Jan 17, 2024 BAYTOWN FINANCE COMMITTEE

ALRIGHT,

[00:00:01]

[ CITY OF BAYTOWN NOTICE OF MEETING BAYTOWN FINANCE COMMITTEE WEDNESDAY, JANUARY 17, 2024 4:00 P.M. BAYTOWN CONFERENCE ROOM, CITY HALL 2401 MARKET STREET, BAYTOWN, TEXAS 77520 AGENDA CALL TO ORDER AND ANNOUNCEMENT OF QUORUM ]

UH, WE DO HAVE A QUORUM.

AND SO, UH, ITEM ONE A IS TO

[a. Consider the approval of the minutes for the Finance Committee meeting held August 24, 2023.]

MOTION TO APPROVE.

SECOND.

ALL IN FAVOR? AYE.

AYE.

ALL RIGHT.

Y'ALL WORK SO WELL TOGETHER.

PASSES.

ALRIGHT, SO WE'LL GO TO TWO A REPORTS.

[a. Receive the City of Baytown's Quarterly Financial and Investment Reports for the Quarter Ending September 30, 2023.]

OKAY, SO I'M HERE TO PRESENT A FOURTH QUARTER FINANCIAL REPORT FOR PERIOD ENDING SEPTEMBER 30TH, 2021.

UM, FOR OUR, ON THE SNAPSHOT SHEET FOR THE REVENUES FOR GENERAL FUND, WE BROUGHT IN 133 MILLION.

UM, OUR EXPENSES WERE 150 MILLION.

AND SO, JUST SO YOU KNOW, FOR THE SALES TAX WE WERE 101%.

I'M LOOKING AT THE OTHER SHEET, WHICH WE CAME IN AT $20.9 MILLION AND WE HAD BUDGETED 20.6.

UM, FOR OUR PROPERTY TAX, WE WERE ACTUALLY AT 25.4 UNION DOLLARS, WHICH WE BUDGETED 24.

SO WE CAME IN OVER 106%.

UM, WE SPENT ON OUR REVENUES JUST FOR GENERAL FUND, UM, 150 MILLION, WHICH IS OVER BUDGET BY, UH, 1% OF WHAT WE HAD BUDGETED.

AND THEN IF WE GO BACK TO THE SNAPSHOT FOR OUR HOTEL OCCUPANCY TAX, WE HAD A REVENUE OF 1.6 MILLION.

WE HAD EXPENSES OF 885,000, LEAVING A PHONE BALANCE OF 2.9.

UM, FOR WATER SEW, WE HAD 50000000.7, $50.7 MILLION IN REVENUE, AND 49 MILLION IN EXPENSES LEAVING A FUND BALANCE OF $8 MILLION.

WE, IN SANITATION, WE HAD $6.7 MILLION IN REVENUE AND 8.3 MILLION IN EXPENDITURES.

UM, AND WE ARE IN A NEGATIVE OF 700, 760 $9,000 FOR STORM WATER.

OUR REVENUE WAS 3.9 MILLION AND OUR EXPENSES IS 4.5.

BELIEVE THAT'S IN THE NEGATIVE OF 2.2 MILLION AND FOUR AQUATICS.

WE HAD 3.9 MILLION IN REVENUE AND 4.3 IN EXPENDITURES LEAVING US 751,000, UM, NEGATIVE.

AND FOR STREETS WE HAD 5.8 MILLION IN REVENUE AND 5 MILLION IN EXPENDITURES LEAVING US WITH 7.2 IN OUR, UH, UM, BALANCE.

AND SO FOR OUR DEBT UNSPENT DEBT BOND PROCEEDS, WE HAD 50.

WE STILL HAVE $57 MILLION REMAINING AT THE END OF SEPTEMBER 30TH.

AND FOR OUR INVESTMENTS, THE BOOK VALUE IS AT THE END OF SEPTEMBER, 253.7 MILLION.

AND WE HAD EARNINGS OF 12,000,450 FOR 629 AS INVESTMENT FOR LAST YEAR, Y HONOR, SEPTEMBER 30TH FOR FY 23.

SO THE DETAILS OF ALL OF THESE ARE IN THE SHEETS TO FOLLOW.

SO IF YOU LOOK AT THE, UM, YOU HAVE GENERAL FUND WHERE THOSE, UH, NUMBERS CAME FROM, YOU HAVE THE HOT, HOT TAX WITH THE BREAKDOWN.

AND SO THAT'S THE DETAILS.

AND I DON'T WANNA GO LINE BY LINE, BUT THAT'S THE FIRST SNAPSHOT.

DO YOU HAVE ANY QUESTIONS? AND THEN WE ALSO HAVE, YOU KNOW, THE, UM, INDICATORS ON THE SECOND PAGE.

SO IF WE BROUGHT IN A HUNDRED PERCENT OF THE REVENUE THAT WE BUDGETED A HUNDRED PERCENT OR MORE, IT'S GREEN IS BETWEEN 75% UP TO A HUNDRED, IT'S IN THE YELLOW.

AND THEN IF IT WAS, UM, UNDER 75%, IT'S UH, INDICATED AS A RED FOR THE REVENUE.

AND THEN WE HAVE THE, ALSO THE INDICATORS FOR THE EXPENDITURES.

IF YOU HAVE ANY QUESTIONS.

I HAVE A QUESTION ON THE, JUST THE OVERALL SANITATION ENDED IN THE NEGATIVE 768,000, THE NEGATIVE WE STARTED WITH A FUND BALANCE OF 812 POSITIVE, BUT MY UNDERSTANDING IS THAT'S BEEN RUNNING IN THE NEGATIVE.

SO HOW DID WE START WITH THE EIGHT 12 OR WAS THERE SOME TRANSFERS IN THAT GOT 'EM BACK POSITIVE? IT'S PROBABLY HOW MUCH THEY SPENT, UM, AT THE END OF THE YEAR.

SO IF THEY DIDN'T SPEND ALL THE MONEY THAT WENT FORWARD, IT'S JUST ROLLED FORWARD INTO THE NEW YEAR.

AND SO THIS YEAR THEY'VE SPENT

[00:05:01]

AND SO THAT'S WHY IT'S OVER ON THESE FINISHERS FOR THIS YEAR.

SO LAST YEAR THEY DID PRETTY GOOD.

OKAY.

OKAY.

ALRIGHT.

THE STORM WATER, UM, BALANCE 1.5 MILLION.

DID I MISS SOME? WHAT? WHY DID WE STOP? WE START OFF? YEAH, THAT'S A, THAT'S A FUN ONE, KEN.

UM, SO THE COUNCIL DID AN ADVANCE FUNDING AGREEMENT, UH, THAT WAS THIS FUND RIGHT.

COUNCIL DID AN ADVANCE FUNDING AGREEMENT TO GO AHEAD AND START SPENDING MONEY THAT WE'VE PLANNED TO BORROW.

WELL, THERE WAS A UNILATERAL DECISION BY THE PREVIOUS EMPLOYEE TO NOT GO OUT FOR THAT DEBT AFTER ALL.

SO THAT MONEY WAS SPENT BUT NEVER RECAPTURED.

AND THAT'S WHY WE'RE IN THE HOLE THAT WE'RE IN WITH THIS ONE.

AND WITHOUT TALKING TO ADMINISTRATION OR ANYBODY ELSE THAT THIS, WE WERE SUPPOSED TO RECAPTURE THAT MONEY THAT WAS SPENT, IT JUST PUT US IN A NEGATIVE ALREADY.

SO WE WILL BE, UM, DISCUSSING IT STARTED IN 22, RIGHT? STARTED IN 22.

YEAH.

SO WE'LL BE DISCUSSING, UM, ISSUING THE DEBT THAT WASN'T ISSUED FOR STOLEN WATER TO HELP RECOUP THOSE FUNDS.

THESE GET VERY FAMILIAR WITH THIS.

THIS WILL BE A BIG TALK A BIT ON FRIDAY AND THE RETREAT.

ABSOLUTELY.

YEAH.

JUST BECAUSE AS YOU'ALL CAN SEE, JUST HAVING THE NEGATIVES YEAH.

YOU'RE OPERATING THAT WAY.

RIGHT.

SO I I DO WANNA CLARIFY ONE THING.

IT SHOWS FROM YOUR PIECE THAT WE HAVE 25 MILLION EXTRA CAME IN IN REVENUE, WHAT? ABOVE WHAT WE BUDGETED.

