To help facilitate the Sugar Land Regional Airport's expansion project, Sugar Land City Council is considering guaranteeing its debt.
Council members unanimously authorized Tuesday to publicize a notice of intent to issue $4.43 million in certificate of obligation bonds to build 100 hangars.
Though the airport would repay this debt from its revenue, the city would prevent the airport from incurring the higher interest rates of revenue bonds, Assistant Director of Fiscal Services Jennifer Brown said.
"Just to clarify, this airport will, in essence, pay for these bonds," Councilman Dennis Parmer said. "Nothing will come out of our budget."
Since the airport has never issued revenue bonds, it is likely to receive a lower bond rating, Brown said. During the past five years, the airport has seen a sharp spike in airport activity, with revenue from fuel sales alone doubling, she said.
"The bond-rating agencies like consistency, and we've never had fuel sales this high before," Brown said. "They could issue revenue bonds, but they'd pay more."
Also, because the city hasn't issued any debt this year and the debt in question is less than $10 million, the bonds are considered bank-qualified, Brown said. Bank-qualified bonds present little to no risk to the investor, so banks are willing to buy the city's bonds and deduct 80 percent of their interest cost, she said.
"It makes it more marketable and community-based because (the banks) can turn around and sell them to the community," Brown said. "There's going to be more competition on who's bidding when we go to sell them."
If the airport were to default on its debt payments, the city would assume responsibility for them, Director of Fiscal Services Linda Symank said.
But if that happened, she said, the city has the ability to pick up the airport's debt payments without increasing the city's tax rate.
In 2005, the Federal Aviation Administration issued a $20 million grant to help the airport pour the hangars' foundation and build two bridge taxi-ways, Brown said. These certificates of obligations bonds would complete the project by funding the construction of the hangars.
Council members are expected to approve the preliminary official statement Nov. 20 and approve the selling of the bonds Dec. 4.
No one spoke at the public hearings Tuesday on the contract service agreement between Sugar Land and the municipal utility districts servicing the Greatwood and New Territory communities. Council is expected to adopt the agreement in November once all the districts have approved the contract.