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ADOPTED | BUDGET

Tax Increment Financing (TIF) Debt Service – The TIF #2 Debt Service Funds are used to make
principal and interest payments on debt issued for infrastructure and other capital improvements
made within the City’s tax increment zone and refunding bonds. The primary source of revenue for
TIF debt service is property tax generated by holdings within the TIF districts.

Aquatic Park Fund Debt Service – The Aquatic Park Fund makes payments for the principal and
interest of scheduled debt service associated with Aquatic Park improvements. Debt service
consists of principal and interest on outstanding bond issues. The source of revenue for Aquatic
Park debt service is current revenues of the Aquatic Park.

Both Drainage Utility and Internal Service debt are included with General Debt Service.

Drainage Utility – The Drainage Utility Fund makes payments for the principal and interest of
scheduled debt service associated with citywide drainage improvements. The primary source of
revenue for the Drainage Utility Fund is drainage fees charged to improved property, which may or
may not be a part of the wastewater system such as a septic system.

Internal Service – The Equipment Services and Building Services Funds make payments for the
principal and interest of scheduled debt service associated with building improvements and capital
equipment purchases and refunding bonds. The primary source of revenue for these funds is user
fees charged back to all other City departments utilizing services.

DEBT MANAGEMENT

Debt Issuance – The City issues debt only for the purpose of acquiring or constructing capital assets
for the general benefit of its citizens, and to allow it to fulfill its various missions as a City. Debt may
be issued for the purposes of purchasing land or right-of-way and/or improvements to land, for
construction projects to provide for the general good, for capital equipment, or for refunding existing
debt. The City will uphold all related bond covenant agreements associated with bond issues. Bond
issues will be conducted after consultation with an external financial advisor. The City will maintain
good communications with bond rating agencies, financial advisors, independent auditors,
investors, and citizens regarding its financial condition.

General Obligation Bonds (GO’s) – General Obligation Bonds are used to fund capital assets of
the general government such as facilities, streets, and drainage, and to refund existing debt.
They are not to be used to fund operating needs of the City. A general obligation bond is a
legal debt instrument used to finance permanent projects within the City limits. The tax base
and the City’s ability to tax for repayment of indebtedness back the bond. The full faith and
credit of the issuing government also back the bond. State law requires an incorporated city to
submit the proposed bond issue to a public referendum and to receive voter authorization prior
to issuance of bonds.

Revenue Bonds (RB’s) – Revenue Bonds are issued to provide for the capital needs of an activity
that requires continuation or expansion of a service that produces revenue, and for which the
asset may reasonably be expected to provide for a revenue stream to fund the debt service
requirements. A revenue bond is a legal debt instrument used to finance permanent public
projects. Unlike the GO bonds, the revenue bond does not require voter approval. The City
Council is authorized to approve the bond issue and set user rates at a sufficient amount to
pay the annual principal and interest as well as operating needs.

380 NRH | TEXAS