RIGHT.

THAT'S WHAT THIS SHOWING.

NOT 24 OVER.

IT'S NOT UNDER WHERE WHERE WERE YOU LOOKING? IT SAYS WE BUDGETED 325 MILLION IN REVENUE.

OH, YOU'RE SAYING DOWN HERE? YEAH.

YES SIR.

BUT WE GOT 350 MILLION IN REVENUE MM-HMM .

BUT WE ACTUALLY DON'T HAVE 25 EXTRA MILLION DOLLARS.

THAT'S ACROSS ALL, IT'S ACROSS ALL FRONT.

BUT I'M JUST TRYING TO MAKE IT CLEAR THAT WE ACTUALLY DON'T HAVE 25 EXTRA MILLION DOLLARS BECAUSE THAT WAS ALREADY BUDGETED INTO THE FY 24 BUDGET TO PAY OFF EXPENSES WHERE WE WERE NEGATIVE IN, IN OTHER THINGS.

RIGHT.

WE CAPTURED THAT IN THAT FY 24 ADOPTED BUDGET.

OKAY.

SO, SO WHEN YOU HEAR THAT WE HAVE 25 EXTRA MILLION DOLLARS, WE DON'T YEAH, EXACTLY.

NOT TO MENTION WHEN YOU SEE THE, UM, WE'LL BE BRINGING FORWARD THE, UM, BUDGET AMENDMENT FOR FFY 24 AND THAT AMENDMENT INCLUDES THOSE ENCUMBRANCES THAT ROLL FORWARD FOR CAPITAL PROJECTS AND THINGS OF THAT NATURE.

SO THAT MONEY WILL BE SPENT UP, YOU KNOW, BY THIS, THESE AMOUNTS THAT ARE, THAT WE HAVE OVER, ESPECIALLY FOR THE CIP.

SO LIKE IF YOU LOOK AT THE WATERS AND SEWER CIP IT WAS OVER BY 4.2, BUT WE ARE ROLLING FORWARD ENCUMBRANCES AND POS AND INVOICES THAT WE HAVE TO STILL PAY FOR THAT WEREN'T PAID FOR AT THE END OF 23.

RIGHT.

ALLEGED ITEM THAT JUST WASN'T COMPLETED BY THE END OF THE FISCAL YEAR.

CORRECT? YES.

OKAY.

YES.

AND THEN HOW DO Y'ALL FEEL LIKE, WHAT ARE YOUR INITIAL RES GUT RESPONSES ON HEARING THAT WE HAVE 57 MILLION IN UNSPENT BOND PROCEEDS.

I MEAN THAT'S, WE'VE I'VE ALWAYS BROUGHT THAT UP.

YOU KNOW, HAVE I, I JUST LIKE TO SEE IN THE LIST OF WHAT ARE THEY AND ARE WE SPENDING THESE IN A, IN A, YOU KNOW, TIMELY MANNER FOR, ARE WE BITING OFF MORE THAN WE CAN CHEW WITH SOME OF THESE, UH RIGHT.

TAKING OUT COS AND THE OTHER THINGS IN THE PAST.

AND I THINK THE FINANCIAL ADVISORS ARE ASKING US THE SAME.

SO, UM, AND THE CONVERSATION THAT WE'VE HAD WITH, UM, SO I JUST WANT THEM TO HEAR WHAT YOUR THOUGHTS ARE SO THAT WHEN WE GET INTO HAVING THIS CONVERSATION MATTER.

YEAH.

AND THAT'D BE, I MEAN I'VE ALWAYS JUST SEEN THE NUMBER, BUT I DON'T HAVE ANY, I, I'D BE CURIOUS TO KNOW LIKE WHAT IS THAT NUMBER FOR OTHER MUNICIPALITIES KIND OF AS A PERCENTAGE OF THEIR OVERALL BUDGET.

I MEAN, TALKING ABOUT 57 AND UNSPENT BOND PROCEEDS OF, UH, AND OUR TYPICAL GENERAL FUND IS 1 28.

SO I MEAN IF YOU'RE APPROACHING WHATEVER THAT COMES OUT TO, UH, IT'S A, IT'S A LARGE PERCENTAGE OF, OF OUR GENERAL, YOU KNOW, GENERAL FUND THAT WE HAVE IN UNSPENT BOND PROCEEDS.

I'M, I'D BE CURIOUS TO KNOW.

RIGHT.

AND THEN

[00:10:01]

TO YOUR POINT, THE MONEY, THE 25 MILLION THAT WE BORROWED IN 22 MAKES UP.

MM-HMM .

A MAJORITY OF THAT.

YES.

SO WE HADN'T EVEN SPENT THE 25 MILLION FROM 22 YET.

RIGHT.

SO TO YOUR POINT, YEAH.

BUT THESE TWO, THEY'RE VERY, THEY'RE VERY AWARE OF THIS TOO AND THEY'RE TRYING TO HELP WITH ALL THIS AS WELL.

OKAY.

SO THEY'RE PAYING ATTENTION TO IT FOR THE CFP STUFF THAT MICHAEL AND TAYLOR YET? YES.

OKAY.

I GO WITH JACOB SAYS, LIKE TO SEE HOW THAT DEBT STACKS UP TO OTHER CITIES AND WE'VE TALKED ABOUT, I MEAN WE TALKED ABOUT LIKE WE NEED ONCE A POLICY WHERE WE'RE OKAY WITH SOMEBODY'S LEVEL OF PERCENTAGE OF , MAYBE SOME OTHER CITIES HAVE, THEY'VE ESTABLISHED THAT I'D BE CURIOUS TO KIND OF BENCHMARK AGAINST OTHERS.

OKAY.

ALRIGHT.

OKAY, WELL THEN WE WILL, DO YOU HAVE ANY OTHER QUESTIONS ON THAT? WE'LL CONSIDER THAT REPORT RECEIVED, UH, THREE A DISCUSSIONS

[a. Overview of City's debt policy and FY24 debt issuance. Presentation by Joe Morrow, HilltopSecurities and Jonanthan Frells, Bracewell]

SO THERESA, DO YOU WANT TO TALK ABOUT THE DEBT POLICY OR DO YOU WANT TO JUST KIND OF WALK IN FOR SOME OF THIS BACKGROUND PER FIRST? WOULD YOU LIKE TO OKAY.

PUT BACK.

OKAY.

SO IN, IN TALKING WITH, UH, JASON CHER, SO WE THOUGHT IT MIGHT BE HELPFUL TO HAVE JUST KIND OF A GENERAL BACKGROUND, UH, WHAT TYPE OF DEBT IS AVAILABLE TO YOU AND HOW THAT DEBT IS TYPICALLY USED.

JUST FOR BACKGROUND PURPOSES, WE WON'T GO IN EXCRUCIATING DETAIL THROUGH THIS JUST TO KIND OF GIVE YOU HIGHLIGHTS, BUT IF AT ANY POINT YOU WANT TO GO DEEPER ON ANY ISSUE, YOU JUST SAY STOP AND WE'LL, WE'LL WE'LL KIND OF WALK THROUGH.

SO THE REASON REASON CITIES ISSUES ISSUE BONDS IS A LOT OF TIMES THEY WANT TO MATCH ASSET LIFE WITH THE COST, WITH THE LIFE THAT YOU'RE PAYING IT BACK.

SO IT'S THE PAYBACK TIMEFRAME WITH THE LIFE OF THE ASSET THAT KEEPS PEOPLE FROM PEOPLE NOW FOR PAYING FOR THE FULL COST OF SOMETHING THAT'S GONNA BE, UM, BE UTILIZED IN MULTIPLE GENERATIONS OR OR MULTIPLE YEARS.

THAT'S ALSO PART OF THIS SHARED LIABILITY PHILOSOPHY THAT'S THERE.

UM, YOU CAN ALSO ACCELERATE PROJECT TIMELINES.

A LOT OF TIMES WHEN YOU'RE DOING PAYGO YOU CAN'T DO SOME OF THE LARGER PROJECTS THAT YOU NEED TO DO.

YOU HAVE TO RUN SUCH A HIGH TAX RATE THAT IT WOULD MAKE IT REALLY DIFFICULT TO DO THAT.

AND THEN YOU GET A PRETTY LOW COST OF FUNDS WITH BORROWING FROM MUNICIPAL BONDS 'CAUSE IT'S GENERALLY TAX EXEMPT FINANCING THAT'S THERE.

