Texas bond ballots set record in what may be final May election

Texas voters on Saturday will decide the fate of a record $37.7 billion of general obligation bonds in what may be the last time issuers in the state will be able to access the May ballot to seek debt authorization. 

Republican Gov. Greg Abbott in February pushed for the elimination of the May election option for local tax and bond proposals, which would force them onto the November general election ballot. He also called for supermajority voter approval for those measures. 

Several bills were introduced to make those changes amid concerns that tax hikes and big bond issues are eroding massive state-funded school property tax relief enacted in 2023 that is on track to be expanded this year. 

Speakers at The Bond Buyer Texas Public Finance conference this month said such moves would make it extremely hard to pass bond propositions, while causing a pile-up of ballot measures in November and boosting borrowing costs if successful issuers run to the market at the same time. 

Much of the focus is on House Bill 19, which is pending in the House Ways and Means Committee. Besides limiting tax and bond elections to the November ballot, the measure would also set a limit for maximum annual debt service on general obligation bonds, and restrict the issuance of anticipation notes and certificates of obligation.

Doug Williams, a former Texas school superintendent who is now a partner at consulting firm Impact Education Specialists, said the move to only November elections is "almost definitive.

"Normally, people that vote in the May election are going to vote for that referendum," he said. "The people that vote in November elections, they're going to vote for the president or the governor or whatever of those races and when they get to the end of the ballot, if they don't know a whole lot about the measure but they see a tax increase, they vote no."

This May, public school districts have 133 measures, totaling $12.7 billion, on ballots, according to Texas Bond Review Board data. Williams said enrollment growth is spurring debt sales, particularly in north central Texas. 

In anticipation that enrollment will increase by more than 7,000 students over the next five years, Celina Independent School District north of Dallas is asking for $2.29 billion of general obligation bonds in a two-part proposition to fund school construction and renovation and technology. 
Enrollment is about 5,500 today. In 10 years, the district expects it to quadruple.

"CISD has several campuses reaching maximum capacity next year, and all campuses will exceed maximum capacity within three years if not for the construction of additional schools," the district said on its website.

Melissa ISD, which is also north of Dallas, put $875 million of bonds on the ballot to build schools and upgrade technology and security systems. Its student population, which doubled in the last five years surpassing facility capacity, is expected to increase by 67% in the next 10 years, according to a bond presentation on the school's website.

Other big school bond measures include a five-part, $968 million package proposed by Hays Consolidated ISD, southwest of Austin, to build schools and other facilities and upgrade technology.

Inflation-fueled increases in construction costs for ongoing bond-financed projects are also spurring bond measures, according to Ajay Thomas, head of public finance at FHN Financial.

"This required districts to reach back out to residents for more authorization to complete planned projects," he said in an email. 

Record bond volume in Texas has been driven in large part by prolific school district issuance, which receives triple-A ratings through the Texas Permanent School Fund's bond guarantee program.  

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The amount of debt secured by the fund is growing, according to Moody's Ratings, which on Friday affirmed its Aaa rating and stable outlook for the fund.

"Texas school districts have over $32 billion of authorized unissued debt, with more coming in May, so the amount of debt guaranteed by the PSF will continue to climb steadily in the coming months and years," the rating agency said in a report. "As the PSF guarantees more debt, asset growth and maintenance of satisfactory liquidity will remain of paramount importance in order to maintain strong default tolerance."

Rising costs and the end of pandemic-related federal aid strained Texas school finances, while state per-pupil basic allotment has remained at $6,160 since 2019. 

The Republican-controlled Texas Legislature, which gave final approval last week to a $1 billion private school voucher program, is considering a public school funding boost. The House passed HB 2, which would increase the basic allotment to $6,500 through a $7.7 billion funding hike.

Rating agencies issued reports in February raising concerns about Texas schools, with S&P Global Ratings warning of spreading credit deterioration if action is not taken to address shortfalls. Moody's noted that Texas voters rejected 30 of the 52 property operating property tax rate increase propositions districts placed on Nov. 5 ballots, further pressuring finances.

Districts have been hit with negative credit actions.

In January, Moody's downgraded Round Rock ISD's underlying rating to Aa1 from Aaa due to a "multi-year trend of operating deficits that have weakened the district's financial reserves."

The school system won voter approval in November for $932.2 million of bonds. 

Moody's in March revised its outlook on Hays CISD's Aa2 underlying rating to negative from stable, citing the expected spenddown of general fund reserves in fiscal 2025.

"The district also faces increasing operational expenses and capital needs as a result of growing enrollment which will further weaken reserves absent any revenue or cost-cutting enhancements," Moody's said in a report.

Municipal utility districts, as well as other local special districts created for water-related projects, account for 53.7% of the $37.7 billion in bond requests, with 91 propositions totaling $20.27 billion, according to Texas Bond Review Board data. 

The districts are used by developers to finance infrastructure projects for new or growing developments through bonds, which are sometimes authorized by a single voter. 

Collin County MUD 11 is asking for $1.32 billion of bonds for road and water projects. Fort Bend County MUD 270 is seeking $790 million of bonds, along with $790 million of refunding bonds for roads and parks, as well as water, sewage and drainage projects.

Texas cities are pursuing $2.27 billion of bonds with the largest coming from Plano, which has a seven-part, nearly $648 million bond package.

For the first time in 32 years, Laredo is asking voters for bond authorization with a $417 million, four-part proposition to finance projects for public safety and health, as well as roads and affordable housing. 

Montgomery County, which is seeking $480 million of bonds for road projects, is one of two counties with bond propositions.

Alamo Colleges District is gearing up for projected enrollment of 100,000 by 2030 with a $987 million bond proposition to fund expansions.