Council approves Certificate of Obligation sale to fund hydroelectric repairs

GONZALES – Tuesday night council convened in a regularly-scheduled meeting, to discuss a multitude of issues; including the possible issuance, sale and delivery of $1.7 million in certificates of obligation, to fund the city's much-needed hydroelectric dam repairs.

Council approved the sale and secured the payment by way of levy of a 3.6 cent Ad Valorum Tax.

A certificate of obligation is a form of debt available to governing councils in case of an emergency, needing immediate action, without time for voter referendum.

Texas law usually requires local governments to seek voter approval before debt issuance which is to be repaid from tax revenues. Government borrowing representing an exception to this rule is done by certificates of obligation, which can be used by local governments to fund public projects without voter approval.

According to Texas Municipal League (TML), Texas law provides local governments two options for issuing long-term debt to finance most public works projects: certificates of obligation and general obligation bonds. With certificates of obligation, voters can petition for an election. With general obligation bonds, a city calls an election for voter approval.

TML information states the law also gives local governments the flexibility to issue debt through certificates of obligation on a shorter timeline. This enables the entity to take advantage of favorable interest rates or an opportunity to acquire a property, to make emergency repairs after a disaster or to address a critical public need, without having to wait for the next uniform election date on the calendar.

According to TML, with certificates of obligation, voters do have the last say, with the option to petition for an election on whether the certificates should be issued. The bar was set relatively low for the petition requirements to call an election. Only five percent of qualified voters need to sign a petition for an election on the issuance of certificates of obligation. By comparison, at least seven percent of qualified voters have to sign a petition to call an election to roll back a property tax increase in larger cities. In smaller cities, 10 percent must petition for a rollback election. And, it takes 10 percent of qualified voters to petition for an election to reduce or increase a city’s sales tax rate or for an election to create a charter commission to write a new city charter.