The Houston suburb of Friendswood expects a declaratory judgment this week on a plan to issue $11 million of certificates of obligation that it maintains does not require approval by voters.
Voters in May rejected a $9.6 million general obligation bond package that would have financed construction of a new library, conversion of the current library to a community center, and park upgrades.
Proceeds from the CO sale would be dedicated to street and drainage improvements, an animal control facility, sports park expansions, and a record retention center, according to the city.
The city sought a declaratory judgment in a Travis County district court after some residents said any debt issued by the affluent suburb 30 miles south of downtown Houston required voter approval.
Friendswood contends that state law allows the sale of the certificates, which won't raise the property tax rate levied by the city. The City Council retained Vinson & Elkins LLP in the case to pursue the court judgment and ensure the city's actions are legal and valid.
"In planning for the bond election, the City Council also stated that it intended to issue the certificates," said Nick Haby, assistant to the city manager. "Now there are some citizens that protest the legality of that and point to the city charter claiming it prohibits the sale."
Haby said none of the projects outlined in the bond package would be financed with proceeds from the certificates.
He said there has been a "lot of confusion and a steady stream of inquiries" about the proposed certificate sale since the election. Some people think the city is suing its citizens, which isn't the case, Haby said.
Friendswood's GO debt carries underlying ratings of A1 from Moody's Investors Service and A-plus from Standard & Poor's.