Comparing options to fund water, sanitary sewer, and drainage infrastructure in FB MUD 142
Fort Bend County Municipal Utility District 142 (FB MUD 142) has been responsible for providing water, sanitary sewer, and drainage (WS&D) infrastructure for over 15 years, serving the community which has grown to include approximately 13,000 residents in over 3,200 homes within the MUD's roughly 1,245 acres.
On May 4th, the residents of FB MUD 142 will be asked to vote in an election to determine whether the MUD will be authorized to issue bonds in several increments over time, as needed, to fund (1) the maintenance, rehabilitation, and replacement of portions of the MUD's WS&D infrastructure as it ages and (2) the construction of a permanent wastewater treatment plant which is estimated to cost approximately $32,690,000 (including contingencies and engineering costs).
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 its WS&D infrastructure, including 2 water plants, 3 lift stations, 1 storm water pump station, approximately 49 miles of waterlines, and approximately 49 miles of sanitary lines.
The MUD plans to build a permanent wastewater treatment plant to replace the current temporary wastewater treatment plants and the $780,000 of associated annual lease payments. The existing "package" plants are temporary in nature. Rather than entering into new leases, requiring new temporary facilities, the MUD will construct a permanent plant with concrete walls which will require less maintenance.
Long-Term Plan
FB MUD 142’s Board of Directors has worked with its engineers and financial advisors to develop a long-term capital improvement plan to proactively manage these needs. However, the costs of the required projects in this plan exceed the existing $28.73 million in bonds authorized for WS&D projects. This is why the Board of Directors of FB MUD 142 is asking for authorization for $79.5 million in additional bond authorization from residents to fund the required WS&D projects, including the permanent wastewater treatment plant.
These upgrades and repairs are necessary to provide consistent water, sanitary sewer, and drainage service to the community in the MUD over the next 30 years. The decision is not whether these projects must be done, but how the projects will be paid for.
Bond Financing vs. "Pay as You Go" with Cash
The two primary options available to the MUD for funding are (1) to spread the costs of the projects out over time through the issuance of bonds or (2) to pay for the projects with cash using a "pay as you go" approach requiring substantial increases in water and sewer bills. Authorizing the MUD to issue additional bonds for WS&D projects would allow the MUD to use the first approach. If the MUD is not authorized to issue additional bonds for WS&D projects, the MUD will have to use the second approach.
As an example scenario to illustrate the cost difference between funding necessary work through bonds or with cash through increased water bills, consider the two financing options shown below to fund required WS&D capital improvement projects.
To explain in more detail, take the first example in the chart of a hypothetical $1,000,000 WS&D capital improvement project.
The first option available to the MUD is to finance the project through bonds, which uses a financing model similar to what residents may have for their homes. Financing WS&D improvements using bonds, or a long-term loan, has the effect of spreading the cost over the useful life of such improvements. This allows the cost for the necessary work to be spread out over a longer period of time and to be paid for by both current and future residents of the MUD. Assuming the financing terms included in the above chart, the bonds required to fund the $1,000,000 project would account for $24.67 of the property taxes for each residence in the MUD, or about $2.06 per month, for bonds sold at a 5% interest rate.
If the MUD is not able to issue bonds to spread the costs of this $1,000,000 project over time, the MUD would need to fund the project with cash through increased water bills. Under this option, residents of FB MUD 142 would pay an additional $301.84 annually in their water and sewer bills, or about $24.15 each month. If the MUD is required to utilize this cash payment option for a project, it must have the entire project cost on deposit before it can award a construction contract for the project.
As the size of the required project grows, the dollar amounts required under each financing model grow proportionately. A $5,000,000 WS&D capital improvement project financed over time with bonds would account for $123.02 of the property taxes annually for each residence in the MUD, or about $10.25 each month. If paid for with cash using a "pay as you go" approach, this same $5,000,000 project would require an additional $1,509.21 annually in the water and sewer bills of residents, or about $125.77 each month.
Impact on the MUD's Total Tax Rate
Over the last nine years, the MUD has lowered its total property tax rate by over 40%, going from $1.32 per $100 in home value to $0.75 per $100 in value. This saves our neighbors money on their annual tax bills.
If the requested WS&D bonds are authorized, the Board does not expect any increase in the MUD's total tax rate in the next 10 years. This projection is based on the following factors:
- the projected growth in assessed valuation as provided by the developers of the MUD, including the planned single-family homes and commercial improvements on currently undeveloped land located within the MUD;
- the projected debt service requirements of the future bonds to be issued to finance the development of such property; and
- the projected debt service requirements of the future bonds to be issued to finance the WS&D capital improvement projects anticipated during such 10 year period, including the construction of the permanent wastewater treatment plant, if such bonds are authorized.