SO THERE ARE CERTAIN CATEGORIES OF MUNICIPAL BONDS THAT CITIES CAN ISSUE.

UM, THIS IS NOT AN EXHAUSTIVE LIST THAT YOU'LL SEE HERE.

THERE ARE A LOT MORE TYPES THAT YOU CAN DO, BUT THESE ARE THE PRIMARY ONES THAT ARE USED BY CITIES.

AND ALL OF THESE ARE USED BY THE CITY OF BAYTOWN.

FIRST IS AVALOR TAX DEBT.

SO IT'S MADE UP OF TWO MAIN KINDS.

ONE ARE VOTED BONDS AND ANOTHER IS NON VOTED DEBT.

SO NON VOTED DEBT CAN BE TAX NOTES OR COS UH, THE VOTED DEBT IS TYPICALLY JUST TYPICAL VOTED GO CAN GO.

THEN YOU HAVE, UH, SELF-SUPPORTING AVALOR TAX OBLIGATIONS.

AND AGAIN, THOSE COULD BE VOTED OR UN VOTED, BUT THE, THE BIG DIFFERENTIATING FACTOR THERE IS THAT THOSE ARE SUPPORTED BY REVENUES OF AN ENTERPRISE SYSTEM TYPICALLY, OR REVENUES FROM A TOURS OR REVENUES THAT YOU MAY GET FROM THE, UH, FROM THE NEDC, DIFFERENT THINGS ALONG THOSE LINES THAT COME IN AND YOU'RE REALLY ISSUING THE DEBT, UM, ON THE GEO SIDE ONLY FOR PURPOSES OF LOWERING YOUR COST OF QUALITY, LOWERING THE INTEREST RATES, REMOVING THE REQUIREMENT THAT YOU HAVE, UM, RESERVE FUNDS OR OTHER OTHER CONTRACT KIND OF REQUIREMENTS THAT ARE THERE.

THEN YOU HAVE REVENUE BONDS.

UH, REVENUE BONDS ARE TYPICALLY ISSUED BY WATER AND SEWER SYSTEMS. SO THE PRIMARY TYPE THAT YOU SEE, UH, IN CITIES LIKE, UH, LIKE YOURS, YOU GUYS HAVE TYPICALLY DONE SELF-SUPPORTING GEO DEBT AS OPPOSED TO, AS OPPOSED TO A REVENUE SYSTEM.

THEN YOU HAVE CONTRACT REVENUE BONDS.

THIS WOULD BE THINGS LIKE BAWA WHERE YOU GUYS CONTRACT WITH BAWA.

UM, YOUR PAYMENTS TO BORROW ARE PART OF YOUR OPERATION AND MAINTENANCE EXPENSE OF YOUR WATER AND SEWER SYSTEM.

THEY ISSUE DEBT BASED ON THOSE PAYMENTS THAT YOU COME IN.

AND SO THEY GO INTO THE PAYMENT OF THE DEBT THAT'S SECURED BY THE PAYMENTS THAT YOU MAKE UNDER THE CONTRACT.

AND THEN FINALLY YOU HAVE SPECIAL TAX BONDS.

THOSE ARE THINGS, THERE'S CERTAIN TYPES OF, UM, EDCS HAVE THE ABILITY TO ISSUE SOME DEBT AND THEY'RE SECURED BY THAT DEBT.

SO THOSE ARE THE KIND OF PRIMARY THINGS THAT YOU'LL SEE.

GEO BONDS.

JUST A COUPLE THINGS TO POINT OUT ON THOSE, ON VOTING OBLIGATIONS, THERE ARE ONLY TWO TIMES A YEAR YOU CAN HAVE ELECTION MAY AND NOVEMBER, UM, ELECTIONS, IF THERE'S BEEN THE BIGGEST CHANGES THAT WE'VE SEEN IN STATE LAW RELATED TO MUNICIPALITIES

[00:15:01]

THOSE ARE TWO MAJOR SOURCES OF CHANGES IN OUR AREA.

IT'S VERY EXPENSIVE TO DO A BOND ELECTION.

THERE ARE A LOT OF HOOPS THAT YOU NOW HAVE TO JUMP THROUGH WHEN YOU'RE DOING 'EM.

A LOT OF VOTE, A LOT OF VOTER INFORMATION DOCUMENTS THAT YOU HAVE TO PUT TOGETHER FOR EACH PROPOSITION.

THE LEGISLATURES COME IN NOW AND REALLY PAIR DOWN HOW YOU CAN PRESENT PRO UH, PROPOSITIONS.

YOU CAN'T COMBINE MULTIPLE PROJECTS REALLY IN A SINGLE PROPOSITION ANYMORE.

YOU'VE GOTTA BREAK 'EM OUT BY USE.

SO FOR EXAMPLE, YOU COULD DO DRAINAGE, YOU COULD DO ONE FOR STREETS, YOU COULD DO ONE FOR PUBLIC SAFETY, BUT YOU HAVE TO BREAK ALL OF THOSE OUT.

YOU CAN'T COMBINE 'EM INTO A SINGLE PROPOSITION.

SO YOU'LL SEE CITIES HAVE AS MANY AS 14, 15 PROPOSITIONS NOW, UH, WHEN THEY'RE DOING THEIR ELECTIONS.

AND YOU'VE GOT VOTER INFORMATION DOCUMENTS THAT HAVE TO GO ALONG WITH EACH OF THOSE PROPOSITIONS.

SO IT'S, IT IS AN INVOLVED PROCESS CAN BE VERY USEFUL.

BUT JUST WITH COS THOUGH TOO, RIGHT? NOT WITH COS THIS IS JUST WITH JUST WITH GEO BONDS, THEY'RE TYPICALLY SECURED BY ABOR TAXES.

THE OTHER BIG ITEM I WOULD SAY IS IF YOU HAVE A FAILED ELECTION, THEN YOU'RE FROZEN OUT FROM DOING COS FOR THREE YEARS AFTER A FAILED ELECTION FOR THAT PURPOSE.

AND SO IF YOU'VE GOT SOMETHING THAT YOU ABSOLUTELY NEED TO DO, LIKE IT IS A MUST HAVE, THEN OFTEN A CO CAN BE A MORE USEFUL, UM, ITEM, UM, OR APPROACH TO DOING IT.

SO YOU'RE NOT LOCKED OUT IF YOU HAVE A FAILED ELECTION FROM DOING THAT.

SO YOU GOTTA BALANCE THEIR, THEIR THEIR POLITICAL BALANCING ACT THAT US, US COUNCIL MEMBERS HAVE TO DEAL WITH.

BUT THAT'S JUST SOMETHING TO KEEP IN MIND AS WE TALKED ABOUT THESE.

I'M SORRY, CAN YOU REPEAT THAT? SO SURE.

GENERAL, A GENERAL OBLIGATION POINT BONDS WHAT WE'RE SAYING.

IF THERE, IF WE A GENERAL OBLIGATION FUND FAILS, THEN YOU, YOU THEN WE'RE FROZEN NOW.

SO YOU'RE ENCOURAGING US IF IT SOMETHING THAT WE HAD TO DO NEEDS TO BE DONE ON A CO IT IT, THAT'S IT.

THAT'S SOMETHING YOU SHOULD TAKE INTO ACCOUNT AS YOU'RE MAKING THAT DECISION.

ULTIMATELY IT'S UP TO COUNSEL ONE WAY OR THE OTHER TO MAKE THAT DETERMINATION.

BUT THAT'S, THAT'S A FACTOR THAT YOU SHOULD CONSIDER IS IF THIS FAILS AND WE CAN'T FUND IT THROUGH GO BONDS, ARE WE GONNA RUN INTO AN ISSUE FROM A REGULATORY STANDPOINT THAT WE ABSOLUTELY NEEDED TO DO THAT? UM, ARE WE NOT GONNA BE ABLE TO SUPPORT THE GROWTH THAT WE HAVE IN THE CITY WITHOUT BEING ABLE TO FUND FUND THOSE? SO THOSE ARE JUST BALANCING ACT THAT YOU'VE GOTTA GOTTA TAKE INTO ACCOUNT.

IF IT FAILS THE GO, CAN YOU USE THE CO AFTERWARDS OR NOT FOR THREE YEARS.

OKAY.

FOR THREE YEARS.

YEAH, I JUST WANTED TO MAKE SURE THE CLARITY ON THAT.

