1. (a) In addition to determining the engineering feasibility of a project, the commission shall also determine the economic feasibility of each proposed bond issue, bond amendment, and extension of time application for a bond issue. The staff of the commission shall use the following sections in making economic feasibility analysis. In its written recommendations to the commission which analyze the particular application, the staff shall always address the economic feasibility.
2. (b) Economic feasibility is the determination of whether the land values, existing improvements, and projected improvements in the district will be sufficient to support a reasonable tax rate for debt service payments for existing and proposed bond indebtedness while maintaining competitive utility rates. Utility rates which do not exceed the rates of the largest city in the geographic area in which the district is located are conclusively deemed to be competitive. Economic feasibility is influenced by many factors and varies widely depending on economic conditions, the real estate market, the number of competing projects, and geographic location.
3. (c) Projected debt service tax rate is the tax rate required to meet projected annual debt service requirement using projected assessed valuations and an appropriate tax collection rate. The projected annual debt service requirement shall include the previous and proposed debt. The projected debt service tax rate for any bond issue shall be shown in the cash flow table as a level or decreasing tax rate.

4. (d) No-growth debt service tax rate is the tax rate required to meet projected annual debt service requirements using the current assessed value and a 100% tax collection rate. The current value is determined by either:

   1. (1) the most recent certificate of assessed valuation from the central appraisal district; or
   2. (2) a certificate of estimated assessed valuation from the central appraisal district. Projected annual debt service requirements shall include the previous and proposed debt. The no-growth debt service tax rate for any bond issue shall be shown on the cash flow table as a level or decreasing tax rate.

5. (e) Combined no-growth tax rate is the sum of the following:

   1. (1) No-growth debt service tax rate of the district;
   2. (2) Projected no-growth debt service tax rate of all overlapping entities specifically attributable to water, wastewater, drainage that are smaller in size than a county, and for roads if the entity is a road district or road utility district smaller in size than a county commissioner's precinct. In other words, for road districts or road utility districts that are as large as one county commissioner's precinct, the road district tax is not counted.
   3. (3) An equivalent surcharge tax rate for water and wastewater surcharge, if any;
   4. (4) City tax rate specifically attributable to water, sewage and drainage if the district is located within a city;
   5. (5) Current or proposed district or overlapping maintenance tax levy, if any;
   6. (6) Contract tax, if any;
   7. (7) Less any equivalent tax rebate or other payments.

6. (f) Combined projected tax rate is the sum of the following:

   1. (1) Projected debt service tax rate of the district;
   2. (2) Projected debt service tax rate of all overlapping entities specifically attributable to water, wastewater, and drainage, and for roads if the entity is a road district or road utility district smaller in size than a county commissioner's precinct;
   3. (3) An equivalent surcharge tax rate for water and wastewater surcharge, if any;
   4. (4) City tax rate specifically attributable to water, sewage and drainage if the district is located within a city;
   5. (5) Current or proposed district or overlapping maintenance tax levy, if any;
   6. (6) Contract tax, if any;
   7. (7) Less any equivalent tax rebate or other payment.
7. (g) A surcharge is a flat charge in addition to rates imposed on residents receiving water and/or wastewater service from resources of a city or other entity and supplied through district facilities. Surcharge revenues are placed in the district's debt service fund and are intended to be used to meet the debt service requirement on the district's bonds.

8. (h) For districts collecting surcharge revenues, the equivalent surcharge tax rate shall be calculated as follows:

   1. (1) For residential development with similar house prices:
9. (i) For districts receiving a rebate for taxes paid to a city or other entity for water, wastewater, drainage or road service, the equivalent tax rebate shall be calculated as follows:
10. (j) The assessed value is the appraised value after considering exemptions and special valuations and is the amount to which the tax rate is applied to determine the total tax levy.

11. (k) For a district's first bond issue, the following paragraphs apply except that paragraphs (5), (6), (8), and (10) of this subsection are only applicable to a district that has a developer as defined by the Texas Water Code, §49.052(d).

