Emerald Forest Utility District Election FAQ
As many residents may already know, the Board of Directors (the "Board") of Emerald Forest Utility District (the "District") has called for two (2) authorization propositions to be on the election ballot for Saturday, May 1, 2021. To ensure that residents and other constituents of the District have accurate information regarding the proposed authorizations and the Board's goals for the District, we have put together answers for common questions. This page will be updated to address additional questions and provide additional information prior to the election.
What is the District?
The District is responsible for providing water, sanitary sewer, infrastructure and services to approximately 1,862 homes within the 748.1997 acres of land within the District. The District is located approximately 18 miles northwest of the City of Houston's central business district and lies along FM 1960 generally between Jones Road and Mills Road. The District is bounded on the north by Mills Road, south by Windfern Road, east by N. Gessner Road, and west by Jones Road.
Emerald Forest UD currently operates and maintains two (2) water plants with onsite water wells, one (1) wastewater treatment plant, and one (4) sanitary sewer lift station. This infrastructure is connected by 18 miles of water lines, 21.6 miles of sanitary sewer lines.
What is the election?
The language below will be on the ballot for residents of the District when they go to the polls or vote by mail for the May 1, 2021 general election, asking voters to select one (1) option of either FOR or AGAINST :
PROPOSITION A – THE ISSUANCE OF $40,000,000 BONDS FOR WATER, SANITARY SEWER, AND DRAINAGE AND STORM SEWER SYSTEMS AND THE LEVY OF TAXES, WITHOUT LIMIT AS TO RATE OR AMOUNT, SUFFICIENT TO PAY THE PRINCIPAL OF AND INTEREST ON THE BONDS
This is the proposition related to the bond authorization amount the District is seeking to complete projects and finance ongoing development in the District.
PROPOSITION B – AN OPERATION AND MAINTENANCE TAX FOR FACILITIES AUTHORIZED BY ARTICLE XVI, SECTION 59, OF THE TEXAS CONSTITUTION, NOT TO EXCEED FIFTY CENTS ($0.50) PER ONE HUNDRED DOLLARS ($100) VALUATION OF TAXABLE PROPERTY
The District is currently capped in regard to the Operations and Maintenance (O&M) tax rate they can levy. The District is seeking an increase in the O&M cap to have the capacity, if needed, at a later date, to raise the O&M rate to cover ongoing and increasing operations and maintenance costs as they retire debt and lower the debt service tax rate. The new cap would replace the existing cap.
What is a bond authorization?
A bond authorization is an authorization to sell bonds to fund district projects. It is similar to a line of credit that a business might use to fund its operations. An authorization is not immediate funding, nor is it a "blank check" to fund the entire amount of the authorization without meeting strict regulatory requirements. While an authorization may be for a large amount, bonds may only be sold once necessary projects are ready to begin or as needed for repairs and maintenance or replacement.
The District currently has $8,635,000 in remaining WS&D bond authorization. The most recent bond authorization was in 2001, when the District's voters authorized a total of $21,000,000 for the purpose of constructing water, sanitary sewer, and drainage facilities. $12,365,000 of the bonds authorized in the 2001 election were issued between 2001 and 2011 to fund necessary projects for the water, sanitary sewer and drainage infrastructure in the District. Additionally, since 2001, as a result of prudent financial oversight by the Board, the District has managed its annual debt service expenses by refinancing bonds at lower interest rates through the issuance of refunding bonds. According to the District's Engineer, the remaining $8,635,000 bond authorization will not be sufficient to address the anticipated projects over the next ten to fifteen (10-15) years, in addition to the development of existing and future property within the District.
What will bond authorization be used for?
The Bond Election Report submitted by the District engineer identifies the projects the Board anticipates will be necessary over the next 10-15 years to maintain, replace, or upgrade the aging water and wastewater infrastructure owned and operated by the District. As a proactive measure, the Bond Election Report outlines the potential cost for those projects (and required bond issuance costs), considering all information available today, to be approximately $30,830,000.
Key Bond Election Report projects include:
- Disinfection conversion to bleach for Water Plant Nos. 2 & 3;
- Replacing some of the District's water distribution lines;
- Replacing the District's water meters;
- Rehabilitation of the District's sanitary sewer system;
- Rehabilitation of Water Wells Nos. 2 & 3; and
- Wastewater Treatment Plant Expansion.
