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Proposition A

• For: 19
• Against: 8

Proposition B

• For: 19
• Against: 8

Provisional Ballots Cast: 1

Provisional Ballots Counted: TBD Following Review by County Voter Registrar

The Board of Directors (the “Board”) of Harris County Municipal Utility District No. 368 (the “District”) has called for two (2) bond authorization propositions to be on the election ballot for Saturday, May 6, 2023. 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.

If bond propositions below pass, how will my taxes be affected?

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 because of bond issuance for water, sewer, and drainage projects or development reimbursements over the next 5-10 years.

The language below is on the ballot for residents of the District when they go to the polls or vote by mail for the May 6, 2023 election, asking voters to select one (1) option of either FOR or AGAINST on the following propositions:

PROPOSITION A – THE ISSUANCE OF BONDS IN THE MAXIMUM AMOUNT OF ONE HUNDRED MILLION AND 00/100 DOLLARS ($100,000,000) FOR WATER, SEWER AND DRAINAGE SYSTEM IMPROVEMENTS AND THE LEVY OF AD VALOREM TAXES SUFFICIENT TO PAY THE PRINCIPAL OF AND INTEREST ON SAID BONDS

PROPOSITION B – THE ISSUANCE OF BONDS IN THE MAXIMUM AMOUNT OF ONE HUNDRED MILLION AND 00/100 DOLLARS ($100,000,000) FOR REFUNDING ANY BONDS OR REFUNDING BONDS AND THE LEVY OF AD VALOREM TAXES SUFFICIENT TO PAY THE PRINCIPAL OF AND INTEREST ON SAID 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 the District?

The District is responsible for providing water and sanitary sewer service to approximately 8,000 residents in approximately 4,000 homes within the Three Lakes, Three Lakes East, Pinecrest Forest, Northpointe East, Willow Falls, Stone Pine, Northern Point, Ashford Place, Ashford Grove, Ashford Grove East and Braemar Village subdivisions.

The District currently operates and maintains three (3) water plants, five (5) water wells, one (1) wastewater treatment plant, seven (7) sanitary sewer lift stations, five (5) stormwater pump stations, three (3) storm water stations, and twelve (12) stormwater detention basins. This infrastructure is connected by water lines and sanitary sewer lines, which has been constructed over the years beginning in 1978.

What is a bond authorization?

A bond authorization is an authorization to sell bonds to fund district projects. It is like 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 $6,910,000 in remaining bond authorization. The most recent bond authorization was in 2003, when the District’s voters authorized a total of $52,000,000 for the purpose of constructing water, sanitary sewer, and drainage facilities. $45,090,000 of the bonds authorized in the 2003 election were issued between 2003 and 2022 in nine (9) bond issuances to fund necessary projects for the water, sanitary sewer and drainage infrastructure in the District. According to the District’s Engineer, the remaining $6,910,000 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, posted on the District website, outlines the potential cost for those projects (and required bond issuance costs), considering all information available today, to be approximately $100 million.

Why is it necessary to do these projects now?

The District was created in 1973 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.

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 50% between 2000 and 2022 (from $1.3925/$100 assessed value to $0.61/$100). As a result of prudent financial management, the District has earned a “AA” (rating outlook stable) underlying rating from S&P Global Ratings.

Through careful supervision of expenses and planning for maintenance, the District currently has approximately 17.6 months of operating reserve funding. 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.

The District’s water plants remained in operation during Winter Storm Uri, Hurricane Harvey, and other past natural disasters due to the capital improvements program and the focus on reliability and emergency preparedness.