Resources

FAQ

View frequently asked questions (FAQ) for City of Sugar Land.

What are Municipal Bonds?

As part of an overall financial strategy, when cities need funds to finance projects that serve a public purpose, they will issue municipal bonds as a way to fund these projects. Municipal bonds are debt securities issued by these organizations to bondholders. In other words, the bondholders are lending the City funds that are expected to be paid back at face value at a certain date, plus periodic interest payments. An extra benefit of this interest is that it is usually exempt from federal income taxes and sometimes local and state taxes as well. This interest is usually paid every six months until the date of maturity, when the face value of the bond is paid back to the bondholder.

The City uses debt to manage major capital investments that are needed within the City, such as street and drainage improvements, municipal facilities, parks and utility systems. The bonds that the City issues are a tool- similar to how a individuals use credit to finance capital purchases such as a home, vehicle or other major purchase.  Debt service payments are made twice per year, with interest paid at both payments and principal payments once per year- payments are usually due in in February and August.  The funding source for each payment depends on the type of bond that was issued.  See Types of Bonds for further explanation.

Issuing bonds help cities to ensure intergenerational equity by spreading payments for assets and infrastructure over their useful lives. **Intergenerational equity **relates to equity between present and future generations and considers distribution of resources or burdens between generations.  This helps to ensure that residents today are not responsible for paying for the full cost of a project that will continue to benefit residents for decades in the future.

Financing projects through bonds is equivalent to taking out a mortgage to purchase a home that you intend to live in for 20-30 years, rather than emptying your savings to pay cash for it.  The City has tools to manage its debt load- such as structuring the debt with equal principal payments over a 20 year period and timing bond sales to match up with when the funds are needed for projects.

Capital Projects: Why Does the City Issue Bonds?

The City of Sugar Land uses bonds as a funding source for capital projects, which are improvements or additions to the City's physical assets. Capital projects can be further categorized into land, buildings, improvements other than buildings, and infrastructure, which includes roads, sidewalks, bridges, utility lines, etc. Capital costs typically consist of preliminary design, final design, and construction, and may involve the acquisition of land or rights-of-way (easements).

The City Charter charges the City Manager with recommending a multi-year Capital Improvement Program (CIP) to the City Council as part of the annual budget. The proposed annual budget and multi-year CIP must be presented to the City Council by the end of July. The CIP is a long range plan that identifies capital projects, provides a planning schedule, and identifies options for financing the plan. The program provides a link between the City’s comprehensive plan, various master plans, the annual budget, and the five‐year financial forecast. The City seeks involvement of various stakeholders during the CIP development process because the City recognizes the invested interest in maintaining Sugar Land as a “great place to live and work.” The City considers input from citizens, the Planning and Zoning Commission, City Council and City staff members in the CIP preparation. The Five Year CIP is limited by City Council policy to the affordability limits identified in the long range financial plan of the City.

There are three basic methods of financing capital requirements: Funding from current revenues (general, utility, economic development and airport funds); funding from fund balance/working capital as allowed by the Fund Balance/Working Capital Policy; or funding through the issuance of debt. When possible, the City uses cash for capital improvements within the financial affordability of each fund rather than issuing debt.  Debt financing is used when the capital assets or projects cannot be funded prudently from current revenues or fund balances.  Debt financing is also utilized to better ensure inter-generational equity by spreading payments for assets and infrastructure over their useful lives.  This is similar to taking out a mortgage to purchase a home that you intend to live in for a long time rather than emptying your savings to pay cash.  Debt is not used to fund operating expenses.

What are the Types of Bonds?

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.

Tax-Backed Bonds

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.

What is the City's Debt Capacity?

Each year, the City completes a debt capacity assessment, as part of the budget process, to ensure that proposed debt is affordable and contributes to the financial strength of the City. The debt capacity is the upper limit on the dollar amount of capital improvements that the City can afford to fund from debt. Based on policy direction for tax- backed debt, the affordability limit is based on assuming tax revenues of no more than the effective tax rate plus 3 percent annually; equal to approximately 3% annual revenue increase other than from new value to the tax roll.