Additionally, a portion of this authorization will be utilized to pay for infrastructure that will service the 223-acres of land to be developed. The Developer reimbursement for these infrastructure costs is currently expected to be approximately $18,000,000. Of that amount, the District is requesting approval of additional authorization in the amount of $5,500,000 for future bonds, which equates to be approximately $9,170,000 including non-construction, "soft" costs of issuance.
Developer reimbursements such as this are typically not paid until the taxable property valuation on the ground pays for itself, so bonds sold to fund this infrastructure would not increase the tax rate or place the burden on existing residents of Emerald Forest UD, and will add more property owners contributing to the overall tax base and revenue collection of the District.
The District's Engineer has estimated the combined amount of bonds required to fund the above items, including inflation and net of the District's existing authorization, to be $40,000,000.
Why is it necessary to do these projects now?
The District was created in 1971 and much of the District's water, sewer and drainage infrastructure has been in place for many years. As such infrastructure ages, it requires maintenance, rehabilitation, and, sometimes, replacement as part of its lifecycle. On average, infrastructure lasts about 30-40 years with optimal maintenance and operations.
The District intends to issue bonds only as necessary over the next 10-15 years pursuant to the Bond Election Report in order to proactively maintain, and, if necessary, implement repairs or replacement to its facilities. This will enable the District to ensure reliable and continuous service by maximizing the life of its water and sanitary sewer infrastructure.
Municipal Utility Districts were originally created with the expectation they would eventually be annexed by a neighboring city, after which the city would pay for the costs of operating, maintaining, and repairing all District utility facilities. Under current circumstances, annexation of the District by the City of Houston in the near future appears unlikely, so the District must prepare to fund all necessary costs of maintenance for the water, sanitary sewer and drainage facilities required to serve its residents.
Can't the District just pay for projects without issuing bonds?
The primary alternative to authorizing the bonds is to fund all necessary projects on a "pay as you go" basis, likely requiring increases in maintenance tax rates and/or water and sanitary sewer rates. The District must have funds in hand before it can proceed with a required project. Funding projects with maintenance taxes or water and sewer rates would likely require an increase in rates in the short-term in order to collect the required funds. This method places the financial burden for long term projects on current residents and could create delays and increase costs for the completion of large projects.
Authorizing the District to issue bonds would allow the Board to spread the costs of the necessary projects over numerous years and avoid the increases in maintenance tax rates and/or water and sanitary sewer rates typically required by a "pay as you go" approach. This method spreads the cost for these projects among both current and future residents and businesses in the District and enables the District to complete necessary projects quickly.
How are my taxes determined?
The District levies a total tax rate each year that has two components:
- The debt service tax rate, the proceeds of which can only be used to make payments on the District's outstanding bonds; and
- The operations and maintenance tax rate (often referred to as O&M), the proceeds of which are deposited to the District's General Fund and used, together with water and sewer revenue, to pay operating and maintenance expenses of the District.
These two components of the tax rate have changed over the years as the District's debt service and operating expenses have changed.
How does the District manage taxpayer dollars?
The Board has maintained the District's total ad valorem tax rate at $0.655 per $100 valuation, which is the combination of a debt service tax rate of $0.405 and the current O&M of $0.25. For more details regarding tax rates, click here. As a result of prudent financial management, the District has earned a "A2" underlying rating from Moody's Investors Service.
Through careful supervision of expenses and planning for maintenance, the District currently has approximately 32 months of operating reserve funding and $8.635M in previous bond authorization. A common benchmark for Municipal Utility Districts is generally 12 months. Reserve funds earn interest and are available for emergencies, but can prove to be insufficient if large-scale rehabilitation, repair, or replacement is required, as in the case of plant facility failure or compromise.
At this time, with all the information on hand, given the plan outlined in the Bond Election Report, the Board of Directors for the District do not anticipate a total tax rate increase as a result of bond issuance for the foreseeable future.
I have more questions…
Further, the District will host two (2) Virtual Election Education Webinars on the following dates to provide additional information and give residents an opportunity to ask consultants and directors any questions they have in regard to the bond authorization process:
- April 12, 2021, at 7:00 p.m.; and
- April 17, 2021, at 10:00 a.m.
The link to register for these events is: https://attendee.gotowebinar.com/rt/9030423553301825040.