DALLAS – Debt issuance from Texas state government is expected to fall about 25% in the current fiscal year compared to the previous year, according to the Texas Bond Review Board.
Counting long-term debt, commercial paper and variable rate notes, issuance from state agencies and conduit issuers is expected to total $7.74 billion by the end of the fiscal year Aug. 31, 2017, a decrease of $2.61 billion, the BRB said in its
"That's essentially what our issuers have told us," said Robert Latsha, BRB finance director of the projected total for the current fiscal year.
The annual drop is the second in a row, according to the report.
Bonds issued by Texas state agencies, colleges and universities during fiscal year 2016, not counting commercial paper, fell by 20.8% to $7.26 billion compared to $9.17 billion issued in fiscal 2015, the BRB said.
In its 2015 report, the BRB anticipated $10.35 billion of state issues in the 2016 fiscal year, but the actual amount fell 25% lower.
"Each year stands on its own," Latsha said. "The projection is an aggregation of what the issuers have told us. If they were looking at issuing refunding bonds, they may not have issued as much as they thought they were going to."
The lower issuance in the Lone Star State tracks with the decline in national volume, according to the BRB. Over the past decade nationwide issuance of government debt has fluctuated from $442.3 billion in fiscal 2007 to $404 billion issued in fiscal 2016. The 10-year low of $309.8 billion came in 2014.
Noe Hinojosa Jr., whose firm Estrada Hinojosa and Co. works as financial advisor on some state issues and numerous local issues, said that one factor in the drop in state issuance is because the Legislature is in session in 2017 and much of the debt authorized in the 2015 session has been issued. Another factor could be rising interest rates.
"You certainly have seen in the last month, interest rates rise by as much as 85 basis points since Nov. 9," Hinojosa said. Donald Trump's election has fueled a record-setting bull market in equities and driven bond yields higher. On top of that, the Federal Reserve Open Market Committee is meeting Tuesday and Wednesday with the expectation that the interbank rate will rise at least 25 basis points.
"Either way, rates were going to go up," Hinojosa said. "If you look at the index over the last 20 years, we still enjoy a very favorable rates."
Despite the drop in issuance, the state's total outstanding debt grew 5.7% to a record $49.75 billion in FY '16, the report said.
Fiscal year 2016 issues included $4.57 billion in new money and $2.69 billion in refunding bonds. Other debt issued included $1.87 billion of commercial paper.
While new money issues grew by 16.1% or $633.4 million, refundings fell by 48.6% or $2.54 billion. Net present value savings from fiscal 2016 refundings totaled $242.2 million, the BRB said.
While state debt issuance fell in the last fiscal year, local debt volume continued to grow, according to the report.
Local debt issues of $39.49 billion in fiscal 2016 represented 1.8% growth from the previous fiscal year. The post-recession low in local issuance of $22.97 billion came in 2010.
Local government debt outstanding in fiscal year 2016 grew to $218.45 billion, an increase of $22.97 billion or 11.8% since fiscal 2012. Of that amount 61.9% is general obligation debt to be repaid from local tax collections, and the remaining 38.1% will be repaid from project revenues.
Since fiscal year 2012, tax-supported debt outstanding increased 16% and revenue debt outstanding increased 5.5 percent, the board said.
School districts accounted for 34.3% of all local debt outstanding and cities accounted for 32.6%, the BRB said. Water districts held the third highest percentage, accounting for 15.2% of all local debt outstanding. The remaining 17.9% was held by community and junior colleges, counties, health and hospital districts, and other special districts.
Local debt issuance has fluctuated over the past decade from a low of $22.97 billion in fiscal 2010 to a high of $39.49 billion in fiscal 2016, a slight increase of 1.8% from fiscal 2015.
Over the past five fiscal years, new-money debt issuance totaled $69.76 billion and refunding debt totaled $89.30 billion. During that time the top three issuers of new-money volume were school districts, cities, and water districts that together comprised 84.9% of the new-money volume.
Texas ranked 44th among all states in net tax-supported debt per capita, according to state debt medians at Moody's Investors Service. Texas had $386 in net tax-supported debt per capita compared to the national mean and median of $1,431 and $1,025, respectively, the BRB reported. Texas' net tax-supported debt per capita ranked second to lowest when compared to that of the eight other states rated AAA.
Total outstanding debt backed by appropriations from the state general revenue for debt-service payments grew10.9% since fiscal year 2015 to $6.71 billion.
Since 2007, the appropriations debt has grown nearly 144% from $2.75 billion at the end of fiscal 2007.
Issuance costs for state issuers continued to fall in 2016. Not counting conduit and private placement debt, bond issuers paid $5.20 per $1,000 compared to $5.40 per $1,000 for fiscal 2015, the report said. The issuances ranged in size from $19.2 million to $911.36 million.
Debt authorized by the Texas Legislature but not yet issued fell 9.7% to $15.92 billion from approximately $17.64 billion at the end of fiscal 2015.
The BRB attributed the reduction to a $615 million issue by the Texas Transportation Commission, $250 million from the Veterans Land Board and $369 million from the Texas Public Finance Authority.
"Of the $15.92 billion of authorized but unissued debt remaining as of fiscal year-end 2016, approximately $12.10 billion is GO debt while $3.82 billion is non-GO debt," the BRB said. "Approximately $3.95 billion of the authorized but unissued amount includes GO and non-GO debt payable from general revenue."
Capital appreciation bonds, which were limited by the 2015 Texas Legislature because of concerns that they were being overused by local school districts, fell 66% in fiscal 2016 to $73.8 million.
"CABs only account for approximately 0.2% of the total par amount issued by Texas local governments," the BRB wrote. "School districts issued approximately 95.6% of the total CABs issued by local governments during fiscal 2016."
Total local debt outstanding increased by 55.7% from $140.28 billion to $218.45 billion over the last 10 years. During this period debt for school districts increased 54.7% from $48.43 billion to $743.91 billion.
"Other notable increases included Other Special Districts (roads, power and housing issuances) which increased 282.8% from $4.32 billion to $16.55 billion and Hospital Districts which increased 171.1% from $1.29 billion to $3.49 billion," the report said.
Local tax-supported debt per capita increased by 1.2% to $4,921, according to the report. Over the past decade, debt per capita has increased by $1,270 or nearly 35% while the state's population has increased by 17.4% or 4.1 million.
Total local debt outstanding increased by 55.7% from $140.28 billion to $218.45 billion over the last 10 years. During this period debt for school districts increased 54.7 percent from $48.43 billion to $743.91 billion.
