The City of Sugar Land is recognized for its financial stewardship across the state and nation. Our financial success and aggressive repayment schedules benefit residents by ensuring our dollars can go further by borrowing funds at the lowest possible interest rates as we complete public infrastructure projects to protect the high quality of life important to Sugar Land residents.
 
Bond financing is used only when needed capital projects cannot be funded prudently from current revenues or fund balances. This method of financing helps to ensure inter-generational equity by spreading payments for assets and infrastructure over their useful lives - similar to taking out a mortgage to purchase a home you intend to live in for a long time. This means that residents today are not responsible for paying for the full cost of a project that will continue to provide benefits decades in the future. Debt financing is never used to fund operating expenses.
 
The City’s finances are set up so that projects are paid from the revenue streams that benefit from them- water utility projects are paid from water, wastewater and surface water revenues, airport projects are paid from airport revenues, and general capital projects are paid from property tax dollars as they benefit the entire City.
 
General Obligation Bond projects approved by voters in November 2019 have been phased in implementation due to the economic impacts of COVID-19. The FY23 projects will wrap up the streets ($6.2M) and drainage ($11.08M) propositions. Also included is the construction of phase II of the Public Safety Training Facility and design of the EOC/Dispatch Building, along with $1M in Public Safety & Public Services Building Rehabilitation. These projects are funded with a shift of $.008790 from the maintenance & operations tax rate to the debt service tax rate, rather than an increase to the overall tax rate as planned.
 
The fiscal year 2023 budget has capital projects that are planned to be funded from the issuance of tax-exempt debt. This debt will be issued with a 20-year maturity schedule, with at least 50% principal paid within the first 10 years- consistent with the Financial Management Policy Statements. Due to a rising interest rate environment, staff is making plans to move forward with the debt issuance as soon as practical to minimize interest costs.
 
Projects included in the FY2023 budget to be funded from bond proceeds are shown below by the funding source:

Utility Projects

GO Bond Projects

Airport Projects

Some projects will be ready to move forward ahead of the planned bond sale, and IRS regulations allow this, if the City states its intent to reimburse these projects from the proceeds of future tax-exempt bond proceeds.  The IRS allows for reimbursement of expenditures made up to 60 days prior to the date of the resolution and allows up to 18 months for the City to issue the bonds. This allows the City to time the bond issuance to best meet the cash flow needs of the projects, and time the bonds to the bond market.

Recommendation

These bonds will be sold either in late 2022 or early 2023. This item was reviewed with the Council Finance/Audit Committee at their October 10^th meeting. The City’s bond counsel has prepared a Resolution with a maximum reimbursement of $50 million for all issues. Staff recommends approval of Resolution No. 22-47 stating the City's intent to reimburse expenditures from future tax-exempt bond proceeds.