THE SHORT ANSWER:
Yes.
Texas cities can issue a type of debt called certificates of obligation, or COs, without first asking voters to approve the borrowing in a conventional bond election.
But there are rules. The City must provide public notice, and in many cases voters can petition to require an election before the debt is issued.
WHY SHOULD I CARE?
Because you may ultimately help repay that debt even though you never voted on whether the City should borrow the money.
Certificates of obligation can be repaid using property-tax revenue, other City revenues, or a combination of the two. Texas law requires the public notice to disclose how the proposed certificates will be repaid, along with the maximum principal amount, estimated principal and interest, and maximum maturity date.
That makes understanding COs especially important when a city is considering a large, long-term financial commitment.
MAKE IT MAKE SENSE:
Imagine the City wants to build a major public project.
One way to borrow the money is through general obligation bonds, commonly called GO bonds.
But Texas law gives cities another financing tool: certificates of obligation.
With COs, the City Council can authorize certain borrowing without first putting the debt on the ballot. The City must publish notice before the certificates are authorized. That notice must tell residents, among other things, how much the City proposes to borrow, what the money is for, how the debt will be repaid, the estimated total principal and interest, and how long the debt may remain outstanding.
Here’s the part that’s easy to miss:
No election does not necessarily mean voters have no say.
For COs subject to the petition provision, if at least 5% of the City’s qualified voters submit a valid petition protesting the issuance before the statutory deadline, the City cannot issue those certificates without holding an election and receiving voter approval. Texas law also contains exceptions to these procedures for certain purposes.
So the system essentially works differently from a traditional bond election:
GO bond: The City asks voters before issuing the voter-authorized debt.
Certificate of obligation: The City Council can authorize qualifying debt without an election unless an applicable legal requirement or a successful voter petition requires one.
And this isn’t just a technical distinction for Pflugerville.
In 2023, Pflugerville City Council approved approximately $153 million in certificates of obligation for Downtown East. Community Impact reported that $86.8 million was tax-supported and $66.2 million was described as self-supported.
That’s why knowing the words “certificate of obligation” matters.
When you see them on an agenda, don’t just ask:
“What are they building?”
Also ask:
“How much are we borrowing, how much will repayment cost, what revenue will repay it, and was an election required?”
THE RECEIPTS:
Chapter 271 of the Texas Local Government Code establishes the certificate-of-obligation process. It sets the public-notice requirements and provides that, for COs subject to the petition process, a petition signed by at least 5% of qualified voters can require an election before issuance.
WHY CERTIFICATES OF OBLIGATION EXIST
The Texas Comptroller explains that COs give local governments flexibility to finance certain public projects without first holding a conventional bond election. The Comptroller also explains the 5% petition mechanism and discusses both the practical arguments for COs and concerns that have surrounded their use.
HOW PFLUGERVILLE USED THEM FOR DOWNTOWN EAST
In May 2023, Pflugerville City Council approved approximately $153 million in certificates of obligation for Downtown East. Community Impact reported that $86.8 million was tax-supported and $66.2 million was designated as self-supported.
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