Harris County Municipal Utility District No. 284 Election FAQ

As many residents may already know, the Board of Directors (the "Board") of Harris County Municipal Utility District No. 284 (the "District") has called for four (4) bond authorization propositions to be on the election ballot for Saturday, May 7, 2022. To ensure that residents and other constituents of the District have accurate information regarding the proposed authorization and the Board's goals for the District, we have put together answers for common questions. This page will be updated to address additional questions and provide additional information prior to the election.

What is the District?

The District is responsible for providing water, sanitary sewer, infrastructure and services to approximately 2,700 residents in approximately 1,219 homes within the Windstone Colony neighborhood within the 345.66 acres of land within the District.

HCMUD 284 currently operates and maintains one (1) water plant with an onsite water well, one (1) wastewater treatment plant, and one (1) remote sanitary sewer lift station. This infrastructure is connected by 12.5 miles of water lines and 9.0 miles of sanitary sewer lines.

What is the election?

The language below will be on the ballot for residents of the District when they go to the polls or vote by mail for the May 7, 2022 election, asking voters to select one (1) option of either FOR or AGAINST on the following propositions:

PROPOSITION A – THE ISSUANCE OF UP TO $32,500,000 IN TOTAL PRINCIPAL AMOUNT OF BONDS FOR WATER, SANITARY SEWER AND DRAINAGE FACILITIES AND THE IMPOSITION OF TAXES, WITHOUT LIMIT AS TO RATE OR AMOUNT, SUFFICIENT TO PAY THE PRINCIPAL OF AND INTEREST ON THE BONDS

PROPOSITION B – THE ISSUANCE OF UP TO $9,000,000 IN TOTAL PRINCIPAL AMOUNT OF BONDS FOR RECREATIONAL FACILITIES AND THE IMPOSITION OF TAXES, WITHOUT LIMIT AS TO RATE OR AMOUNT, SUFFICENT TO PAY THE PRINCIPAL OF AND INTEREST ON THE BONDS

PROPOSITION C – THE ISSUANCE OF UP TO $32,500,000 IN TOTAL PRINCIPAL AMOUNT OF REFUNDING BONDS TO REFUND BONDS ISSUED FOR WATER, SANITARY SEWER AND DRAINAGE FACILITIES, AND ANY REFUNDING BONDS RELATED THERETO, AND THE IMPOSITION OF TAXES, WITHOUT LIMIT AS TO RATE OR AMOUNT, SUFFICIENT TO PAY THE PRINCIPAL OF AND INTEREST ON THE BONDS

PROPOSITION D – THE ISSUANCE OF UP TO $9,000,000 IN TOTAL PRINCIPAL AMOUNT OF REFUNDING BONDS TO REFUND BONDS ISSUED FOR RECREATIONAL FACILITIES, AND ANY REFUNDING BONDS RELATED THERETO, AND THE IMPOSITION OF TAXES, WITHOUT LIMIT AS TO RATE OR AMOUNT, SUFFICIENT TO PAY THE PRINCIPAL OF AND INTEREST ON THE BONDS

These are the propositions related to bond authorization amounts the District is seeking to complete projects, finance ongoing development in the District, and refund in the future, if advantageous, outstanding bonds of the District.

What is a bond authorization?

A bond authorization is an authorization to sell bonds to fund district projects. It is similar to a line of credit that a business might use to fund its operations. An authorization is not immediate funding, nor is it a "blank check" to fund the entire amount of the authorization without meeting strict regulatory requirements. While an authorization may be for a large amount, bonds may only be sold once necessary projects are ready to begin or as needed for capital improvements or replacement.

The District currently has $2,490,000 in remaining bond authorization. The most recent bond authorization was in 1999, when the District's voters authorized a total of $25,400,000 for the purpose of constructing water, sanitary sewer, and drainage facilities. $22,910,000 of the bonds authorized in the 1999 election were issued between 1999 and 2017 in seven (7) bond issuances to fund necessary projects for the water, sanitary sewer and drainage infrastructure in the District. Additionally, since 2011, as a result of prudent financial oversight by the Board, the District has managed its annual debt service expenses by refinancing bonds at lower interest rates and generating approximately $2,472,396 in gross debt service savings through the issuance of refunding bonds. According to the District's Engineer, the remaining $2,490,000 bond authorization will not be sufficient to address the anticipated projects over the next five to ten (5-10) years, in addition to the development of existing and future property within the District.

What will bond authorization be used for?

The Bond Election Report submitted by the District's Engineer identifies the projects the Board anticipates will be necessary over the next 20-25 years to maintain, replace, or upgrade the aging water and wastewater infrastructure owned and operated by the District. As a proactive measure, the Bond Election Report outlines the potential cost for those projects (and required bond issuance costs), considering all information available today, to be approximately $22,300,000.

Key Bond Election Report projects include:

• Rehabilitation of the District's water plant and water distribution system;
• Rehabilitation of the District's wastewater treatment plant, collection system, and remote lift station; and
• Additional projects, as needed and determined by the Board.

