Southwest municipal bond issuance climbed 23% last year led again by Texas, where debt sales accounted for nearly 70.4% of the region's volume.
The increase to $103.3 billion of bonds marks a big jump from 2023's $84 billion, which was just 0.6% higher than in 2022, according to LSEG data.
"The population growth and generally strong economy across the Sunbelt states in the Southwest have continued to drive the need for infrastructure investment," Dan Hartman, CEO of PFM Financial Advisors, said in an email.
In Texas, booming economic growth is driving debt sales, according to Noe Hinojosa, president of Estrada Hinojosa, who noted 5.8% growth in the state's annualized gross domestic product over the last five years outpaced the 1.7% rate for California, which has a larger GDP than Texas — $4.1 trillion vs. $2.6 trillion.
"This fast growth requires significant public investment, not only for new projects, but to restore and preserve (the) old," he said in an email.
Issuance nationwide
Arkansas and New Mexico were the Southwest region's only two states where volume fell compared to 2023, while issuance zoomed higher in the other six states. Colorado had the biggest increase at 78%, pushing debt sales to $12.3 billion. That state's top issuer, the Colorado Health Facilities Authority, sold $2 billion of bonds in eight deals.
Education-related debt, up nearly 20% at $37.68 billion, was the region's top issuance category. Refundings grew by 113.3% to $16.6 billion and the amount of insured bonds jumped 24.3% to $12 billion.
The region's biggest debt issuers in 2024 came from The Lone Star State.
The Texas Transportation Commission was the top issuer with $3.5 billion of bonds in five deals, including a $1.633 billion Central Texas Turnpike System first tier refunding deal in July. Houston, which sold $1.1 billion of airport system special facilities revenue bonds
San Antonio was the region's third-biggest issuer with $2.673 billion from deals that included a nearly $1.1 billion electric and gas systems revenue bond sale. University of Texas Board of Regents ranked fourth with $2.163 billion of debt sold.
BofA moved up from sixth place in 2023 to become the region's top underwriter in 2024 with $11.7 billion of debt in 64 deals. RBC Capital Markets retained its second place ranking with $9.13 billion in 126 deals, and Piper Sandler remained in third place with $8.6 billion in 162 deals, according to LSEG data. Wells Fargo ranked fourth and Jefferies, 2023's top underwriter in the region, fell to fifth place.
In Texas, BofA was also the top underwriter with Jefferies in second place and Piper Sandler in third.
The Texas Attorney General's Office recently
The reviews could have led to banks being banned from underwriting state and local government debt under a Texas law that bars contracts worth $100,000 or more with companies that "boycott" the fossil fuel industry.
RBC Capital Markets remains under the Net-Zero review, while BofA, which led the Houston airport deal and a $1.135 billion North Texas Tollway Authority refunding, and JP Morgan continue to be reviewed in conjunction with another Texas law that prohibits governmental contracts with companies that "discriminate" against the firearm industry.
Hilltop Securities retained its number one financial advisor ranking in the region with $21.1 billion of debt in 328 deals, while PFM Financial Advisors moved up to second place from third in 2023 with $10.8 billion in 78 deals, followed by Estrada Hinojosa with $7.8 billion in 55 deals.
McCall Parkhurst & Horton was once again the top bond counsel with $25 billion of debt in 372 deals, followed by Bracewell with $9.7 billion in 133 deals, and Norton Rose Fulbright with $8.98 billion in 167 deals.
Texas volume has been fueled in part by public school districts selling voter-approved general obligation bonds to accommodate growing enrollment, update aging facilities and technology, and improve security. But the barrage of school debt may be slowing down.
Compared to the previous five election cycles in Texas, the 64 bond questions placed on Nov. 5 ballots by 36 districts were the lowest number of propositions and the only one in which a majority failed, Moody's Ratings reported last week, noting 51.2% of the measures did not pass.
"Most athletic propositions were rejected, while those for technology and other purposes were more evenly split," the report said. "A majority of propositions for school building, buses, and security upgrades passed by nearly a two-to-one margin."
Texas Gov. Greg Abbott continues to call for a
A proposed constitutional amendment pending in the Arizona Legislature
Supermajority thresholds would significantly impact bond volume given voting margins typically are in the 51% to 60% range, according to Hartman.
"Consequently, requiring a supermajority may lead to delayed spending and deferral of essential infrastructure projects for some clients," he said. "For critical projects, clients may turn to alternatives like lease revenue bonds, conduit issuances and (public-private partnership) arrangements. However, these alternatives are generally more expensive and funded from operating budgets, potentially crowding out other important budgetary needs."
For 2025, a perceived threat to tax exemption on the federal level could drive a short-term volume increase, while local issuers in Texas could accelerate bond sales if supermajority legislation progresses, Hartman added.
Texas voters will continue to approve bonds for "much-needed investments" as the state economy grows, according to Hinojosa.
