(a) In this section, “water district” means a district or authority created under Article XVI, § 59, of the Texas Constitution.
(b) A municipality and a water district by contract may provide for the district to supply water to the municipality. By contract, the municipality and district may also provide for:
(1) the lease of the municipality’s water production, water supply, and water supply facilities to the district;
(2) the district to operate the municipality’s water production, water supply, and water supply facilities; or
(3) the municipality to operate the district’s water production, water supply, and water supply facilities.

(c) A contract under this section may prohibit the municipality from obtaining water from sources other than the district, subject to any exceptions that the contract may provide.
(d) The contract may be on any terms and for any duration to which the parties agree and may provide that it continues in effect as long as any bonds of the district specified in the contract, including bonds issued to refund them, remain unpaid.
(e) A contract under this section is subject to the district’s statutory or contractual duty to periodically revise the rate charged for water sold or services rendered by the district to the municipality under the contract so that the net revenues of the district will be sufficient to allow the district to pay its operation and maintenance expenses and the principal of and interest on the bonds secured by the contract to the extent provided by the resolution authorizing the bonds. Payments by the municipality under the contract are an operating expense of the municipal water system.
(f) A municipality may not contract under this section without first obtaining the approval of a majority of the qualified voters of the municipality who vote on the question at an election held for the purpose. The governing body of the municipality shall order the election. The governing body may submit to the voters the question of authorizing the municipality to make a water supply contract, a lease and water supply contract, or both. Both issues may be submitted as a single proposition. Notice of the election must be published once each week for two consecutive weeks in a newspaper of general circulation published in the municipality, with the first publication occurring before the 14th day before the date of the election. If such a newspaper is not published in the municipality, notice of the election must be posted at the city hall and two other public places in the municipality. If the election result is favorable, the governing body shall enact an ordinance prescribing the form and substance of the lease or contract or both, as the case may be, and directing the mayor or mayor pro tempore to sign it. The ordinance may be enacted by a vote of a majority of the members of the governing body on one reading and at the same meeting at which it is introduced.