Additionally, a portion of this authorization will be utilized to pay for infrastructure that will service the planned 62.271-acre annexation tract of land to be developed. The Developer reimbursement for these infrastructure costs is currently expected to be approximately $10,200,000 including non-construction "soft" costs of issuance.

Developer reimbursements such as this are typically not paid until the taxable property valuation on the ground pays for itself, so bonds sold to fund this infrastructure would not increase the tax rate or burden on existing residents of HCMUD 284 and will add more property owners contributing to the overall tax base and revenue collection of the District.

The District's Engineer has estimated the combined amount of bonds required to fund the above items, including inflation and net of the District's existing authorization, to be $32,500,000.

What is the Parks and Recreation Facilities Plan?

The proposed recreational bonds are currently planned to address rehabilitation of existing parks, as well as new hiking and biking trails and associated landscaping and irrigation. The Proposed Park and Recreational Facilities Plan is purely conceptual at this time and can be amended to address any changing ideas or needs as the Windstone Colony HOA and District continue to develop the goals for these projects.

Why is it necessary to do these projects now?

The District was created in 1984 and much of the District's water, sewer and drainage infrastructure has been in place for many years. As such infrastructure ages, it requires maintenance, rehabilitation, and, sometimes, replacement as part of its lifecycle. On average, infrastructure lasts about 30-40 years with optimal maintenance and operations.

The District intends to issue bonds only as necessary over the next 25 years pursuant to the Bond Election Report in order to proactively maintain, and, if necessary, implement capital improvements or replacement to its facilities. This will enable the District to ensure reliable and continuous utility service by maximizing the life of its water and sanitary sewer infrastructure.

Municipal Utility Districts were originally created with the expectation they would eventually be annexed by a neighboring city, after which the city would pay for the costs of operating, maintaining, and repairing all District utility facilities. Under current law and political circumstances, annexation of the District by the City of Houston in the future appears unlikely, so the District must prepare to fund all necessary costs of maintaining and, if necessary, expanding the water, sanitary sewer and drainage facilities required to serve its residents.

Can't the District just pay for projects without issuing bonds?

The primary alternative to authorizing the bonds is to fund all necessary projects on a "pay as you go" basis, likely requiring increases in maintenance tax rates and/or water and sanitary sewer rates. The District must have funds in hand before it can proceed with a required project. Funding projects with maintenance taxes or water and sewer rates would likely require an increase in rates in the short-term in order to collect the required funds. This method places the financial burden for long term projects on current residents and could create delays and increase costs for the completion of projects.

Authorizing the District to issue bonds will allow the Board to spread the costs of the necessary projects over numerous years and avoid the increases in maintenance tax rates and/or water and sanitary sewer rates typically required by a "pay as you go" approach. This method spreads the cost for these projects among both current and future residents and businesses in the District and enables the District to complete necessary projects quickly and efficiently.

How are my taxes determined?

The District levies a total tax rate each year that has two components:

1. The debt service tax rate, the proceeds of which can only be used to make payments on the District's outstanding bonds; and
2. The operations and maintenance tax rate (often referred to as O&M), the proceeds of which are deposited to the District's General Fund and used, together with water and sewer revenue, to pay operating and maintenance expenses of the District.

These two components of the tax rate have changed over the years as the District's debt service and operating expenses have changed.

How does the District manage taxpayer dollars?

The Board has reduced the District's total tax rate by more than 40% between 2013 and 2021 (from $1.15/$100 assessed value to $0.69/$100). For more details regarding tax rates, click here. As a result of prudent financial management, the District has earned a "BBB+" (rating outlook stable) underlying rating from S&P Global Ratings.

Through careful supervision of expenses and planning for maintenance, the District currently has approximately 19 months of operating reserve funding and $2,490,000 in previous bond authorization. A common benchmark for Municipal Utility Districts is generally 12 months. Reserve funds earn interest and are available for emergencies, but can prove to be insufficient if large-scale rehabilitation, repair, or replacement is required, as in the case of plant facility failure or compromise.

At this time, with all the information on hand, given the plan outlined in the Bond Election Report, the Board of Directors for the District do not anticipate a debt service tax rate increase as a result of bond issuance for water, sewer, and drainage projects or development reimbursements over the next 5-10 years.

Depending on how the Windstone Colony HOA and the District develop the recreational projects and proceed with those goals, there could be some tax rate impact due to bond issuance to cover the District's portion of those projects.

I have more questions…

Good! The goal is for the residents to have all the information at their disposal when voting approaches. Additional questions can be fielded through the Contact Us form on the District's website.

Further, the District will host an in-person Resident Education Event, in conjunction with the Windstone Colony HOA Easter Carnival, on April 9th, 2022, at 3:00 p.m., to provide additional information and give residents an opportunity to ask any questions they have in regard to the bond authorization process.