Sec. 552.003. ACQUISITION OF EXISTING PUBLIC UTILITY; PAYMENT IN LIEU OF SCHOOL TAXES. (a) If, after May 8, 1943, a municipality acquires an existing public utility, the property of which is subject to taxation by a school district, and the municipality finances the purchase of the utility by issuing revenue bonds, the governing body of the municipality may expressly provide, in an indenture of trust, mortgage, or other lien instrument that evidences the obligation of the municipality for the purchase price, for an annual payment from the income of the utility of an amount equal to the average annual taxes assessed by the school district on the properties of the utility for the five years preceding the year in which the utility is acquired.

(b) The school board trustees and the governing body of the municipality may agree on an annual payment of a sum in lieu of school taxes. The sum must be adequate and just under the circumstances of the case considering the school district's needs.

(c) The obligation of the municipality to make the payment in lieu of taxes is a proper item of municipal operating expenses that, with other operating expenses, is a first lien and charge against the income of the encumbered utility.

(d) The obligation of the municipality to make the payment in lieu of taxes as provided in the encumbrance agreement is an "expense or obligation" of the utility system as that term is used in statutes authorizing the acquisition of a public utility and the issuance of revenue bonds for the purchase of the utility. The obligation extends to and binds any municipality that purchases or otherwise acquires an existing public utility in accordance with the terms of the encumbrance agreement or mutual agreements as authorized under Subsections (a) and (b).

(e) The obligation of the municipality as fixed in the indenture or encumbrance is not impaired, affected, modified, or released by the release or discharge of the encumbrance, and, as long as the municipality owns and operates the public utility, it shall continue to pay to the school district on an annual basis from the revenues of the utility an amount equal to the average annual taxes assessed in behalf of the school district on the properties of the utility for the five years preceding the year in which the utility is acquired by the municipality. Alternatively, after the release or discharge of the encumbrance, the school board trustees and the governing body of the municipality may agree to provide for a payment in lieu of school taxes as provided by Subsection (b).

Acts 1987, 70th Leg., ch. 149, Sec. 1, eff. Sept. 1, 1987.

Renumbered from Local Government Code, Section 402.003 by Acts 2007, 80th Leg., R.S., Ch. 885 (H.B. 2278), Sec. 3.76(a)(2), eff. April 1, 2009.