    1. (1) The district shall provide the current and projected tax rates of all entities levying or proposing to levy taxes on land within the district and a comparison of such taxes with the total tax levy on all competing projects in the same market area, as defined in the market study, if applicable, shall be provided.

    2. (2) A cash flow analysis to determine the projected debt service revenue and projected tax rate shall be provided. It should include the following assumptions.

       1. (A) Each ending debt service balance in the cash flow analysis will be not less than 25% of the following year's debt service requirement.
       2. (B) Interest income will only be shown on the ending debt service balance for the first two years.
       3. (C) A 90% tax collection rate shall be used in all the projected tax rate calculations and a 100% tax collection rate shall be used in the no-growth tax rate calculations.
       4. (D) The projected tax rate shall be level or decreasing for the life of the bonds.

    3. (3) The combined projected tax rate shall not exceed the following:

       1. (A) $1.50 in Harris, Galveston, Montgomery, Fort Bend, Waller, and Brazoria Counties;
       2. (B) $1.20 in Dallas, Denton, Collin, Tarrant, Travis, Hays, Williamson, Comal, and Guadalupe Counties;
       3. (C) $1.00 in all other counties.

    4. (4) The combined no-growth tax rate shall not exceed the following:

       1. (A) $2.50 in Harris, Galveston, Montgomery, Fort Bend, Waller, and Brazoria Counties;
       2. (B) $2.20 in Dallas, Denton, Collin, Tarrant, Travis, Hays, Williamson, Comal, and Guadalupe Counties;
       3. (C) $2.00 for all other counties.

    5. (5) The following applies to the tax assessor's certificate:

       sp" OIFORMAT="LI=4"> (A) If the valuations contained in the certificate of certified assessed valuation are at least 25% higher than those contained in the previous year's certified valuation, a written explanation from the district of such increase and a detailed calculation demonstrating how the value was derived shall be provided.

    6. (6) At the time of commission approval, the following shall apply:

       1. (A) all underground water, wastewater, and drainage facilities to be financed with proceeds from the proposed bond issue or necessary to serve the projected build-out used to support the feasibility of the subject bond issue, shall be at least 95% complete as certified by the district's engineer;
       2. (B) all groundwater, surface water, waste discharge permits, or other permits needed to secure capacity to support the projected buildout shall have been obtained;
       3. (C) sufficient lift station, water plant, and sewage treatment plant capacity, as applicable depending on the type of district, to serve the connections projected for a period of not less than 18 months shall be either 95% complete as certified by the district's engineer or available in existing plants pursuant to executed contracts for capacity in plant(s) owned by other entities (but in no event less than 50,000 gallons per day water plant and sewage treatment plant capacity);
       4. (D) water supply, lift station, and wastewater treatment capacity needed to support the projected build-out used to support the feasibility of the subject bond application shall be existing or funds for that capacity shall be included in the bond issue or secured by a letter of credit or other acceptable guarantees approved by the executive director; and
       5. (E) all street and road construction to provide access to the areas provided with utilities to be financed with proceeds from the proposed bond issue, or necessary to serve the projected build-out used to support the feasibility of the subject bond issue, shall be 95% complete as certified by the district's engineer. All streets and roads shall be constructed in accordance with city or county standards, as appropriate.
    7. (7) At least 25% of the projected value of houses, buildings, and/or other improvements shown in the projected tax rate calculations shall be completed prior to advertising for the bond issue. The projections used to satisfy this section shall also be used in the calculations required by paragraphs (2) and (3) of this subsection.
    8. (8) For bonds supported by taxes, a written agreement must be executed between the district and the developer and any other landowner and their respective lenders receiving proceeds of the bonds which permanently waives the right to claim agricultural, open-space, timberland, or inventory valuation for any land, homes, or buildings which they own in the district with respect to taxation by the district. The agreement shall be binding for 30 years on such developer, other landowners, their respective lenders, any related or affiliated entities, and their successors and assignees, unless such exemptions were in effect at the time of the commission's approval of the bond issue and such exemptions were shown in the projected tax rate calculations. Such developer, landowners, and lenders shall record covenants running with the land to such effect, which shall not be modified or released without written authorization of the commission, and shall provide recorded copies to the commission prior to the approval of the bond issue.
    9. (9) One or more of the foregoing requirements may be waived for good cause by commission order if all the facilities proposed under a bond issue application are essential because of valid orders, permits, or actions against the district by a governmental agency or court. If only a portion of the bond issue is for facilities essential because of valid orders, permits, or actions against the district by a governmental agency or court and if a waiver of any of the foregoing requirements is requested, all nonessential projects may be deleted from the bond issue if not feasible under the other provisions of these rules.
    10. (10) A current market study is required for districts using growth projections to support the feasibility of the bond issue. The market study will meet the guidelines set out in the bond application report format. The market study provided will specifically address the projected building program for the three years subsequent to filing of the bond application and the period of projected buildout shown in the bond application and the competing projects in the surrounding market area. The study shall contain a detailed description of the proposed development and the houses, buildings, and other improvements which are proposed.

