Voters make Austin, Texas, issuers flush with bond authorizations
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Municipal bond issuers in Austin, Texas will be piling on new debt after voters approved $3.56 billion of general obligation bonds in the Nov. 8 general election.
Voters in the capital city passed bonds totaling $2.44 billion for the Austin Independent School District, $770 million for the Austin Community College District, and $350 million for the city.
Rating analysts said rising property values will help make the debt manageable, particularly if issuance is spread over multiple years.
“Given the recent tax base growth (and likely future post-recession growth), it’s unlikely the additional debt will create undue strain on taxpayers,” said Steve Murray, a Fitch Ratings analyst, in an email.
For example, Austin ISD based a property tax rate increase of one cent per $100 taxable value for the new bonds on estimates value will grow by 7% over the next two years and by 2% for the subsequent three to nine years, according to Chief Financial Officer Eduardo Ramos.
“This year our property values grew 18%,” he said. “So we’re still anticipating high property value increases next year, but again we were very conservative in our estimates to make sure that we could afford what we were asking the voters to approve. “
According to the official statement for the district’s most recent bond sale in January, between 2018 and 2022 the district’s population increased 10% to almost 1.4 million, and the taxable assessed property values rose almost 39% to $143.3 billion.
The district expects to sell the 25-year bonds over six years in $400 million to $500 million increments with the goal of issuing initial bonds in early or mid-February, according to Ramos.
“We want to hit the ground running with this bond program,” he said. “We have projects already scheduled specifically on security to begin as soon as this summer.”
Austin ISD and several other Texas districts included security improvements in the bond measures they sought voter approval for last week as the May 24 shooting deaths of 19 elementary students and two teachers in Uvalde, Texas, put a focus on door security, inadequate fencing, as well as emergency response communications.
Ramos said underwriters for the negotiated bond issues will be selected from among 26 firms picked through a request for proposals process last year. On Thursday, the school board will be choosing law firms for the district’s bond services, while Estrada Hinojosa & Associates and RBC Capital Markets will continue as co-financial advisors, he added.
One looming uncertainty is capacity at the Texas Permanent School Fund, which bestows triple-A ratings on school bonds, lowering their interest costs. Ramos said many districts are expected to seek the guarantee for their debt in the spring, pushing the program to capacity next year.
If that happens, Austin ISD, which is rated triple-A by Moody’s Investors Service and Kroll Bond Rating Agency and AA-plus by Fitch won’t be as impacted as lower-rated districts, he added.
The PSF’s projected available capacity shrank to $3.52 billion at the end of September from $3.97 billion at the end of August.
In September, U.S. Reps. Lloyd Doggett, D-Texas and Jodey Arrington, R-Texas, introduced legislation to permanently remove the $117.32 billion Internal Revenue Service limit on the Permanent School Fund.
The city of Austin, which expects to begin issuing its bonds next year, anticipates a 1.32 cent per $100 of valuation property tax hike over the life of the debt, which will fund land acquisition, ownership and rental housing development assistance projects, and home repair programs.
Plans for selling the $350 million of bonds have not yet been determined and the city said it historically has issued affordable housing bonds on a taxable basis.
“Looking at it holistically, that amount of debt accompanied with tax base growth, accompanied with the sheer revenue growth of the city of Austin, it’s minimal,” said Grayson Nichols, an analyst at Moody’s, which rates the city Aa1.
The community college district expects rising property values will provide additional revenue under the current tax rate for its bonds, which will finance expansion and other projects at its three campuses. Bond issuance plans were not immediately available.
Nichols said the Aa1-rated college district has a low debt burden compared to the size of its tax base and “adding in this debt, likely in tranches, will keep that debt burden manageable.”
School districts accounted for $15 billion of the $21 billion of bonds on Texas general election ballots, according to state Bond Review Board data.
bond measures passed
Fast-growing Lamar Consolidated Independent School District in the Houston area won voter approval for $1.5 billion of bonds for school construction, renovation, and expansions, as well as for a new career and technology center and for classroom and district technology and equipment. But its voters rejected nearly $200 million of bonds for stadium improvements and construction of a stadium.
Tim Hardin, president and CEO of Texans for Fiscal Responsibility, said his group is hoping the state legislature restrains future debt issuance by taking up school finance and choice next year.
“Any mechanism or any change we could make in school finance that would prevent us having to take out debt with interest at taxpayers’ expense to fund constitutionally free education would be far superior to the way we currently fund schools,” he said.
With Texas coffers flush with cash, Republicans, who remain in control of the state’s government after the Nov. 8 general election, have property taxes in their sights.
Ahead of his reelection to a third term, Gov. Greg Abbott tweeted: “Texas is sitting on a $27 billion SURPLUS because of our record setting revenue. We will use much of it to deliver the largest property tax cut in Texas history.”
Elsewhere in Texas, Dallas voters said yes to increasing the city’s hotel tax rate as part of a plan to issue about $1.8 billion of revenue bonds to replace the Kay Bailey Hutchison Convention Center.
Oklahoma City Public Schools said it will hit the municipal bond market in the next two months with its first sale tapping $955 million of bonds passed by voters last week. Issuance will be spread over 10 years.
In Colorado, 65% of voters favored reducing the state’s flat income tax rate for individuals and corporations to 4.4% from 4.55%.
Approval by New Mexico voters of a constitutional amendment to increase education funding via a boost in the annual distribution from the state’s Land Grant Permanent Fund was called a credit positive by Moody’s.
“The new funding would bolster the state’s efforts to improve education by approximately $230 million (2.5% of fiscal 2022 general fund recurring revenue) annually over the next six years,” the rating agency said in a report. “This is credit positive because research shows that investments in education can reduce poverty and raise earnings, areas where New Mexico trails most other states.”
Also passed in New Mexico were three statewide bond issues: nearly $216 million for higher education, special public school, and tribal school capital improvements, $24.47 million for senior citizen facility improvements, and $19.7 million for public libraries.
In Utah, the Alpine School District’s record $595 million bond proposal failed as did a proposal for the city of Orem to leave the district and create its own.
“While the bond did not pass, we will continue our commitment and efforts to address the need for additional schools, building renovations, and safety/security improvements for students throughout our communities,” the Alpine district said in a statement.
