Austin OKs $2.35 billion of revenue bonds, eyes GO bond election

Michael Dorman

Austin, Texas, is revving up to sell $2.35 billion of debt for a convention center and a wastewater treatment plant, while a legal battle continues over bonds to help finance a light rail system. 

The bond boom comes as the city council voted on Thursday to pursue the development of a $390 million baseline general obligation bond package for the November ballot despite a call by Mayor Kirk Watson to wait until 2028.

"I believe we can and we should bring forward significant investments in the future," he said. "In fact, if we restore compliance with our financial policies and we maintain the discipline we actually will have greater future capacity to do more for this community in 2028."

A bond election would follow the rejection of a maintenance and operations property tax hike by 63% of city voters in November. In the wake of the defeat, Austin officials took steps to better manage its finances, including pursuing a citywide performance and efficiency audit of city operations.

The city, which last held a successful GO bond election in 2022 for $350 million of debt for affordable housing, had $1.03 billion of unissued voter-approved GO bond authorization as of the Sept. 30 end of fiscal 2025. Last year, Austin sold $796 million of GO bonds and certificates of obligation in a deal rated triple-A with stable outlooks by S&P Global Ratings and Fitch Ratings.

On Thursday, the city council signed off on a $34.5 million wrongful prosecution and conviction settlement with four individuals to be financed through the sale of non-voter-approved GO bonds. 

The council approved up to $1.35 billion of special tax revenue bonds on May 21 for a $1.6 billion project to replace the city's now-demolished convention center with a facility that will increase rentable event space to 620,000 square feet from 365,000 square feet.

Rich Saskal

The bonds are backed with revenue from certain city hotel occupancy taxes and incremental state tax revenue generated within a project finance zone the city established in 2024. Amounts and timings for issuing the debt are being determined, according to the city, which filed a petition with a Travis County District Court for an expedited validation of the bonds. 

An ordinance approved in October to issue up to an initial $650 million of bonds for the project was rescinded by the council.

The city also plans to refund hotel occupancy tax-backed debt issued for the prior convention center in order to pledge a 4.5% hotel tax for the upcoming bonds. 

"The refunding bonds are a separate, but related item to the expansion bonds and will only be secured by 2% venue HOT," city documents said. "The 2% venue HOT will not be pledged to the expansion bonds and will cease to be collected upon final maturity or early payoff of (the refunding bonds)." 

A petition drive that would have delayed the project fell 494 signatures short of a requirement for 20,000 valid signatures of registered voters, Austin City Clerk Erika Brady determined in November.

Petition backers are appealing a district court's refusal to force validation in state appellate court after the Texas Supreme Court dismissed their petition for a writ of mandamus, according to attorneys.

The petition drive by Austin United PAC and others sought a ballot measure to stop the demolition and reconstruction of the convention center for seven years — or until the project was approved by voters — and prioritize city funding for local live music, arts, cultural, and outdoor tourism. 

The Austin City Council also approved as much as $1 billion of water and wastewater system revenue bonds last month for the Walnut Creek Wastewater Treatment Plant expansion and enhancement project. The bonds will be used to obtain a direct low-interest loan from the U.S. Environmental Protection Agency's Water Infrastructure Finance and Innovation Act program. 

Other financing sources for the $1.5 billion project are $59 million from the Texas Water Development Board Clean Water State Revolving Fund program and funding from Austin Water.

A groundbreaking for the project, which is aimed at improving treatment processes and protecting the Colorado River, was held in April.

The plant, which serves more than 50% of Austin and operates at a treatment capacity of 75 million gallons per day, will have its capacity increased to 100 MGD, helping meet future demand and requirements set by the Texas Commission on Environmental Quality for Austin's projected growth of 1.5 million by 2040, according to a city statement.

A legal logjam over a light rail system eased May 22 when the Texas Supreme Court finally ruled on a procedural issue related to an initial $150 million of bonds for the project. The high court ordered a Travis County Court judge to decide whether the bonds' issuer, the Austin Transit Partnership, a nonprofit corporation created by the city and Capital Metro Transportation Authority, has standing to seek court validation for the debt.

City taxpayers who filed a lawsuit in 2023, along with the Texas Attorney General's Office have been challenging the legality of the bonds, which would be paid off with a portion of Austin's operation and maintenance property taxes voters approved in November 2020 for what was then billed as a 27-mile, 31-station light-rail project estimated to cost $7.1 billion.

Escalating costs led ATP to downsize Project Connect to an initial less than 10-mile, 15-station system with a similar price tag. The completion of a federal environmental review in January allowed the project to continue a process to seek billions of dollars in federal grants and loans.

ATP said Project Connect is moving forward with construction scheduled to begin next year.  

"We are confident in our case and look forward to our day in court," ATP said in a statement. "The pending litigation has not slowed our progress advancing Austin light rail, which has hit major milestones in the federal funding process, design, and pre-construction work this year." 

Bill Aleshire, an attorney who filed the taxpayers' lawsuit, cautioned that several issues remain before the court, including the legality of the downsized project and the ability to pay off bonds with property tax revenue that is supposed to be used for operations. 

"Their federal funding is uncertain, their ability to issue bonds is uncertain, and they just stubbornly will not listen to us and say it's time to pause Project Connect and rethink it, that maybe rail isn't the best way to go at this time and maybe we can't afford it at this time," he said.