SO EVEN IF THE, YOU COULD, YOU WANTED TO PUSH IT THROUGH THE GO AND IT GOES OUT TO PUBLIC, PUBLIC, BOOK IT DOWN, THEN YOU'RE JUST, YOU'RE HAVING A CASH FUND, IT'S NOT HAPPENING.

OR YOU'RE CASH FUNDING.

YEAH.

OKAY.

THAT'S, UM, CERTIFICATES OF OBLIGATION ARE THE NEXT TYPE.

UM, COS ARE REALLY JUST LIKE BONDS.

THEY'RE STRUCTURED THE SAME WAY EXCEPT INSTEAD OF AN ELECTION YOU HAVE A NOTICE AND PETITION PERIOD.

SO YOU HAVE TO, YOU HAVE TO PUBLISH NOTICE THEN THE PEOPLE HAVE THE OPPORTUNITY TO PETITION TO FORCE AN ELECTION.

IF THE PETITION DOESN'T COME IN, THEN YOU CAN SELL THE COS WITHOUT A VOTE.

UH, TYPICALLY THESE ARE USED ONLY FOR PUBLIC WORKS AND THE LEGISLATURE CAME BACK IN AND DEFINED WHAT PUBLIC WORKS IS, UH, IN THIS LAST LEGISLATIVE SESSION.

SO THEY NARROWED THE, THE TYPES OF THINGS THAT YOU CAN ISSUE FOR, UM, AND EQUIPMENT.

THOSE ARE THE TWO THINGS THAT YOU TYPICALLY USE COS FOR.

UM, THEY'RE, THEY CAN BE EXTREMELY USEFUL.

THE THE AREAS WHERE WE SEE THEM BEING PARTICULARLY USEFUL ARE IN, UM, SITUATIONS WHERE THEY'RE GONNA BE SELF-SUPPORTED FROM ANOTHER ROAD.

SO WATER AND SEWER SYSTEM IMPROVEMENTS, THE WAY Y'ALL TYPICALLY USE THESE OVER TIME.

UM, AGAIN TO AVOID SOME OF THOSE EXTRA COSTS THAT WE TALKED ABOUT FROM A, FROM A RENT STRUCTURE, UH, THE TEXAS WATER DEVELOPMENT BOARD, FOR EXAMPLE, IF YOU ARE GETTING LOANS FROM THEM, UH, FOR WATER AND SEWER PROJECTS, THEY TYPICALLY DO IT THROUGH A CO.

UH, AND SO THEY'LL, THEY'LL PROVIDE THEIR FINANCING THROUGH A CO UH, THAT'S ISSUED BY THE CITY TO THE WATER DEVELOPMENT BOARD.

SO THAT'S AN EXAMPLE OF HOW THOSE, THOSE ARE USED.

WE ALSO USE SELF-SUPPORTING, UH, COS FOR A LOT OF YOUR TURS AND UH, SANITATION.

UM, AND UM, AND, AND SOME STORM WATER ITEMS AS WELL AND THAT HAVE OTHER REVENUE SOURCES THAT SUPPORT 'EM.

AND AGAIN, THE REASON FOR THAT, ON THE TOUR SIDE, IT'S EXPENSIVE TO ISSUE TOUR'S, DEBT, UH, IT DOESN'T GET THE SAME LOW INTEREST RATES THAT COS DO.

SAME REASONS AGAIN FOR WATER AND SEWER.

SO THAT CAN BE A VERY, COS CAN BE A REALLY USEFUL TOOL.

AND WHILE THEY HAVE AN ABNORMAL TAX PLEDGE ASSOCIATED WITH THEM, A LOT OF TIMES YOU'RE PAYING THEM FROM A SOURCE OTHER THAN VALOR TAXES.

SO JUST TO KEEP THAT IN MIND, TAX NOTES ARE VERY SIMILAR TO COS UH, THEY'RE, BUT THEY DON'T HAVE A NOTICE OF PETITION PROCESS AND THEY'RE LIMITED TO A SEVEN YEAR MAXIMUM MATURITY.

SO PEOPLE TYPICALLY USE THESE FOR THINGS LIKE MAJOR EQUIPMENT FOR POLICE AND FIRE.

A LOT OF TIMES YOU'LL SEE 'EM FROM, UH, FOR FIRE TRUCKS, UH, YOU KNOW, YOU'RE GONNA PAY FOR A PUMPER TRUCK $1.5 MILLION.

AND SO YOU'LL SEE KIND OF THOSE ARE LADDER TRUCK.

YOU'LL SEE A LOT OF TIMES THIS, THIS STRUCTURE USED FOR THOSE.

UH, WE ALSO SEE 'EM FOR STREETS AND DRAINAGE PROJECTS AND OTHER THINGS, BUT AGAIN, YOU'RE LIMITED TO A SEVEN YEAR

[00:20:01]

SO THEY'RE VERY SHORT, VERY TIME COMPRESSED.

UH, BUT THEY CAN BE A REALLY USEFUL, A REALLY USEFUL TOOL AS, AND AGAIN, RECENT LEGISLATION NARROWED, AGAIN, THE PURPOSES THAT YOU CAN DO TAX NOTES FOR, JUST LIKE COS IT'S THE SAME KIND OF LIMITED PUBLIC WORKS AND UH, KIND OF CAPITAL EQUIPMENT OR, OR WHAT YOU WOULD USE THOSE FOR.

THE CITY USED THEM FOR UM, FIRE TRUCK, MAYBE A FIRE STATION AS WELL FOR AN EMS THAT I THINK WAS IN CHAMBERS COUNTY, BUT PART OF THE CITY.

OKAY.

WE DID A PRIVATE PLACEMENT.

IT CENSUS PAID OFF, BUT IT WAS REFUNDED.

OKAY.

THE, UH, THE NEXT ONE ARE REVENUE BONDS.

AND THIS MAY BECOME RELEVANT TO YOU IN THE FUTURE, LIKE AS I MENTIONED BEFORE, UM, WE, WE HAVE TYPICALLY DONE COS FOR WATER AND SEWER, BUT AS YOU CONTINUE TO LOOK AT THE ONGOING NEGOTIATIONS WITH THE FEDERAL GOVERNMENT AND THE STATE ON SOME OF THE COSTS AND PROJECTS THAT YOU'RE GONNA BE LOOKING AT DOING OVER THE NEXT FEW YEARS, THERE'S A QUESTION THAT YOU'LL NEED TO EVENTUALLY CROSS THE BRIDGE OF, DO WE WANNA CONTINUE FUNDING THROUGH COS FOR WATER AND SEWER OR DO WE WANT TO MOVE TO A REVENUE SYSTEM? UH, IN ORDER TO DO THAT.

THINGS TO KEEP IN MIND WHEN YOU GO TO A REVENUE SYSTEM, YOU'VE GOT RATE COVENANTS THAT YOU HAVE TO MEET 'CAUSE YOU'RE, YOU'RE AGAIN PAYING THOSE BACK JUST FROM RATES AND HONORS WANNA SEE THAT YOU'RE GONNA LEVY RATES THAT ARE SUFFICIENT TO PAY THE DEBT SERVICE AND THE OPERATION AND MAINTENANCE OF THE SYSTEM.

YOU'LL HAVE ADDITIONAL BONDS TESTS THAT SHOW YOU'VE GOT REVENUES OF A CERTAIN AMOUNT BEFORE YOU CAN ISSUE ADDITIONAL DEBTS THAT COVERS ALL YOUR DEBT SERVICE COSTS AND YOUR O AND OUT.

UH, AND THEN RESERVE FUNDS, YOU TYPICALLY HAVE TO HAVE THOSE AS WELL.

SO THAT'S JUST ANOTHER TOOL THAT'S IN YOUR TOOLBOX AS YOU GUYS START LOOKING AT OPTIONS.

UM, WHAT'S THE, WHAT'S THE BENEFIT TO REVENUE BONDS OVERSEE? BECAUSE I KNOW, I MEAN YOU HAVE YOUR GENERALLY CARRIES LOWER RATINGS, HIGHER INTEREST RATES.

SO IF YOU'RE GONNA HAVE AN HIGHER, HIGHER INTEREST RATE, WHAT WOULD BE THE BENEFIT TO USING IT? YEAH, THAT'S A, THAT'S A GREAT QUESTION, JOE.

