Moody's restores Austin, Texas, GO rating to Aaa

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Moody's Ratings boosted Austin's general obligation rating a notch to Aaa, citing improvements in the city's employee benefit liabilities.

High leverage and fixed costs led to a 2020 downgrade to Aa1 by Moody's, which said on Friday the upgrade back to triple-A with a stable outlook "reflects the material reduction in OPEB (other post-employment benefit) liabilities, which were beyond our expectations, combined with steady pension reforms over the last several years."

The reforms by Texas' capital city, which include moving to actuarially determined funding, reduced pension and OPEB liabilities to about 38% of the fiscal 2025 long-term liabilities ratio from a peak of 57% 2021, according to Moody's.

"These stronger governance practices and the robust economic performance position the city to maintain a healthy financial position and moderate leverage metrics even as it continues to invest in growth and capital needs," the rating agency said in a report.

Moody's also upgraded Austin's non-lease debt subject to annual appropriation to Aa2 from Aa3, hotel tax revenue bonds to Aa1 from Aa3, and water and wastewater utility system revenue bonds to Aa1 from Aa2 — all with stable outlooks. 

"The upgrade of the utility reflects similarly strong governance practices attributable to the management overlap of the city and utility coupled with sound capital planning and strong rate management that will support significant capital investment over the coming years," the report said.

There was no immediate comment from the city regarding the rating actions.

Austin has triple-A GO ratings from S&P Global Ratings and Fitch Ratings, which restored its rating to AAA in September, following a downgrade to AA-plus in 2021. 

Moody's rated Austin's upcoming issuance of about $540.6 million of senior lien and $122.5 million of junior lien special tax revenue bonds for a convention center Aa2 and Aa3, respectively. The sale comes after a district court last month validated the debt.

Austin on Friday released a proposed $6.6 billion fiscal 2027 budget that includes $1.53 billion in general fund spending and a 3.5% increase in the maintenance and operations property tax rate — the maximum hike Texas law allows over the city's no-new-revenue rate.

In April, the city forecasted a $26.4 million general fund deficit for the fiscal year that begins Oct. 1 under the no-new revenue rate. The gap was projected to rise to $64 million in fiscal 2028 and to $71.4 million in fiscal 2029. 

In November, Austin voters rejected a property tax rate increase over the state cap that would have raised $109.5 million in additional revenue, forcing the city to revise its fiscal 2026 budget.