DALLAS — Austin is refunding the first debt it issued for an ambitious flood-protection project that is finally underway along downtown’s Waller Creek, after decades of planning.
At a projected cost of $146.7 million, the city is building a tunnel more than a mile long that will divert floodwater to Lady Bird Lake on the Colorado River. The underground system is similar to one that protects San Antonio’s River Walk during heavy rains.
Waller Creek flows through the University of Texas campus and past some of downtown Austin’s most popular areas, including the Sixth Street entertainment district that will become the hub of Austin’s South by Southwest Festival beginning March 9. But plans for redevelopment of the downtown section south of UT have faltered over three decades of discussion. The large floodplain discouraged investment, even though some restaurants and businesses back up to the creek.
The first financing came in 1999, when the city issued $25 million of voter-approved debt to begin the flood-prevention project. As the cost of the project has multiplied nearly sixfold, the city expects to refinance that original debt Wednesday in a negotiated deal led by Estrada Hinojosa & Co. and RBC Capital Markets.
The subordinate-lien revenue refunding bonds are backed by a pledge of the city’s 2% special hotel occupancy tax and 4.5% of its regular 7% occupancy tax.
Because the pledge is considered a closed lien, the city will not issue any new-money bonds backed by that lien, said Treasurer Art Alfaro. Future debt financing will come through certificates of obligation, possibly as soon as this fall, he said, adding that the Austin will need about $113 million to complete the financing.
With a net present-value savings goal of 4.9%, the city enters the deal after the credit got a lift from Standard & Poor’s. An upgrade to A from A-minus applies to the refunding bonds and a Series 2008 issue of $119 million. The upgrade and stable outlook reflects the city’s fiscal resiliency throughout the Great Recession, according to analysts.
“We do not anticipate the rating will change within the two-year outlook horizon as we expect that the city will not issue additional parity bonds, and that coverage will remain strong,” wrote Standard and Poor’s analyst Russell Bryce.
Moody’s Investors Service affirmed the A1 rating on the parity bonds, affecting $121 million of outstanding debt.
“The market looks good” for refundings such as this one, Alfaro said. Market rates have remained at or near record lows after the supply of muni debt fell dramatically in 2011.
Austin’s 2008 issue for the project was a variable-rate refunding that came as credit markets were collapsing, taking Lehman Brothers with them. The city paid a $1.9 million termination payment on a swap agreement with Lehman. The payment came from an $11 million Convention Center-Waller Creek Venue Fund.
As authorized by the Texas Tax Act, Austin has levied a hotel occupancy tax of 7% on hotel rooms since January 1971, using 4.5% of the revenue to pay debt service and the remaining 2.5% for convention center operations.
In August 1998, city voters authorized the imposition of a 2% special hotel occupancy tax, in addition to the existing 7% tax, to finance the Waller Creek flood-control project and the convention center expansion. The tax will be in effect as long as bonds are outstanding with surplus tax revenue after payment of both the prior and subordinate-lien debt available for the expansion of the Austin Convention Center or early retirement of senior debt.
The Waller Creek tunnel, which broke ground in April 2011, will make redevelopment of the current floodplain feasible. Officials expect to expand the usable space downtown by 11% once the flood control project is completed.
The Waller Creek Conservancy that is guiding the redevelopment as a public-private partnership is in the process of screening proposals for landscaping and design with a winning firm to be chosen in October. In addition to bond financing from the city and Travis County, the nonprofit conservancy is soliciting private contributions.
The coalition of partners in Austin is similar to one in San Antonio, where the city, county and the San Antonio River Authority are working with nonprofits to extend the River Walk north and south of downtown.
Designing the Waller Creek project comes as Austin faces some big decisions in an upcoming bond election and some controversy over how far money from a 2010 issue is going on Lady Bird Lake.
With plans to seek voter approval in November, Austin is in the process of paring a nearly $1.5 billion wish list created by a citizens bond development committee. The 124 proposed projects include a new Austin Police Department headquarters, new fire stations, library branch renovations, and money for open-space purchases and affordable housing. The ultimate size of the bond issue proposal is expected to be about $600 million or less.
While city staff seeks to set some requests aside before submitting a plan to the City Council, Mayor Lee Leffingwell is looking for a way to bring urban rail into the mix.
While initial costs for a rail line have not been established, a ballpark figure of about $200 million has been discussed.
The urban rail system under consideration in Austin would be an electrified service that can operate in mixed traffic, in its own lane or in separate right-of-way.
While drought has been the major issue in Austin for the past three years, the city is not immune to flooding.
Recent rains have eased some water restrictions.
“The current drought is notable even in Texas,” Fitch Ratings analysts said in a recent report. “The state climatologist declared the 12-month period through July 2011 the most severe one-year drought, with July alone being the warmest month ever recorded statewide since records began in 1895.”