I'LL I'LL GIVE MY ANSWER AND THEN YOU FEEL FREE TO FEEL FREE TO DIVE, DIVE IN.

PART OF IT'S POLITICAL, UM, TYPICALLY YOU'VE DONE COS BECAUSE THEY HAVE A LOWER INTEREST RATE AND YOU DON'T HAVE ALL THE OTHER COVENANTS THAT ARE ASSOCIATED WITH IT.

THERE IS A MOVEMENT IN THE LEGISLATURE TO REALLY LIMIT THE USE OF COS THEY WOULD LIKE TO SEE THEM USED SOLELY IN EMERGENCY SITUATIONS.

THERE'S A, A FACTION INSIDE OF THE LEGISLATURE THAT WANTS TO DO THAT.

AND SO THERE'S, COS HAVE GOTTEN SOMETIMES A BAD NAME IN KIND OF POLITICAL CIRCLES ON HOW THEY'RE, HOW THEY'RE USED.

AND SO AS YOU LOOK AT THINGS LONG TERM, THERE'S EACH YEAR IN THE LEGISLATURE, THE USES OF COS GET COMPRESSED AND AT SOME POINT DO THEY DO AWAY WITH YOUR ABILITY TO ISSUE THOSE AND YOU END UP IN A REVENUE SITUATION.

THE OTHER THING IS SOME FOLKS JUST GENERALLY DON'T LIKE DEBT VALOR, TAX DEBT IN GENERAL.

AND SO THEY'RE OKAY WITH MORE OF A PAY AS YOU GO OR, OR NOT PAY AS YOU GO, BUT RATEPAYER BASED SYSTEM.

UM, BUT AGAIN, REVENUE BONDS, YOU, YOU'RE STILL LIVING WATER AND SEWER RATES AND THEY HAVE TO BE AT A, AT A LEVEL OF SUFFICIENT TO PAY IT.

SO TO ME THAT'S THE BIG BALANCING ACT IS MORE THE POLITICAL SIDE OF IT THAN ANYTHING ELSE.

YEAH, I THINK THAT'S PROBABLY WHAT'S DRIVEN, UH, THE SWITCH FROM PURE REVENUE SYSTEMS OVER HAS BEEN DRIVEN A LOT BY, WELL, A LOT BY FINANCIAL TOO BECAUSE IF REVENUE BONDS, UH, FOR AN ESSENTIAL UTILITY LIKE WATER AND SEWER ARE VERY STRONG, THERE'S NOT A BIG SPREAD BETWEEN THE PRICING OF THEM AND, AND GENERAL OBLIGATION BONDS OF A SIMILAR, UM, RATING.

UM, WHEN YOU GET TO OTHER TYPES OF REVENUE BONDS, THERE'S THE WHOLE, WHOLE SPREAD OF 'EM FROM SALES TAX REVENUE BONDS TO TAX INCREMENT, REINVESTMENT ZONE REVENUE BONDS, YOU START GETTING INTO SOME PRETTY BIG CREDIT SPREADS AND THAT'S WHERE, UH, USING A CO CLOSES A HUGE GAP.

LIKE FOR A TURS OR, UH, IN A LOT OF CASES SALES TAX REVENUES 'CAUSE THE SALES TAXES ARE PASSIVE, RIGHT? I JUST HAPPENED TO BE GOING THROUGH BAYTOWN, I STOP, I SPEND MY MONEY.

UM, YOU CAN'T RAISE THAT RATE.

IT IS WHAT IT IS.

THE STATE SETS IT SO YOU'RE, UH, YOU'RE SUBJECT TO WHAT PEOPLE'S DECISION IS WITH THEIR DOLLAR AND WHERE THEY'RE GONNA SPEND IT.

UM, SO THAT, THAT'S I THINK WHY WE WOUND UP SEEING CERTIFICATES OF OBLIGATION USED A LOT INSTEAD OF, UH, REVENUE BONDS.

BUT WHEN IT COMES DOWN TO AN ESSENTIAL UTILITY LIKE WATER AND SEWER OR SANITATION, UH, YOU KNOW, I I THINK THERE'S NOT THAT BIG OF A SPREAD.

[00:25:01]

YEAH, BUT WE DO SEE, UM, AND I'LL JUST SAY THIS IS RECENT EXPERIENCE.

THERE'S BEEN A LOT OF PRESSURE ON COUNCILS WHEN DEALING WITH WATER SEWER RATES AT THE SAME TIME.

PEOPLE HAVE BEEN FOCUSED ON THAT QUITE A BIT AND KIND OF MEASURING HOW MUCH YOU'RE GONNA HAVE TO RAISE WATER AND SEWER RATES IN ORDER TO MEET THE COVENANT OBLIGATIONS.

UH, SO AGAIN, IT'S EITHER TAXES OR IT'S REVENUES YOU GOTTA PAY FROM, YOU GOTTA PAY FROM SOMEWHERE AND IT'S, IT'S ALL A MATTER OF HOW YOU BALANCE, HOW YOU BALANCE THAT OUT.

OUR WATER IS EXPENSIVE, IT'S GOING THROUGH THE ROOF, IT'S NOT GETTING CHEAPER.

YEAH.

AND I THINK THAT'S SOMETHING THAT THE PUBLIC HAS NOT CAUGHT UP WITH YET IS UNDERSTANDING THAT THE COST OF WATER IS QUITE HIGH.

UM, THE NEXT ONE, CONTRACT REVENUE BONDS.

AGAIN, WE TALKED ABOUT THIS.

YOU'VE GOT A CONTRACT WITH, UH, BIO BY WHICH THEY PROVIDE WATER TO YOUR WATER AND SEWER SYSTEM AND YOUR CONTRACT PAYMENTS THERE SECURE THE DEBT THAT THEY ISSUE.

SO, UM, PERFECT EXAMPLE.

RECENT EXAMPLE.

YOU'VE GOT A WATER PLANT, THE SURFACE WATER PLANT THAT THEY'VE RECENTLY BUILT FOR YOU.

YOU ISSUED DEBT, UM, THAT'S SECURED AGAIN BY THOSE CONTRACT PAYMENTS.

THERE'LL BE SOME ADDITIONAL, YOU'LL BE TALKING ABOUT THOSE SOON.

SOME ADDITIONAL, YEAH, SOME ADDITIONAL, UM, IMPROVEMENTS THAT THEY NEED TO MAKE.

THAT'LL INVOLVE CONTRACT REVENUE BONDS, UH, THROUGH BAWA.

AND WE CAN TALK ABOUT THAT MORE.

BUT THE COMPLEXITY WITH THAT, AND WE'LL TALK MORE ABOUT THAT, IS THAT WE ACTUALLY NEED A BETTER CONTRACT WITH HOUSTON BEFORE WE CAN RELY ON THE CONTRACT REVENUE BONDS WITH BAWA.

THEREFORE, IF WE NEED TO MOVE FORWARD WITH IT, WHICH WILL TELL YOU THAT WE NEED TO MOVE FORWARD WITH IT, WE HAVE TO USE COS BECAUSE WE DON'T HAVE THE APPROPRIATE MECHANISM, LEGAL MECHANISM IN PLACE TO SECURE A GOOD CONTRACT REVENUE BOND FROM THE CITY OF HOUSTON FOR OUR WATER SUPPLY.

OKAY.

YEAH.

AND I THINK THERE, THERE MIGHT BE SOME TEMPORARY ABILITY POTENTIALLY THAT JUST ANOTHER COMPLEXITY THAT COMES INTO THIS.

YEAH, SO THAT'S SOMETHING, SOMETHING WE'LL, WE'LL WE'LL TALK ABOUT, UH, SPECIAL TAX BONDS.

THESE ARE CUR UH, SECURED BY SPECIAL TAXES.

SO SOME EXAMPLES MIGHT BETS REVENUE BONDS THAT YOU DID.

ANOTHER EXAMPLE MIGHT BE SALES TAX, REVENUE BONDS.

THEY'RE GENERALLY VERY LIMITED, UM, WHEN YOU CAN ISSUE SALES TAX REVENUE, BONDS THAT MEDC OR SOMETHING LIKE THAT.

THEY CAN ISSUE SALES TAX, REVENUE BONDS.

THEY, THEY HAVE HELPED YOU SECURE SOME PAYMENTS, UH, FOR EXAMPLE ON THE HOTEL AND DIFFERENT THINGS ALONG THOSE LINES.

