Corpus Christi, Texas, is facing a period of financial uncertainty after a pivotal decision by its City Council to halt a decade-long plan for a seawater desalination plant. The aftermath of this move has placed the city’s bond ratings under review, raising questions about its water security, future investment capacity, and the economic stability of the region.
On September 3, 2025, the Corpus Christi City Council voted 6-3 to end the contract with the company designing the $1.2 billion Inner Harbor Water Treatment Campus—a planned desalination facility that would have produced up to 30 million gallons of treated water daily. According to Moody’s Ratings, this decision triggered an “unexpected acceleration of water depletion risk,” as the city abruptly canceled a long-term effort to boost its water supply without a clear replacement strategy. The review, announced late on September 10, comes against a backdrop of persistent drought along the Texas Gulf Coast and growing demand from both new and existing water-intensive industries, as reported by Moody’s and local outlets.
Moody’s, which currently rates Corpus Christi’s general obligation and sales tax revenue bonds at Aa2 and its utility revenue bonds at Aa3, said, “The city’s water stress negatively impacts its environmental, social, and governance risks, which are drivers of this action.” The agency emphasized that the review will cover the city’s ability to secure enough water “in the likely event” that its western supply dries up, and it will also evaluate the long-term implications of these vulnerabilities on Corpus Christi’s economic, financial, and leverage profiles.
Corpus Christi Water isn’t just a local utility—it’s the primary water supplier for a seven-county region. That means the stakes are high, not only for residents but for regional industries dependent on a stable water source. The city currently holds about $2.1 billion in outstanding debt, and its financial commitments include an obligation to repay $235 million in principal and $135.8 million in interest on bonds issued by the triple-A-rated Texas Water Development Board (TWDB) for water projects. City officials have floated the idea of defeasing (or paying off) these bonds at their 10-year call dates, but it remains unclear how quickly unspent proceeds could be redirected to other water initiatives.
The potential downgrade isn’t just a matter of civic pride or bureaucratic headache—it could hit the city’s wallet. A lower bond rating generally means higher interest rates when Corpus Christi issues new bonds, which would drive up the cost of borrowing for crucial infrastructure projects. “If we’re not going to invest in that, then obviously whoever we borrow the funds from will have some concerns about our ability to pay them back,” City Councilman Roland Barrera told the Caller-Times. He warned that curtailment—a forced reduction in water use for all customers—was likely on the horizon, a move that could have significant economic fallout, especially for local industry and jobs.
City Manager Peter Zanoni echoed these concerns, explaining that higher interest rates would leave less money for investment in long-term water and wastewater infrastructure. “Right now, the downgrade based on that Moody’s letter seems to be primarily based on the lack of water security through the discontinuing of that project that the city has worked on for 10 years,” Zanoni said. “But if the rating agencies see … more water security demonstrated through projects coming online, that will help change their opinion and we could probably get upgraded again.”
Moody’s focus is squarely on water supply. In its statement, the agency said it would “evaluate the city’s ability and/or feasibility of its plan to secure sufficient water sources to meet demand, should the combined capacities of Lake Corpus Christi and Choke Canyon Reservoir be fully depleted in the upcoming years.” While city officials acknowledged that other issues—such as utilities rate-setting and fund balance drawdowns—play a role in the city’s financial health, Moody’s did not cite these in its review announcement.
Still, the city’s recent actions on rates and budgeting have not gone unnoticed. On September 9, 2025, just days after the desalination project was shelved, the City Council adopted a tighter budget that included increases in water, wastewater, and taxes. The new rates will see the average residential water bill rise by about $4.78 (from $37.29 to $42.07), while monthly wastewater charges will increase by about $4.20 (from $59.32 to $63.52). The council’s decision followed intense debate, with some members initially balking at staff-recommended rate hikes and requesting alternative, lower-increase options. Ultimately, the council approved the staff’s original proposal, reflecting the urgent need to shore up revenues and ensure the city’s financial stability.
Victor Quiroga, the city’s financial adviser, told the council that ratings agencies had been monitoring not just the desalination vote but also the city’s approach to rate adjustments and reserve management over several years. He noted that the city’s current credit rating is AA-, three steps down from the highest rating, and that a “negative outlook” had already been assigned last year, signaling the possibility of a downgrade if trends continued unchanged.
The city isn’t standing still, however. In the wake of the desalination project’s cancellation, officials have highlighted several alternative water supply initiatives. These include the ongoing development of a wellfield along the Nueces River, a groundwater initiative in San Patricio County, a water reuse proposal, and potential purchases of treated brackish groundwater from the South Texas Water Authority and desalinated water from the Nueces River Authority, which plans to build a plant on Harbor Island. While the Nueces River wells are moving forward, most other projects remain in the permitting phase or lack finalized contracts, leaving the city’s future water security uncertain for now.
City Councilman Gil Hernandez pushed back on the idea that the desalination project’s cancellation was the only reason for the bond rating review. He pointed to the city’s above-average leverage ratio and the time required to repay its debt, arguing, “If they tried to blame this solely on this desal thing, that would be false.” Nevertheless, the confluence of drought, industrial demand, and a stalled flagship water project has undeniably heightened the city’s risk profile in the eyes of credit agencies.
City officials are scheduled to meet with Moody’s representatives on September 15, 2025, with a decision on the city’s ratings expected within a few weeks. Zanoni expressed hope that demonstrating progress on alternative water projects could help stabilize or even improve the city’s standing in the future. “We’re going to show Moody’s on Monday that, yes, the City Council didn’t approve the seawater (desalination) project, but we have many other projects we’re working on that should provide better water stability,” he said.
For Corpus Christi, the coming weeks will be critical. The city must convince ratings agencies that it can secure its water future without the Inner Harbor plant, or risk higher borrowing costs and tighter constraints on growth and investment. The outcome will shape not just the city’s finances, but the daily lives of residents and the economic prospects of South Texas for years to come.