August 23, 2016

The Difficulty of Making Easy Decisions – Or, Paying for the Things We Take for Granted

The City Council overwhelmingly recognizes the urgent need to move forward with critical water and wastewater infrastructure improvements. So much so, after due and careful consideration of proposed projects the debate has become less about the decisions themselves and more about who should make them. As our community’s duly-elected representatives, we take very seriously our responsibility to be good stewards of our physical assets. Given that responsibility, do we first have to stop and ask for permission to do what we know needs to be done?

Certificates of obligation are routinely used by cities throughout Texas to fund just these sorts of projects. Authorized by the Certificate of Obligation Act of 1971, Texas Local Government Code, Chapter 271, Subchapter C, they provide an appropriate means of financing a city’s needs (as opposed to its wants, which are typically left to the voters to decide directly). City Councils therefore do not need to ask for permission to issue certificates of obligation, but an election can be forced by the petition of at least five percent of the qualified voters, which is a pretty low threshold.

We are currently planning three projects here in Bellaire that were identified as good candidates for funding by certificates of obligation: (i) a $12.8 million performance contract with Siemens for utility system improvements, (ii) $11 million for water line replacements, and (iii) $580,000 for wastewater line replacements.

  • The beauty of performance contracting is that it’s revenue-neutral. It pays for itself by leveraging the efficiencies (including, in this case, accurate metering) and the energy savings it creates, which are contractually guaranteed by the provider. That revenue-neutrality only makes the case for funding by certificates of obligation that much stronger, and indeed performance contracts are typically financed by methods not requiring an election.

  • The water and wastewater line replacements were considered for funding by certificates of obligation because they’re not really discretionary items. When these lines break, as they have been all over town, it’s truly an emergency situation and the City has no choice but to make repairs, regardless of any arguments over funding. Whether by certificates of obligation or general obligation bonds, debt financing for these projects also provides some needed relief on our water rates.

Despite the foregoing points, and notwithstanding the widespread and routine use of certificates of obligation by cities throughout Texas, traditionally we’ve not used them here in Bellaire. After receiving public input opposing the idea and overtly threatening a petition, Council decided by the narrowest of margins (4-3) against issuing certificates of obligation and to instead add these $24.38 million worth of projects to the November general obligation bond election.

But Council’s narrow rejection of certificates of obligation does not in any way represent a lack of commitment to these necessary infrastructure projects. Rather, the decision was only to utilize the process with which our residents are more comfortable, and with every confidence that come November the voters will recognize the need to move forward, as Council does. Furthermore, as a practical consideration, given the urgency of these projects a November bond election is preferable to the extended delay that would result from a successful petition to force an election on certificates of obligation, which election could not be held until next May at the earliest and at added expense to the City.

Next Monday, August 29 at 6:00 p.m., we’ll have a Town Hall Meeting to present information on the November 2016 bond election, including the projects discussed above. In response to your feedback, we’re leaving these important decisions up to you.

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