment therefore create difficulties in selling City water and sewer revenue bonds and cause bond ratings to drop on water and sewer revenue bonds already outstanding?

Answer:

No. In addition to stating that the revenue bonds can be serviced only out of water and sewer net revenues, Texas law, which trumps city law, and City ordinances also mandate that the City will maintain net revenues sufficient to service any revenue bonds outstanding. Therefore, even with the proposed charter amendment, the City has no choice but to raise water and sewer rates sufficient to service unpaid water and sewer revenue bonds. Thus the bond rating agencies, as well as both existing and future bondholders, should have no concerns as to whether the revenue bonds will be paid when due. The proposed charter amendment will make certain that the City will have to decrease property tax and/or other charge rates to compensate for required increases in water and sewer rates (actually “hidden taxes”), if the required increases in water and sewer rates would cause the City to exceed the overall revenue cap. Either that or go to the voters for approval for an increase in the overall cap. Fact is, the bond rating agencies, as well as both existing and future water and sewer revenue bondholders, should welcome the financial discipline fostered by this charter amendment, in that it should help better control operating expenses and thus better assure net revenues left over for debt service.



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