Texas expects debt issuance to increase this fiscal year

Texas expects to issue about $5.17 billion of debt during fiscal year 2021, an increase of $491.2 million or 10.5% over the amount for the previous year, according to the Texas Bond Review Board’s annual report.

The annual report issued each December tallies state and local debt in the fiscal year ended Aug. 31 and projects the amount expected in the current fiscal year.

This year's report comes as Texas lawmakers prepare to convene in January in their 87th session. Legislators face lower revenues than forecast after the double-whammy of the COVID-19 pandemic and falling oil prices.

In fiscal 2020, the state’s outstanding debt grew 4.2% to $62.44 billion compared to $59.90 billion in fiscal year 2019 and $56.83 billion in fiscal year 2018, according to the BRB report.

“Bonds issued by Texas state agencies, colleges, and universities during fiscal year 2020 increased by 88.3% to an aggregate total of $12.40 billion compared to $6.59 billion issued in fiscal year 2019,” the report said. “Fiscal year 2020 issues included $3.02 billion in new-money and $9.38 billion in refunding bonds. Other debt issued included $1.29 billion of commercial paper.”

About $18 billion or 29% of the state's $62.44 billion in total debt outstanding was backed by the state’s general obligation pledge, a decrease of $132.9 million or 0.7% from the $18.14 billion backed by the GO pledge at the end of fiscal year 2019.

Excluding conduit and component debt, $35.11 billion or 56% of the state's total debt was backed by non-GO revenue pledges, an increase of $1.73 billion or 5.2% from the $33.38 billion outstanding in 2019. Colleges and universities are the largest issuers of revenue debt with $15.86 billion outstanding, excluding Permanent University Fund debt.

About $9.33 billion or 15% of outstanding issues at the end of August was state conduit and component debt which includes $4.56 billion of debt for the Grand Parkway Transportation Corp., a public-private partnership with the Texas Transportation Commission that is building a toll beltway around the greater Houston area.

The conduit and component debt outstanding represents an increase of $937.9 million or 11% from the $8.39 billion outstanding at the end of fiscal year 2019.

Texas entered the fiscal year Sept. 1 with $17.49 billion in authorized but unissued debt compared to $13.35 billion at the start of fiscal 2019.

The increase comes from $3 billion for cancer research and $200 million for TWDB economically distressed areas projects, both authorized by the voters at the November 2019 general election, as well as $200 million for Texas Water Development Board’s State Participation account projects, $208.8 million for Health and Human Services Commission deferred maintenance projects, and $326 million for a TXDOT Austin Campus Consolidation project all authorized by the 86th Legislature.

Texas ranked 42nd among all states in net tax-supported debt per capita. Texas had $379 in net tax-supported debt per capita compared to the national median of $1,071, according to Moody’s Investors Service.

The most recent U.S. Census Bureau data showed that Texas continued to be ranked second in population, second among the 10 most populous states in terms of local debt per capita, fourth in total state and local debt per capita, and seventh in state debt per capita.

Texas’ net tax-supported debt per capita ranked second lowest when compared to that of the eight other states rated AAA. Delaware had the highest debt per capita among the triple-A states at $3,289. Texas’ 2019 personal income per capita of $52,813 was above that of five other AAA states: Florida, Georgia, North Carolina, Tennessee, and Utah.

“Many communities throughout Texas are continuing to experience significant population growth with increasing demand for infrastructure, programs, and services,” the report noted. “Population growth in the state, according to the U.S. Census Bureau, increased 5.6% or 1.5 million from 2015 to 2019, forcing many small and medium-sized communities to increase financing for infrastructure such as roads, schools, water, and wastewater services to meet expanded needs.”

Texas local governments ended the last fiscal year with $239.98 billion in outstanding debt, an increase of $37.63 billion or 18.6% since fiscal year 2015, per the report.

Of the 2019 total, 65.7% or $157.59 billion is GO debt to be repaid from local property tax collections, while the remaining 34.3% or $82.39 billion will be repaid from revenues generated by various projects such as water, sewer, and electric utility fees.

Since fiscal year 2015, tax-supported debt outstanding increased 21% or $27.33 billion, and revenue debt outstanding increased 14.3% or $10.3 billion. School districts accounted for 36.6% of all local debt outstanding, and cities accounted for 32.4%. Water districts held the third highest percentage at 13.9%.

The remaining 17% was held by community and junior colleges, counties, health/hospital districts and other special districts.

Local tax-supported debt has grown 21% from $130.26 billion in fiscal year 2015 to $157.59 billion in fiscal year 2019, the report said. Tax-supported debt for Texas school districts increased over the past five years from $71.96 billion in fiscal year 2015 to $87.67 billion in fiscal year 2019, nearly 22%, while public school attendance for districts with debt outstanding increased by 6.9% to 5.03 million students.

“Tax-supported school district debt accounted for 55.6% of all tax-supported debt and is primarily used to finance instructional facilities while only a handful of school districts carry revenue debt for constructing, improving, and equipping athletic/stadium facilities,” the report noted.

Not counting issuances of conduit and private placement debt, during fiscal year 2020, the weighted average of issuance costs for state bond issuers was $5.09 per $1,000 compared to $5.54 per $1,000 for fiscal year 2019. The issuances ranged in size from $23.0 million to $1.27 billion.

The average issue size for Texas’ state issuers increased to $343 million from $198.3 million in fiscal year 2019, helping to lower costs per $1,000 of par.

Of the 25 state transactions completed in the fiscal year, 20 were $100 million or larger, compared to 17 of the 29 transactions completed in fiscal year 2019.

In fiscal year 2020, the weighted average underwriting spread accounted for 73.5% of all issuance costs.

“As a result of an increase in the average underwriter’s takedown costs, spread expenses, and management fee in fiscal year 2020, the weighted average underwriting spread per $1,000 of bonds issued increased to $3.75 from $3.70 in fiscal year 2019,” the report noted.

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Texas State of Texas
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