BUT THAT'S THE, UH, THE LAST KIND OF SET THERE, THERE, THERE ARE A COUPLE OF OTHER THINGS THAT, UH, OTHER TOOLS WE CAN TALK ABOUT IF YOU EVER NEED ANOTHER HELP YOU FUND EQUIPMENT, THINGS ALONG THOSE LINES.

BUT Y'ALL GENERALLY DIDN'T HAVE GENERAL CONSIDERATIONS.

UH, AND THIS WILL GO INTO THE NEXT PART OF THE DISCUSSION THAT YOU'RE HAVING IS REALLY LOOKING AT TYPES OF EQUIPMENT, FACILITIES BEING FINANCED, LOOKING AT YOUR COST OF FINANCING AND YOUR TIMING.

SO AGAIN, IF YOU'VE GOTTA HAVE AN ELECTION, FOR EXAMPLE, IF YOU'RE DOING A MAIL ELECTION FEBRUARY 12TH OR 15TH, I'M TRYING TO REMEMBER WHAT THE DATE IS RIGHT NOW, BUT THE, THE DEADLINE CALL ON ELECTION FOR MAY IS LIKE THE 12TH OR 15TH OF FEBRUARY BEFORE YOU COULD HAVE AN ELECTION IN MAY.

AND THEN YOU GOTTA GO THROUGH THAT PROCESS AND YOU'VE GOTTA WAIT 30 TO 60 DAYS AFTER THE ELECTION IN ORDER TO ISSUE THE DEBT UNDER THE ELECTION.

SO I MEAN IT'S A SIX TO EIGHT MONTH PROCESS ONCE YOU'VE DECIDED TO CALL ON ELECTION BEFORE YOU CAN ISSUE BONDS FROM THAT ELECTION.

UM, THERE'S ALSO A LOT OF PRESSURE, A LOT OF TIMES TO ONLY DO NOVEMBER UH, ELECTIONS FOR, UH, FOR BONDS.

SO THAT'S THERE, THERE'S A POLITICAL PUSH AT THE STATE ON THAT, THAT LEVEL.

SO JUST SOMETHING TO KEEP IN TIME.

IF YOU'RE LOOKING AT GEO BONDS, THERE'S A VERY LONG LEAD TIME.

AND THEN IF YOU BUILD IN THE PUBLIC EDUCATION PROCESS EVEN BEFORE THAT, IT CAN BE AN EVEN, IT CAN BE UP TO A YEAR, UH, BEFORE YOU CAN EVEN ACCESS THE MARKET ON AND ON.

AND THAT'S ASSUMING YOU CAN GET A POSITIVE RESULT AT THE BALLOT BOX.

UM, LEGAL REQUIREMENTS AND COVENANTS, WE TAKE THOSE INTO ACCOUNT USE OF FACILITIES AND UH, KIND OF INTEREST RATE RESERVE FUNDS, THOSE TYPES OF ISSUES.

UH, AND THEN IF YOU HAVE PRIVATE USE, THAT'S SOMETHING ELSE WE WOULD TAKE INTO ACCOUNT ON HOW WE MIGHT, HOW WE MIGHT STRUCTURE IT.

BUT THOSE ARE SOME OF THE GENERAL CONSIDERATIONS THAT WE WANT TO RUN YOU THROUGH.

SO WE UNDERSTOOD WHY THE CITY HAD USED DIFFERENT TOOLS KIND OF IN THE PAST AND WHAT MIGHT BE AVAILABLE TO YOU.

OKAY.

AND SO THE NEXT PART IS JUST A SNAPSHOT OF WHAT, UM, YOU'VE SEEN BEFORE RELATED TO THE UNSPENT BOND PROCEEDS AND OUR OUTSTANDING DEBT.

SO, UM, THE OUTSTANDING DEBT AMOUNT THAT WE HAVE RIGHT NOW IS 285 UH, MILLION THAT WE'RE STILL PAYING ON BASICALLY.

AND THEN OUR UNSPENT BOND PROCEEDS, IT TELLS YOU WHICH SERIES WE'RE ON.

SO MAJORITY ARE IN THE LAST TWO SERIES THAT WE DO.

WE DID A 2022 BOND ISSUANCE AND THERE'S 26 MILLION.

THE REASON IT'S OVER 25 IS BECAUSE OF THE INTEREST.

AND THEN THE 2020, WE STILL HAVE ABOUT 21 MILLION IN THERE.

AND THEN 2019 WE HAVE 7,000,020 17, A LITTLE OVER 200 AND 900 , $290,000

[00:30:02]

AND THEN I JUST PROVIDED OUR BOND RATINGS, WHICH ARE IMPORTANT TO OUR BOND ISSUANCES BECAUSE IT IMPACTS OUR, UM, INTEREST RATE.

AND THEN OUR NEXT PAGE IS, UM, OUR PROPOSED DEBT ISSUANCE THAT WE HAVE JUST FOR THE NEXT TWO YEARS.

UM, ON FRIDAY WE'LL TALK MORE ABOUT THE FUTURE YEAR, BUT UM, I'M JUST PROVIDING YOU A SNAPSHOT ABOUT OF HOW MUCH WE ARE PROPOSING TO ISSUE THIS YEAR.

AND YOU KNOW, IT ACTUALLY HAS WENT DOWN SLIGHTLY BECAUSE, UM, FOR 24, 4 20 MILLION SLIGHTLY, RIGHT? YEAH, WE UH, MOVED THE 18 MILLION FOR THE LIFT STATION AND ANOTHER, I WANT TO SAY 7 MILLION, UM, 2 25.

UM, SO NOW IT'S DOWN TO 92 MILLION THAT WE'RE TRYING TO ISSUE, UM, FOR THIS YEAR.

AND IN THE NEXT YEAR IT'LL BE 141 AND IT WILL GO UP TO 233, I MEAN MORE THAN THAT IN THE FOLLOWING YEARS.

BUT WE'LL TALK ABOUT THAT ON FRIDAY.

SO THE PROJECTS ARE ON THE NEXT PAGE, , THE PROJECTS ARE ON THE NEXT PAGE FOR THE 92 MILLION.

SO IT'S A SNAPSHOT OF THE PROJECTS THAT WE ARE FUNDING IS THAT, UM, MONEY.

UM, SO FOR BAWA WE ARE DOING THE WATER REHAB AND THE UH, PLANT EXPANSION.

UM, THEN FOR THE GENERAL CIP, IT'S BASICALLY FACILITIES, SOME STREETS, UM, REPAIRS THAT WE NEED DONE.

AND THEN STORMWATER UTILITY IS A PART OF SOME OF THIS DEBT THAT WE'RE ISSUING HERE IS FROM THE DEBT THAT WE DID ISSUE.

WE'VE GOT SO MUCH MORE, UM, THIS YEAR, SO IT'S AT 25.7 MILLION.

AND THEN FOR UH, TURS WE'RE UM, REQUESTING TO ISSUE 3.9 MILLION, WHICH WE BELIEVE WE HAVE THE CAPACITY TO ISSUE AND THE REST IS WATER AND SEWER.

WE MOVED, JUST SO YOU KNOW, WE MOVED SOME DEBT THAT WE WERE GOING TO ISSUE OUT OF WATER IMPACT FEES AND UH, MDD TO THE WATER AND SEWER, WHICH IS WHY IT'S NOW UP TO 24.9.

I MEAN 4 MILLION.

AND SO THESE ARE THE LIST OF PROJECTS THAT WE'LL BE, UM, TRYING TO ISSUE DEBT FOR THIS YEAR.

AND THIS IS MAINLY BECAUSE IF YOU LOOK AT THE FACILITIES, IT'S MAINLY BECAUSE GENERAL FUND WASN'T ABLE TO GIVE ANY CASH OR TRANSFER ANY CASH TO THE CFP THIS YEAR WHEN WE DID THE BUDGET, REMEMBER.

AND SO THAT'S WHY THERE'S SOME PROJECTS ON HERE THAT PROBABLY WOULDN'T HAVE BEEN OTHERWISE.

OKAY.

THAT BALL EAST PHASE TWO EXPANSION, I MEAN THAT'S, THAT THAT WON'T COME THE ENTIRE NEXT PHASE, RIGHT? OH NO.

IS THAT JUST, WHAT IS THAT? THAT'S THAT'S JUST A PORTION OF IT THIS YEAR.

OKAY.

