Austin’s $93M Refunding Clears A Path for Next Bond Program

DALLAS — As Austin begins mapping its next bond program, the triple-A Texas capital is taking advantage of low interest rates with a $93 million refunding this week.

This week’s deal includes $90.5 million of tax-exempt Series A bonds and $3 million of taxable Series B bonds.

The bonds will price through negotiation with Ramirez & Co. Public Financial Management Inc. is financial advisor and McCall Parkhurst & Horton is bond counsel.

The deal comes about two months after the city issued $164 million of new-money debt for public improvement projects in a competitive sale. The upcoming bonds will be used to refund a portion of Austin’s outstanding general obligation bonds for debt service savings. The city’s triple-A rating is expected to bring strong demand.

“Despite growth pressures in recent years and the current economic challenges, Austin’s financial performance remains strong,” said Standard & Poor’s analyst Kate Choban. “Management’s $104.6 million total unreserved general fund balance for fiscal 2010 equated to 17.6% of general fund expenditures, after a $16 million surplus due to budgeting we consider conservative.”

Austin is adjusting to weakening property values, but not to the degree of most U.S. cities. The Austin Board of Realtors reported recently that the median home price in the metro area was $200,000, and the mean price was $261,273, unchanged from August 2010. Realtors reported the average number of days on market for single-family homes was 79 in August and that pending sales for single-family homes were up 19% year over year.

The Rice University Kinder Institute for Urban Research in July ranked Austin as the 11th fastest-growing city nationwide after the metro area added 500,000 residents in the past decade. The institute predicted Austin would add 6,000 residents just between July and August this year.

The Federal Reserve Bank of Dallas predicted that the area would add 7,000 to 11,000 jobs this year.

Austin’s fiscal 2010 assessed valuation of more than $80.9 billion reflected a 5.5% gain over 2009 and more than double that of fiscal 2000. Much of the gain, however, was attributable to the completion of an annexation, Standard & Poor’s said.

The fiscal 2011 valuation of $77.1 million, a decline of 4.8%, is in line with the property value declines seen in other major Texas cities, according to analysts.

Values rebounded in fiscal 2012 to $80.1 billion, a 3.9% increase over fiscal 2011.

“The substantial tax base is diverse in our opinion, with the 10 leading taxpayers accounting for just 6.4%” of assessed value, Choban noted. “We believe that wealth and income levels are strong: median household effective-buying income stands at 98% of the national average (which is artificially low given the presence of the University of Texas at Austin), and market value per capita for fiscal 2012 is $98,417.”

With all that growth, the city’s notorious traffic congestion is worsening. After voters narrowly thwarted a light-rail system in 2000, the Capital Metropolitan Transit Authority won approval for a 32-mile commuter line from downtown Austin to Leander. That line runs on existing freight tracks and is not considered light rail.

Since voters in the city core supported light rail in 2000, Mayor Lee Leffingwell wants to make the transit project the major issue in a proposed 2012 bond election that could authorize up to $250 million in startup funds.

The City Council plans to create a citizens committee to consider possible projects in addition to urban rail. To make the rail funding possible, Austin expects to hold back on other programs that make up traditional bond issues.

City planners believe they can raise 70% of what the light rail needs with no property tax increase. A 16.5-mile rail line from East Austin through the University of Texas, downtown, and southeast to Austin-Bergstrom International Airport would cost $1.3 billion, according to estimates.

The city would seek to double the $250 million from local bond funds with federal startup funds. Other local governments such as Travis County, and tax assessments on properties along the line, could also contribute revenue, officials said.

Property owners next year will pay Austin 48.11 cents of property tax for each $100 of assessed value, about $960 for a $200,000 home. Overlapping districts include schools, hospital districts, the county and other jurisdictions.

Austin has a population of 813,776 and is the fourth-largest city in Texas. Many of the capital’s state office buildings would be served by the proposed light-rail line. With seven colleges or universities and more than 136,000 students, education is a major source of employment and creates a highly educated workforce for major employers such as Dell Computer.

Due to extremely limited parking near the University of Texas, students depend on bus service that could be supplanted by light rail. As a predominantly north-south city, Austin is served by city streets that carry the bulk of the daily traffic through downtown, the UT campus, state office buildings to the north, and residential and shopping corridors beyond that.

Environmental issues carry a lot of weight with the city’s voters, who tend to be more liberal than other Texans. Austin, which owns and operates its own water and electric utilities, recently announced that it was switching to 100% renewable energy starting Oct. 1, becoming the largest local government in America to power all of its facilities with all “green energy.”

Austin is subscribing to 400 million kilowatt-hours of renewable energy. Only Houston buys more renewable energy for its municipal facilities at 438 million kilowatt-hours, though that amount accounts for just 34% of its energy use, the city said.

Austin Energy recently announced that it’s acquiring more renewable energy supplies from wind farms in South Texas. The additional resources are expected to be operating by the end of 2012 and will help raise Austin’s overall renewable energy reliance to 30%, just shy of its goal of 35% by 2020.

“We are setting an important standard for U.S. cities,” Leffingwell said in a statement last month.

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