    11. (11) Requirements of paragraph (6)(A), (C) and (E), and the requirements of paragraph (7) of this subsection shall not apply in the following cases where:

        1. (A) the no-growth tax rate for a district containing 2,000 acres or more providing only drainage facilities does not exceed $1.30; the no-growth tax rate of a district providing major water and sewage facilities which it finances by the issuance of its bonds to an area containing 2,000 acres or more does not exceed $1.30, and the combined no-growth tax rate does not exceed $2.00; and the developer has completed a substantial amount of major thoroughfare or other infrastructure to serve the district; or
        2. (B) the district has an acceptable credit rating as defined in §293.47(b)(4) of this title (relating to Thirty Percent of District Construction Costs To Be Paid by Developer) or a credit enhanced rating as defined in paragraph (5) of this subsection;

        3. (C) the district is providing water, wastewater, and drainage facilities and the combined no-growth tax rate of all overlapping entities specifically attributable to water, sewage and drainage, and roads if the entity is a special district encompassing less than one county commissioner's precinct, if any, does not exceed the following:

           1. (i) $1.50 in Harris, Galveston, Montgomery, Fort Bend, Waller, and Brazoria Counties;
           2. (ii) $1.20 in Dallas, Denton, Collin, Tarrant, Travis, Hays, Williamson, Comal, and Guadalupe Counties;
           3. (iii) $1.00 in all other counties.
        4. (D) For the immediately preceding exceptions in subparagraph (A) or (C) of this paragraph, the developer shall provide a guarantee for its 30% share, if required pursuant to §293.47 of this title (relating to Thirty Percent of District Construction Costs To Be Paid by Developer), in the form and manner required by subsection (g) thereof. For the immediately preceding exceptions in subparagraph (B) or (C) of this paragraph, the developer shall provide a paving guarantee pursuant to §293.48 of this title (relating to Street and Utilities Construction by Developer).

12. (l) For a district's second and subsequent bond issues, all of the foregoing of subsection (k) of this section shall apply, and the following shall apply except that paragraphs (2), (3), (4), and (5) of this subsection only apply to districts that have a developer as defined by Water Code, §49.052(d) or to districts which fail to meet the criteria set out in subsection (k)(11) of this section.

    1. (1) A 90% tax collection rate shall be used in the projected tax rate calculations unless the district demonstrates that its historical collection rate is higher, and a 100% tax collection rate shall be used in the no-growth tax rate calculations.
    2. (2) The water, wastewater and drainage facilities financed by the district under previous bond issues and all road and street construction to serve such connections shall be at least 95% complete as certified by the district's engineer.

