Texas expects to issue more debt this fiscal year
Texas state government issuers will sell about $4.68 billion in new money bonds, commercial paper and variable rate notes during fiscal year 2020, a projected increase of $284.6 million or 6.5% over fiscal year 2019, according to the Texas Bond Review Board.
The board’s 2019 report, published this month, covers the previous fiscal year, which ended Aug. 31, and projects debt issuance in the fast-growing state for the current fiscal year.
“Texas was the nation’s second most populous state, and it ranked second among the 10 most populous states in terms of Local Debt Per Capita, seventh in State Debt Per Capita, and fourth in Total State and Local Debt Per Capita with 82.3% of the state’s total debt burden at the local level,” the review board reported.
The board is responsible for the approval of most state debt issues. The board also collects and analyzes state and local debt, along with administering the state’s Private Activity Bond Allocation Program.
In fiscal 2019, the state’s total debt outstanding, including conduit debt, grew 5.4% to $59.9 billion from $56.83 billion in fiscal year 2018 and $53.02 billion in fiscal year 2017.
The outstanding debt includes $7.01 billion of bonds and notes that are not self-supporting and $52.89 billion of self-supporting debt paid from various sources other than the state’s general revenues.
Despite the overall increase in outstanding debt in fiscal 2019, bonds issued by state agencies, colleges, and universities during fiscal 2019 fell by 6.9% to an aggregate total of $6.59 billion compared to $7.07 billion issued in fiscal 2018, the report said.
Fiscal year 2019 issues included $4.41 billion in new money, a drop of 7.5% from fiscal 2018 and $2.18 billion in refunding bonds, a 5.5% decrease, the report said.
As of Aug. 31, $18.14 billion or 30% of the state's $59.9 billion in total debt outstanding was backed by the state’s general obligation pledge, a decrease of $450.7 million or 2.4% from 2018.
Non-GO debt came to $33.38 billion or nearly 56% of the state's total outstanding. That does not include conduit debt, the report noted.
About $8.39 billion or 14% of the state’s outstanding debt was state conduit and component debt which includes $4.49 billion of debt outstanding by Grand Parkway Transportation Corporation. Although GPTC is a creation of the Texas Transportation Commission and helmed by Texas Department of Transportation officials, debt service is payable solely from payments received from transportation projects it finances in the Houston area. The $8.39 billion of conduit and component debt outstanding represents an increase of $618.5 million or 8% from the $7.77 billion outstanding at the end of fiscal year 2018.
The GPTC is expected to issue up to $2.6 billion of refunding bonds in February for the 170-mile Grand Parkway outer loop around the Houston metro area.
The state’s variable-rate debt stood at $8.38 billion in fiscal year 2019. Of that amount, about $2.27 billion or 27% was short-term commercial paper or variable-rate notes. The remaining $6.10 billion was long-term variable-rate debt.
Variable-rate debt increased by about $310.6 million or 3.9% in fiscal 2019 to $8.38 billion compared with $8.06 billion outstanding in fiscal 2018. Variable-rate GO debt accounted for $3.63 billion or 43%. Variable-rate GO debt increased by $65.8 million or 1.8%, and variable-rate revenue debt increased by $244.8 million or 5.4% from fiscal year-end 2018.
The Veterans Land Board has the most variable-rate debt at $2.9 billion. TXDOT has about $1.01 billion outstanding, and the Texas Public Finance Authority has $293.2 million.
Debt-service payments from general revenue are expected to drop 1.4% to $707.6 million from $716.6 million in fiscal 2019. Debt service in fiscal 2019 was down 1.3% from $726.6 million in fiscal 2018.
The average state issue size decreased to $198.3 million from $266.5 million in fiscal year 2018. Nearly 59% of the 29 transactions completed in fiscal year 2019 were $100 million or greater in size compared to 14 or 70% of the 20 transactions completed in fiscal year 2018.
As of Aug. 31, Texas had $13.35 billion in authorized but unissued debt compared to $13.65 billion in fiscal year 2018.
About $10.15 billion or 76% of the unissued debt was backed by the state’s triple-A general obligation pledge. About $8.67 billion or 85% of that was self-supporting and $1.48 billion or nearly 15% was not.
“This is a decrease of $273 million compared to $1.75 billion in not self-supporting authorized but unissued GO debt at fiscal year-end 2018,” the report said. “The overall decrease resulted mainly from the issuance of debt in the amount of $207.7 million by (the Texas Public Finance Authority) for cancer research and $53.5 million by (the Texas Water Development Board) for water development projects.”
Both agencies were replenished in November’s election, with voters authorizing another $3 billion of bonds for the Cancer Prevention and Research Institute of Texas and $200 million for the TWDB’s bonds for water projects in economically disadvantaged regions of the state.
Texas local governments had $239.98 billion in outstanding debt as of Aug. 31, an increase of $37.63 billion or 18.6% since fiscal year 2015. Almost 66% of local debt is general obligation backed by local property taxes, while 34% or $82.39 billion is backed by project revenues.
Over five years, tax-supported debt increased 21% and revenue debt grew 14%. School districts accounted for more than 36% of all local debt outstanding and cities accounted for 32%. Water districts made up about 14%.
The remaining share is for community colleges, counties, health and hospital districts and other special districts.
“Texas issuance of local debt (excluding conduit debt and commercial paper) has fluctuated over the past decade from a low of $21.68 billion in fiscal year 2010 to a high of $39.41 billion in fiscal year 2016,” the BRB report said. “The local issuance total in fiscal year 2019 decreased $9.64 billion (24.5%) from the record issuance total in fiscal year 2016.”