City staff follows guidance from the Financial Management Policy Statements in making recommendations for funding of capital projects from the issuance of debt. The policy statements, adopted by Resolution No. 18-18 after extensive review by City Council, address affordability, debt capacity and direction on how to handle projects that are not affordable within the Five Year CIP. If projects cannot be included in the Five Year CIP within estimated funding capacity, then they are placed on an unfunded project list and can be considered for a future General Obligation bond election.
General Obligation Bonds (GO's)
GO bonds are guaranteed by the full faith and credit of the City, meaning that the City will use its taxation power to generate the revenue to pay back the bond under any circumstances. The funding source for GO bond payments is property taxes, which are generated each year based on the tax adopted set by City Council. GO bonds require voter approval before they can be issued, so a bond election is called by the City Council when the City determines that it needs to get voter approval to issue GO bonds. **GO bonds can only be used to fund the projects authorized in the propositions approved by the voters. **
Certificates of Obligation (CO's)
CO’s are similar to GO bonds, except that they do not require voter approval before they are issued. The CO’s are also guaranteed by the City’s taxation power and are counted in the calculation of the tax rate that is needed to support debt payments.
The City Council has directed staff to issue Certificates of Obligation for infrastructure- “needs”, while considering a General Obligation bond election for “wants”- or new amenities in the community. CO's allow the City to be responsive in addressing capital needs. Before the City can issue CO's, the City Council approves a resolution stating the City's intent to issue the certificates. A notice must be published in the newspaper at least 31 days prior to the sale date that states the maximum amount to be issued, what the proceeds will be used for, and the date and time of the planned sale.
Other Types of Bonds
The bonds listed below do not require voter approval, as they are supported by sources other than property taxes.
Utility Revenue Bonds
The City issues _Water and Sewer System Revenue Bonds _to finance capital projects and improvements related to the City's water, wastewater and surface water system. This type of bond is referred to as a _Utility Revenue Bond _as the debt payments are funded through fees charged to the customers of the water system.
Some _Certificates of Obligation _were issued by the City to finance construction of the City's Surface Water Treatment Plant and related distribution lines and water plant upgrades. While these bonds are CO's, the repayment is funded 100% from fees charged to water system customers and participants in the City's Groundwater Reduction Plan. By issuing CO's, the City benefitted from the "AAA" rating on those bonds, saving customers money. The largest issuance was recently refinanced through a General Obligation Refunding Bond, which results in significant savings over the next 22 years- over $600,000 annually.
Airport Bonds or CO's
Sugar Land Regional Airport is operated as an enterprise fund- meaning that the operations are supported by fees charged to users of the airport. The airport receives no direct support from property taxes. Debt issued for projects at the airport can be financed as either a CO or an Airport Revenue Bond- both are repaid from revenues from the airport and not property taxes. The City has historically issued CO's for the airport as it was not large enough to support its own revenue bond.