    3. (3) Sufficient lift station, water plant, and sewage treatment plant capacity to serve the connections shown in the tax rate calculations submitted in prior bond issues shall be at least 95% complete as certified by the district's engineer, unless the district is a participant in a regional surface water or wastewater plant, a permit sufficient for the expansion has been issued, and either:

       1. (A) funds are available to finance such capacity and any additional capacity necessary for a feasible expansion;
       2. (B) sufficient capacity is contractually available to serve all such prior connections; or
       3. (C) the plant is under construction with sufficient capacity to serve all such prior connections.

    4. (4) Houses and/or buildings equal to 75% of the projected buildout used in the projected tax rate calculations contained in all prior bond issues shall be completed and may be located on either:

       1. (A) the area developed from the proceeds of the prior bond issues; or
       2. (B) a combination of the area developed from the proceeds of prior bond issues, the proposed bond issue, and future bond issues.

    5. (5) The requirements of subsection (k)(10) of this section shall apply, unless the district requests and the commission, in its discretion waives such requirement for one of the following reasons:

       1. (A) disregarding those areas which had growth projected and were financed in previous bond issues, at least 50% of the value of the houses and/or buildings shown in the buildout schedule and used in the projected tax rate calculations supporting the subject bond issue must be existing;
       2. (B) the district anticipates receiving an acceptable credit rating as defined in §293.47(b)(4) of this title (relating to Thirty Percent of District Construction Costs To Be Paid by Developer) or a credit enhanced rating as defined in paragraph (5) of this subsection, and such rating must be obtained prior to the sale of bonds; or
       3. (C) the district has ratio of debt to assessed valuation as provided in §293.47(a)(1) of this title.
13. (m) Except for districts whose primary purpose is to provide service for agricultural uses, the economic feasibility of bond issues supported by benefit assessments shall be analyzed by converting the assessment to an equivalent tax rate per unit of assessment. The calculated equivalent tax rate shall be added into the combined no-growth tax rate defined in subsection (e) of this section and the combined projected tax rate defined in subsection (f) of this section. The commission may compare these equivalent tax rates to those listed in subsection (k)(3) and (4) of this section.
14. (n) Bond issues supported only by revenue from a defined area shall be analyzed to assure that the defined area meets the requirements of this section independently of the remainder of the issuing district.

15. (o) A district may request a variance if it does not meet the guidelines contained in subsection (k) and (l) of this section, and a majority of the district's board of directors finds by resolution that the district would be justified in requesting a variance. The district will be responsible for providing sufficient documentation to justify any request for a variance. The commission will only grant variances in exceptional cases and may deny any request for a variance. The commission shall not grant a variance to the maximum combined projected tax rate or the maximum combined no-growth tax rate specified in subsection (k) of this section for districts that have a developer and the district is financing 100% of construction costs pursuant to criteria set out in §293.47(a) of this title which would otherwise require 30% developer participation. In determining whether to grant a variance, the following factors shall be considered:

    1. (1) the degree of variation from the guidelines;
    2. (2) the past history of the district with respect to its projections versus actual buildout and compliance with commission rules;
    3. (3) the past history of the developer and related or affiliated entities with respect to its projections versus actual buildout and its compliance with commission rules and agreements with the district and other districts in which it developed land;
    4. (4) other factors peculiar to the district, such as the area in which situated, economic factors, the adjoining competitive developments, and their status;
    5. (5) the financial resources of the developer and its lender and any special commitments, obligations, or expenditures for the project;
    6. (6) past history of the market area in which the project is located; and
    7. (7) other factors which may affect the feasibility of the project.

Source Note:The provisions of this §293.59 adopted to be effective August 9, 1989, 14 TexReg 3572; amended to be effective June 30, 1993, 18 TexReg 3758; amended to be effective April 15, 1994, 19 TexReg 2301; amended to be effective October 22, 1996, 21 TexReg 9905.