  • For property tax supported debt, maximum capacity is determined by an amount of annual debt service that the City can support within the proposed tax rate allocation for debt based on assumed growth in assessed valuation, using market rates for average annual interest costs and principal payments.
  • For revenue debt, maximum capacity shall be determined by the amount of annual debt service that the City can absorb within a proposed rate structure that has been reviewed with City Council and which can support the proposed debt within the additional bonds test as defined in the revenue bond covenants. The City shall not exceed debt capacity as defined through bond covenants, or fall below bond coverage ratios for additional revenue bonds.

When determining debt capacity, the City takes the following into consideration: Existing debt obligations; revenue and expenditure trends; various measures of debt burden on the community; ratios such as debt per capita, debt to assessed value and taxable value per capita; Statutory or constitutional requirements and market factors such as interest rates, credit ratings or market status.

What are the City's Bond Ratings?

A bond rating is a grade given to bonds that indicates their credit quality. Independent rating services such as Standard & Poor's, Moody's Investors Service and Fitch Ratings Inc. provide these evaluations of a bond issuer's financial strength, or its ability to pay a bond's principal and interest in a timely fashion.

The bond rating is an important process because the rating alerts investors to the quality and stability of the bond. The rating greatly influences interest rates, investment appetite, and bond pricing. The independent rating agencies issue their ratings based on future expectations and outlook.

The City currently carries ratings from Standard & Poor’s and Fitch Ratings on most outstanding bonds.  For GO and CO debt, both agencies have assigned a rating of “AAA” which is the highest possible rating. Recent affirmation of the top bond rating recognizes the commitment by City Council and staff to ensuring sound financial oversight of City resources. The ratings demonstrate confidence of the rating agencies in the City’s ability to manage its finances.  This allows the City to ensure our tax dollars go farther by borrowing funds at the lowest possible interest rates.  This has allowed the City to maintain the second lowest property tax rate for cities over 60,000 in population in Texas for many years.

Utility Revenue Bonds carry a rating that is one notch lower- “AA+” from both agencies and is a high quality rating for utility debt.  These ratings reflect the City’s comprehensive long range financial and capital planning efforts and strong financial management practices.  

Rating AgencyGO & CO DebtRevenue Bonds
Standard & Poor’sAAAAA+
Fitch RatingsAAAAA+

This confidence validates that our proactive financial management as reflected in our Financial Management Policy Statements is a key to our success, as recently reflected in the proactive refunding of CO’s issued in 2011 for construction of the Surface Water Treatment Plant and related infrastructure. This refunding resulted in nearly 15% savings over the life of the bonds- approximately $622,000 in annual debt service savings.

Each time the City prepares a new debt issue, rating agencies evaluate the City’s credit rating to assign a bond rating to the proposed bond issue as well as all outstanding bonds of the City.  The City provides full disclosure of operations and a broad range of financial information to the rating agencies to assist with their determination of the City’s bond rating.

The City prudently manages the General, Debt Service, Economic Development and Enterprise funds and attempts to issue and structure debt to maintain or increase current bond ratings, as this provides for a lower cost of borrowing.

How do I purchase Sugar Land Bonds?

Step 1 - Learn about the Bonds

Read the Preliminary Official Statement (POS) available from this website or from the participating brokers to learn more about the bonds, including their security, maturity dates, credit ratings, the types of projects they finance and other information that you may find important to help you make an informed investment decision. This website is not an offer to sell any bonds.

Step 2 - Open a brokerage account

You must have an account with one of the brokerage firms participating in the bond sale, or with another firm that can place an order through a brokerage firm participating in the bond sale. Please check to determine if your broker can place an order through the participating brokers. (If you have a brokerage account, go to Step 3.) If you do not have an account, you may open one and purchase bonds during the Retail Sale Order Period. A list of brokers participating in the sale can be found on the left side of this page.

Investors are encouraged to begin the New Account process well in advance of the sale date. Depending on the brokerage firm, internal new account procedures may take some time to process.

Step 3 - Place your order

Contact the broker with whom you have an account, either online or by phone, to get more information about how to buy bonds during the Retail Sales period. Discuss with the broker the number of bonds, the maturity date and the price at which you are willing to purchase the bonds, as well as any questions you may have from examining the Preliminary Official Statement (POS).