Texas local officials cite bonding needs, state impediments

Phillip Oettle

Top Texas local government officials raised concerns Tuesday about state moves to constrain their access to capital funding and reduce competition for contracts.

Austin Mayor Kirk Watson said the Texas Legislature is "making it harder and harder for cities to have funding sources to take care of needs."

"I don't know how I build this city for the next generation," he said at The Bond Buyer Texas Public Finance Conference in Austin. "I don't know how I do that without the ability to have some debt and capital."

Watson pointed to big capital needs to accommodate growth with the city relying on bonds to help finance projects, including a $1.5 billion wastewater treatment plant and a $5 billion expansion of the Austin Bergstrom International Airport with a $1.18 billion airport system revenue and refunding bond sale scheduled for April 14. The city is also considering a general obligation bond program to take to voters this year.

"Austin-San Antonio could be a true economic super region as a major part, if not a primary part, at least in the next 24 years, of the Texas triangle — Dallas-Fort Worth to Houston to San Antonio, back up through Austin," the mayor said, adding about 85% of Texas jobs are being created within that triangle.

Mobility and housing density is also being addressed as the city pushes forward with its $5.5 billion Project Connect light rail project, which is also seeking federal funding, according to Watson.  

Bills to halt bond financing for Project Connect failed to pass in the last two legislative sessions. Bonding for the project still faces opposition from the Texas Attorney General's Office, which is in court along with Austin property owners who filed a lawsuit in 2023 seeking to derail what is now a downsized project.

Watson also expressed concern state lawmakers could block the city's efforts to store excess water in aquifers to ease drought conditions.

Houston Controller Chris Hollins, who also spoke at the conference, said moves by Texas to reduce access to state and local contracts, including those for bond underwriting, by removing minority and women-owned firms from the Historically Underutilized Business program, results in fewer bidders, leading to "higher costs, more risk, more uncertainty."

While the HUB change is being challenged in court, Hollins noted a federal judge in February struck down a 2021 Texas law that prohibits governmental contracts with businesses that "boycott" the fossil fuel industry.

"That case is being appealed, but the implications are clear," Hollins said. "Policies that restrict participation in the market — those affect who gets to compete, how deals get done, what it costs to finance critical infrastructure for cities like Houston and so that's the through line here, whether we're talking about procurement underwriting or capital access, markets function best when the rules are clear, when they're stable and when they're designed to maximize competition."

Hollins also said warning signs, including negative rating outlooks, are flashing for the nation's fourth largest city as it prepares its fiscal 2027 budget. 

"In Houston, we're working with a budget of just over $7 billion and like most big city budgets, that is balanced on paper, but we're drawing down our reserves to make it so, and that's a polite way of saying that we're using temporary solutions to address ongoing problems," he said.

Meanwhile, Houston continues to attract investment and take on "projects at a scale that most cities couldn't dream about," according to Hollins.

"The question is whether we can elevate that future by further combining bold vision with responsible stewardship, whether we execute in a way that's worthy of the confidence that investors and residents place in us every single day," he said.