Municipal bond issuers in Austin, Texas, will rack up new debt after voters approved $3.56 billion in general notes in the Nov. 8 general election.
Voters in the capital 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, especially if the issue is multi-year.
“Given the recent growth in the tax base (and likely future growth post-recession), the additional debt is unlikely to put an undue burden on taxpayers,” Steve Murray, an analyst with Fitch Ratings, said in an email.
For example, Austin ISD based a property tax rate increase of one cent per $100 of taxable value on the new bonds on estimated value, which the Chief said would increase by 7% over the next two years and 2% over the next three to nine years. CFO Eduardo Ramos will increase.
“This year our property values are up 18%,” he said. “As a result, we’re still expecting high property value appreciation over the next year, but again we’ve been very conservative in our estimates to ensure we can afford what we’re asking voters to do.”
According to the official statement for the district’s most recent bond sale in January, the district’s population increased 10% to nearly 1.4 million between 2018 and 2022, and taxable property values increased nearly 39% to $143.3 billion.
The district expects to sell the 25-year bonds in increments of $400 million to $500 million over six years, with a goal of issuing the first bonds in early or mid-February, Ramos said.
“We want to get started with this bond program,” he said. “We have already planned projects specifically related to security, which are scheduled to start this summer.”
Austin ISD and several other Texas districts have included security improvements in the bond measures they were seeking voter approval for last week when the May 24 shooting of 19 elementary school students and two teachers in Uvalde, Texas, lacked an emphasis on door security fencing, etc., as well as emergency communications.
Ramos said the underwriters for the negotiated bond issues will be selected from 26 firms selected through a bidding process last year. On Thursday, the school board will select law firms for the district’s borrowing services, while Estrada Hinojosa & Associates and RBC Capital Markets will continue to serve as co-financial advisors, he added.
One looming uncertainty is the capacity of the Texas Permanent School Fund, which gives school bonds triple-A ratings and lowers their interest costs. Ramos said many districts are expected to apply for debt sponsorship in the spring to fully utilize the program next year.
If that happens, Austin ISD, which is triple-A rated by Moody’s Investors Service and the Kroll Bond Rating Agency and AA-plus by Fitch, won’t be impacted as badly as lower-rated counties, he added.
PSF forecast 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. Representatives Lloyd Doggett, D-Texas and Jodey Arrington, R-Texas, introduced legislation Permanently removing the Internal Revenue Service’s $117.32 billion limit on the Permanent School Fund.
The city of Austin, which is expected to begin issuing its bonds next year, expects to increase property taxes by 1.32 cents for every $100 valuation of property taxes over the life of the debt, which finances land acquisitions, condominium and rental housing development projects, and home repairs become programs.
Plans for the sale of the $350 million in bonds have not yet been finalized, and the city said it has a history of issuing affordable housing bonds on a taxable basis.
“Taken as a whole, this level of debt, accompanied by tax base growth, accompanied by the City of Austin’s sheer revenue growth, is minimal,” said Grayson Nichols, an analyst at Moody’s, which rates the city at Aa1.
The Community College District expects rising property values under the current tax rate to generate additional income for its bonds, which will fund expansions 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 relative to its tax base, and “adding that debt, probably in tranches, will keep that debt burden manageable.”
School districts accounted for $15 billion of the $21 billion in bonds issued on Texas general election ballots, according to data from the state Bond Review Board.
The fast-growing Houston-area Lamar Consolidated Independent School District received voter approval for $1.5 billion in bonds to build, renovate and expand schools, as well as a new careers and technology center and for Classroom and district technology and equipment. But his constituents turned down nearly $200 million in bonds for stadium improvements and building a stadium.
Tim Hardin, president and CEO of Texans for Fiscal Responsibility, said his group hopes the state legislature will limit future debt issuance by including school funding and choices next year.
“Any mechanism or change we could make in school funding that would prevent us from incurring interest-bearing debt at taxpayers’ expense to fund constitutionally free education would be the way we currently fund schools, far superior,” he said.
With Texas coffers stocked with cash, Republicans, who retain control of the state government after the Nov. 8 general election, have their sights set on property taxes.
Before being re-elected to a third term, Gov. Greg Abbott tweeted, “Texas is sitting in a $27 billion SURPLUS on our record revenue. We will use a majority of it to achieve the largest property tax cut in Texas history.”
Elsewhere in Texas, Dallas voters said yes to an increase in the city’s hotel tax rate as part of a plan to issue about $1.8 billion in revenue bonds to replace the Kay Bailey Hutchison Convention Center.
Oklahoma City’s public schools said they will hit the municipal bond market in the next two months, with their first sale unlocking $955 million in bonds passed by voters last week. The issue will be spread over 10 years.
In Colorado, 65% of voters supported lowering the state’s flat income tax rate for individuals and corporations from 4.55% to 4.4%.
New Mexico voters’ approval of a constitutional amendment to increase funding for education through an increase in the annual payout from the state’s Land Grant Permanent Fund was described by Moody’s as credit positive.
“The new funding would support the state’s education improvement efforts by approximately $230 million annually (2.5% of the FY2022 general fund’s recurring revenue) over the next six years,” the rating agency said in a statement Report. “This is creditworthy because research shows that investing in education can reduce poverty and increase incomes, areas where New Mexico lags behind most other states.”
Also in New Mexico, three statewide bonds were issued: nearly $216 million for capital improvements in higher education, public special schools, and tribal schools, $24.47 million for improvements in facilities for the elderly, and $19.7 million for public libraries .
In Utah, the Alpine School District’s record-breaking $595 million bond proposal failed, as did a proposal for the city of Orem to abandon the district and start its own.
“While the bond was not passed, we will continue our commitment and efforts to meet the needs for additional schools, building renovations and student safety improvements across our communities,” the Alpine District said in a statement.