BECAUSE NEXT YEAR FOR, YEAH, I KNEW THE NEXT PHASE WOULD CAUSE MORE THAN THAT.

SO I, YEAH.

'CAUSE NEXT YEAR FOR BALL IS 52 MILLION.

OKAY.

THAT'S GONNA BE THE BULK OF IT.

OKAY.

SO IT'S KIND OF ON THE NEXT PAGE.

BUT LIKE WHEN YOU LOOK AT THIS, AND I KNOW YOU HAD A LITTLE BIT OF HEARTBURN, LIKE JUST SEEING THAT LARGE NUMBER AND JUST SO YOU KNOW THAT OUR UH, JOE AND JONATHAN, UH, JOE, SEE I DON'T ISSUE THIS TYPE OF DEBT.

I DON'T ISSUE THIS MUCH DEBT.

THAT WAS HIS FIRST THING HE SAID TO US.

UM, AND SO THERESA HAS THE LAST 10 YEARS AND JOE'S CORRECT WE, SINCE WE DON'T ISSUE THIS TYPE OF DEBT, UM, AND SO IT'S PROBABLY A LITTLE BIT OF A SHOCK TO YOU TO RIGHT NOW, BUT IT'S ALSO, I THINK IF, I DON'T KNOW IF Y'ALL AGREE WITH ME OR NOT, THESE ARE CRITICAL PIECES THAT NEED TO START BEING ADDRESSED AT THIS POINT.

AND DON'T FORGET, WHEN YOU LOOK AT OUR FULL CIP, IT'S ONE POINT SOMETHING BILLION OVER THE NEXT, UH, FIVE TO SEVEN YEARS, AT SOME POINT WE HAVE TO START ADDRESSING THAT.

AND THIS JUST GOES INTO A VERY LARGE CONVERSATION OF YES, WE STILL HAVE 55 MILLION, THAT'S UNSPENT.

WHAT'S THE BIGGER HICCUP HERE? IF WE HAVE THAT MUCH UNSPENT, DO WE HAVE ENOUGH PEOPLE IN PLACE TO GET EVERYTHING TO LIFE? ARE THERE ENOUGH CONTRACTORS IN? THEN WE START SAYING, HEY, WE HAVE ANOTHER A HUNDRED MILLION THAT WE HAVE TO ISSUE JUST THIS YEAR AND THEN 200, UM, 141 MILLION NEXT YEAR AS WELL.

AND SO IT GOES TO A LARGE PRIORITY DISCUSSION FOR THE COUNCIL WHEN IT COMES TO POLICY STUFF.

UM, SO IT'S A PRETTY BIG CONVERSATION, BUT THIS IS JUST THE FIRST THROW IN YOUR MOUTH SESSION RIGHT NOW .

SO YOU GOT LEAST ONE STEP AT A TIME.

OKAY.

NO, IT'S, I MEAN WE NEED TO TALK ABOUT IT AT SOME POINT .

SO I MEAN YOU, I KNEW IT WAS COMING, YOU'D WARNED ME ABOUT IT, BUT UM, YEAH, IT'S A BIG NUMBER.

IT'S, JOE WAS RIGHT ON.

HE WAS LIKE, I DON'T ISSUE A HUNDRED MILLION DOLLARS BECAUSE I THINK THE ORIGINAL NUMBER WAS 1 28,

[00:35:01]

WE AT LEAST GOT IT INTO, YOU KNOW, 100 YEAH.

EIGHT DIGITS INSTEAD OF NINE.

SO UNTIL NEXT YEAR, YEAH.

PUT IT OFF.

YOU MAY NOT BE EMPLOYED NEXT YEAR, SO I JUST PUT IT ALL THERE.

AT LEAST GET THE FIRST ONE IN.

YOU KNOW, KEN, ARE YOU HAVING HEARTBURN AS WELL? UH, STROKE WHATEVER, IT IS A LOT TO TAKE IN.

UM, I HAD A QUESTION THOUGH, A FEW SLIDES BACK WITH THE CREDIT RATING.

UH, SLIDE 11 WHAT? SO I KNOW FOR MDD CREDIT RATING, I DON'T KNOW IF TOPIC READING, BUT IT'S BBB NEGATIVE, IT'S JUNK BOND.

MM-HMM.

OKAY.

IT IS NOT GOOD.

IT'S NOT GOOD RATING.

SO LIKE THE POLICY DIS DISCUSSION WITH COUNCIL AT SOME POINT, AND WE'LL TALK ABOUT IT ON FRIDAY AS WELL, IS WHERE DO YOU WANT OUR CREDIT RATING AT? AND YOU KNOW, MOST CITIES YOU WANNA SHOOT FOR AAA IF POSSIBLE.

WE'RE AT AA RIGHT NOW.

UM, YOU KNOW, ONCE YOU GET INTO JUNK BOND STATUS, IS THAT WHERE YOU WANT TO BE? RIGHT? AND SO THE QUESTION FOR COUNCIL IS LET'S JUST GET OUT JUNK BOND STATUS, BUT THAT'S WHERE THE MDD AND THE MDD DID HAVE DEBT ISSUED ON HERE.

AND PER THE ADVICE OF THE BOND COUNCIL AND AND OUR FINANCIAL ADVISOR IS THE MDD DOES NOT NEED TO ISSUE ANY DAMN DEBT FOR A WHILE.

GET YOUR, GET YOUR SHIP STRAIGHT, UM, AND BEFORE YOU START TRYING TO DO ANY MORE DEBT BECAUSE IT'S ALREADY A MESS.

AND WE DO THAT.

HAVE JUST PAYING OFF SOME OF THE EXISTING DEBT WE HAVE FIRST OR JUST THE HOTEL.

I MEAN OUR, OUR PROBLEM IS JUST OUR HOTEL.

OKAY.

IT'S BASICALLY, WELL, OKAY, I KNOW THERE'S OTHER DEBTS ON THERE, BUT THE HOTEL IS THE BULK OF THE ISSUE BECAUSE WE'VE GOT SOME WATER PARK.

YES.

WE ARE PAYING FOR, UH, PIRATES BAY WATER PARK.

NOW THE DEBT WAS ISSUED AS GO RIGHT? JUST PAID FOR OUT, IT'S JUST PAID FOR OUT OF MDD SO IT WASN'T DIRECTLY ISSUED BY THE MD.

OKAY.

WE JUST PAYING MD BECAUSE ALL THOSE UP THERE ARE THE HOTEL.

OKAY.

OH YEAH.

ALL 21 MDD OWNS THE HOTEL, SO YOU RIGHT.

YOU'VE GOT A PIECE OF PROPERTY OUT THERE.

UNLESS WE WANT TO GO TO BANKRUPTCY COURT AND PUT IT ON THE MARKET, DON'T TELL ME .

THAT'S A JOKE.

I KNOW WE'RE RECORDING.

THAT'S A JOKE'S A JOKE.

OKAY, WELL NO, I MEAN MY FEEDBACK AND I THINK I I TOLD YOU THIS BEFORE IS, IS WITH IT BEING THAT LARGE OF A NUMBER, UM, IJ AND IT SOUNDS LIKE MAYBE WE'RE GONNA HAVE SOME DISCUSSION ON FRIDAY ABOUT IT JUST SEEING PAST THIS OR THESE TWO BIG NUMBERS, LIKE WHAT DOES THIS LOOK LIKE? MAYBE WE SHOULD HAVE BEEN ISSUING THIS MUCH EVERY SINGLE YEAR FOR A LONG TIME NOW AND WE WEREN'T MAYBE AND NOW WE HAVE TO CATCH UP.

YEAH, I MEAN MAYBE SO, AND THAT'S WHY I SAID WHAT DOES THIS LOOK LIKE? AND I'M NOT JUST SAYING THREE OR FOUR YEARS.

I'M SAYING DO YOU HAVE THE FIVE YEAR PLAN RIGHT NOW? YOU KNOW, IS IT THE FIVE YEAR PLAN IS SCARIER SO WE ONLY GIVE YOU ALL THE FIRST TWO? WELL, AND AND IF IT IS, THAT'S FINE.

THAT'S, I'D RATHER JUST SEE THE WHOLE THING.

LIKE, LIKE I TOLD YOU, IF WE'VE GOT X NUMBER OF MILES OF ROAD AND THE, AND IT AND THEY HAVE A 40 YEAR LIFE, I DON'T KNOW WHAT THE LIFE 30 YEAR, YOU KNOW, THEN WE NEED TO BE REPLACING X NUMBER OF MILES EVERY YEAR AND IT COSTS THIS MUCH VERY METHODICAL EFFECT.

AND IF WE SEE ALL THOSE THINGS LAID OUT, YOU KNOW, THIS IS HOW MANY MILES OF SEWER WATER AND IT JUST COSTS THIS MUCH EVERY YEAR TO DO IT, THEN IT JUST, IT IS WHAT IT IS, RIGHT? I MEAN IT AND IF IT'S A HUNDRED MILLION EVERY YEAR, THEN THAT'S JUST MAINTAINING, THAT'S NOT GROWTH.

SO, RIGHT.

IT MIGHT BE SCARY NUMBERS, BUT IF YOU CAN SHOW ME THAT THAT'S WHAT'S NEEDED TO MAINTAIN BASIC INFRASTRUCTURE, THEN THAT'S WHAT WE GOTTA DO.

AND I'M WILLING TO, YOU KNOW, TO DO THAT.

I JUST NEED TO SEE IT.

YEP, FAIR ENOUGH.

OKAY.

SO, UM, NEXT, THE ONLY THING WE HAD IS THE POLICY.

I DON'T KNOW IF YOU GUYS WANTED TO COME IN ON POLICY OR WE JUST GONNA LEAVE IT UP FOR THE SECTION BECAUSE I DON'T KNOW THAT YOU OR KING HAD A CHANCE TO READ IT OR ANYTHING YET THAT WORKS.

HOW MUCH DETAIL WE WANTED TO GO INTO TODAY? WHAT YOU SAID EARLIER TODAY, WHAT I SENT EARLIER, BUT IT'S THE ONE THAT YOU AND HEATHER AND UM YEAH.

UH, KEN, BUT BEFORE CHRIS OR CHARLES? CHARLES.

OH, CHARLES.

CHARLES.

Y'ALL'S ESTABLISHED.

IT'S NOT OKAY.

[00:40:01]

IT'S NOT, I READ THROUGH IT, I DIDN'T SEE IT.

I MEAN IT HASN'T CHANGED, RIGHT? HASN'T CHANGED WHAT WAS ESTABLISHED.

ARE YOU ABLE TO GRAB COPIES TO THAT, HOW THAT CAN BE ISSUED, UM, THAT YOU LIST OR GUIDELINES SOME OF THE TYPES CAN HAVE.

IT DOESN'T ESTABLISH, YOU KNOW, THESE ARE BASELINE DEBT WE'RE RIGHT.

IT DOES NOT ESTABLISH THE PHILOSOPHY AROUND DEBT AT ALL.

THAT'S ALL.

IT'S ALL NO, THAT'S, THAT'S THE SAME PAGES.

OKAY.

SORRY.

AND SO ARE THOSE THINGS THAT MAYBE WE SHOULD HAVE IN THIS POLICY OR WOULD THEY SEPARATE FROM THAT? I CAN'T GET SOMETHING THAT THE FINANCE COMMITTEE WILL HAVE TO TALK ABOUT LONG TERM ABOUT HOW YOU WANT TO ADDRESS THIS.

AND Y'ALL WILL GET A GOOD UNDERSTANDING OF THAT FRIDAY BASED ON THE FULL COUNCIL'S FEEDBACK WHERE WE CAN COME BACK AND HAVE ADDITIONAL OKAY.

PHILOSOPHICAL CONVERSATIONS IN HERE TO CREATE A BETTER POLICY.

THAT'S WHY IT'S NOT A FULL DISCUSSION TODAY BY ANY STRETCH OF THE IMAGINATION.

IT'S UNDERSTANDING WHAT OUR CURRENT SITUATION IS AND WHAT WE CAN AND CAN'T ISSUE.

RIGHT? AND THEN UNDERSTANDING THAT, HEY, JUST OVER THE NEXT TWO YEARS WE'RE GONNA ISSUE $230 MILLION IN DEBT.

HOW DO YOU FEEL ABOUT THAT? I DON'T FEEL GREAT ABOUT THAT.

OKAY, WE'RE GONNA ISSUE A BILLION DOLLARS IN THE NEXT FIVE.

HOW DO YOU FEEL ABOUT THAT? I DON'T FEEL GREAT ABOUT THAT EITHER.

UM, OKAY, WELL HOW DO YOU WANT TO, HOW DO WE AS A GROUP WANNA WORK TOGETHER TO ESTABLISH A DEBT POLICY THAT WORKS WELL AND STARTS ESTABLISHING GUIDELINES THAT WAY WHEN THEY'RE BUILDING THIS CIP PROCESS? RIGHT? 'CAUSE THE STUFF THAT YOU'RE ASKING FOR, THEY HAVE IT BUILT ALREADY.

SO THIS, THIS FANTASTIC INDIVIDUAL RIGHT HERE HAS PUT TOGETHER LIKE ALL THIS STUFF ON TRACKING THINGS ON WHERE IT NEEDS TO BE AND WHAT'S LAID OUT OVER THE NEXT FIVE YEARS ON AN ORIGINAL, THEY HAD AN ORIGINAL CIP PLAN ALREADY ON WHAT IT LOOKS LIKE.

AND SO THEY CAN START BRINGING THIS BACK TOGETHER.

BUT IF THEY UNDERSTAND THAT Y'ALL'S PHILOSOPHY IS LIKE, HEY, WE'RE CAPPING OUT AT A HUNDRED MILLION EVERY SINGLE YEAR WHEN THEY BUILD THE CIP GOING FORWARD, THEY KNOW HOW TO WORK THAT IN THERE, RIGHT? WORK BACKWARDS AND THEY CAN WORK BACKWARDS FROM THAT AND START ADDRESSING THE MOST CRITICAL INFRASTRUCTURE.

SO WE START ADDRESSING THAT IN HERE, FEEDS DOWN TO THEM.

THEY CAN BRING A, A PLAN THAT LOOKS LIKE, HEY WE'RE, IF Y'ALL ARE COMFORTABLE ISSUING $100 MILLION EVERY SINGLE YEAR, THEY'RE GONNA BUILD THE CIP THAT THAT GOES TO THAT.

AND SO IT ALL WORKS TOGETHER AT THIS POINT.

JUST CAN I ADD ONE YES SIR THING ON THERE.

SO THERE'S ALSO A FEDERAL TAX OVERLAY THAT GOES WITH THIS ON HOW MUCH YOU SPEND DOWN OVER TIME.

AND YOU HAVE TO HAVE A REASONABLE EXPECTATION WHEN YOU ISSUE DEBT THAT YOU'RE GONNA SPEND IT WITHIN THREE YEARS AT THE TIME WHEN YOU'RE, YOU'RE ISSUING IT.

AND THERE ARE A LOT OF THINGS THAT HAPPEN, RIGHT? YOU HAVE THE ICE STORM HARVEY, YOU HAVE FLOOD TAX, DAY FLOOD, YOU'VE GOT ALL THOSE TYPES OF THINGS THAT HAPPEN OVER TIME.

YOU HAVE SUPPLY CHAINS THAT GET UPSET THAT THERE'S NOTHING YOU HAVE CONTROL OVER.

SO YOU CAN DOCUMENT THAT YES, THERE ARE ISSUES THAT ARE THERE, BUT EACH TIME YOU ISSUE WE'RE GONNA BE COMING BACK AND DILIGENCING KIND OF ANY OF THE UNSPENT PROCEEDS THAT YOU HAVE IN ORDER TO ENSURE THAT WE CAN MAKE THE ARGUMENTS TO THE IRS THAT YES, WE HAD A REASONABLE EXPECTATION AT THAT TIME.

HERE ARE THE, HERE ARE THE DOCUMENTED REASONS WHY WE HAVEN'T SPENT THOSE PROCEEDS KIND OF AT THIS POINT BEFORE YOU ISSUE ADDITIONAL DEBT ON TOP OF IT.

SO JUST I WANT TO ADD THAT THERE'S A, THERE'S ANOTHER LITTLE LAYER OF DILIGENCE THAT'LL HAPPEN EACH TIME YOU'RE TALKING ABOUT ISSUING ADDITIONAL DEBT TO MAKE SURE THAT YOU'RE NOT ISSUING MORE THAN YOU REALLY HAVE THE CAPACITY TO, TO, THAT PLAYS WELL INTO THE POLICY THAT PLAYS WELL INTO TRANSPARENCY.