Southwest bond, tax election results have officials cheering or regrouping

BY SourceMedia | MUNICIPAL | 11/13/23 12:35 PM EST By Karen Pierog

Southwest officials are mapping out their debt issuance plans in the wake of voter approval for a big burst of bonds in the Nov. 7 election, which also resulted in different outcomes for high-profile property tax cut measures in Texas and Colorado.

Voters approved all billion-dollar-plus measures on ballots, including a package topping $16 billion for a nascent Texas municipal management district.

Ballot measures for the Legacy Municipal Management District in Webb County ? $2.7 billion of bonds for water, wastewater, and drainage system facilities, nearly $3.8 billion of bonds for roads, $9.7 billion of debt refunding authorization, and the ability to levy taxes to pay off the debt ? were passed with a single vote by a property owner.

The district just came into being in June after Texas lawmakers passed a bill allowing for its conversion from a water control and improvement district. Texas and some other states allow for the creation of such districts to levy taxes and issue bonds with the beneficiaries of the infrastructure within the district paying off the debt.

David Earl, the district's general counsel, said the bonds will finance infrastructure for 13,000 acres of land currently owned by a family in the Laredo area that will be developed for residential, commercial, retail, and industrial use. The size of the bond authorization reflects the impact of inflation on costs over the project's 45-year timeline," he added.

"When you bring it back to today's dollars, it really comes out to less than $2 a foot for infrastructure, which is not an outlandish cost at all," Earl said.

Pending approval by the district's board and by the Texas Commission on Environmental Quality, an initial roughly $140 million of bonds could be sold in the third quarter of next year, according to Earl.

At least 50% of the nearly $18 billion of Texas public school district bond authorizations passed, according to an initial analysis by The Texas Tribune, which reported failed bond measures included requests to fund sports stadiums and swimming facilities.

Voters in Prosper Independent School District north of Dallas shot down $102 million of bonds earmarked mainly for an 8,000-seat stadium, but approved three other measures totaling $2.7 billion for new schools, security improvements, and a performing arts center.

The district's first debt sale will likely take place in the spring in a negotiated deal, while the timing and amounts of subsequent sales over the next five to seven years will vary based on property value growth and the district's needs, according to a spokeswoman.

Aldine ISD, north of Houston, won approval for all three of its bond measures, which total $1.8 billion, with about $1.62 billion in proceeds earmarked for school redesign and rebuilding, security improvements, technology updates, and other projects.

The bonds will be sold in estimated tranches of $186 million over eight years starting with a negotiated sale in January, a district spokeswoman said.

The district plans to convene a bond oversight committee within the next few weeks to monitor the bond program's progress, review and ensure that the district follows voter-approved bond programs, and monitor the scope of work to ensure projects are completed on time, with quality, and within budget, according to a statement on its website.

School systems, particularly in fast-growing areas, have been piling on bond requests to accommodate increasing enrollments. They sell their debt through a triple-A-rated Texas Permanent School Fund guarantee program.

In Phoenix, voters ended a 17-year drought in general obligation bond authorization with the passage of a four-part, $500 million bond proposition last week to fund projects for public safety, roads, libraries, affordable housing, heat resilience, and cultural facilities.

"We are pacing spending to allow future bond programs without increasing the property tax rate, setting up our future leaders and generations to enjoy a community with world-class amenities," City Manager Jeff Barton said in a statement.

The nation's fifth-largest city plans to issue about half of the debt in spring 2024 and the remainder in spring 2026, Adam Waltz, a Phoenix public information officer, said.

"The decision to sell negotiated or competitively will be made closer to the sale of bonds to account for market conditions," he said in an email.

The last trip to the ballot was in 2006 when Phoenix voters approved $878.5 million of GO bonds. The city plans to be on a five-year cycle for seeking debt approval moving forward.

Phoenix's nearly $648 million of outstanding GO bonds are rated Aa1 by Moody's Investors Service (MCO), AA-plus by S&P Global Ratings, and AAA by Fitch Ratings.

Texas ballots included 14 constitutional amendments, including one to fully implement an $18 billion package to reduce school property taxes for homeowners and businesses through rate compression and an increase in the homestead exemption. The measure was overwhelmingly passed with 83.4% of the vote.

Gov. Greg Abbott posted a message on X, the message board formerly known as Twitter: "Congratulations Texans! You voted yourself an $18 Billion property tax cut. The largest in Texas history."

Texas voters also greenlighted 12 of the remaining 13 constitutional amendments, including Proposition 6, which creates a $1 billion New Water Supply for Texas Fund with the aim of finding 7 million acre feet of additional water by the end of 2033 via desalination, importation, and other projects.

Texas State University, Texas Tech University, University of Houston, and University of North Texas will get a financial boost with the passage of Proposition 5, which sets up a nearly $4 billion Texas University Fund.

Water or municipal utility districts in El Paso County won the ability to levy property taxes and issue bonds to fund parks and recreational facilities with voter approval of Proposition 11.

Retired public school teachers will get a one-time cost-of-living boost that will cost the state's general fund about $3.35 billion under Proposition 9.

Colorado voters rejected the enactment of a statute allowing the state to spend revenue in excess of its current cap, make temporary assessment rate reductions for residential property, incrementally reduce the assessment rate for commercial property, and create a limit for local property taxes that excludes school districts and home-rule cities and counties.

In the wake of the defeat, Democratic Gov. Jared Polis ordered a special legislative session for Friday to take up short-term property tax relief for the current tax year when tax bills are projected to jump by as much as 50% due to higher property assessments.

"If we do nothing, Colorado homeowners are facing record property tax increases," he told reporters Thursday. "The cost of inaction is too high. It means people could be forced to make the hard choices between their property taxes and groceries and gas."

Polis said $200 million the Democratic-controlled legislature set aside for Proposition HH could be tapped for immediate tax relief and was asking lawmakers for a "blue ribbon panel" to come up with a long-term plan.

Republican lawmakers, who opposed the Democratic Party-supported proposition, are pushing an alternative plan to address skyrocketing property taxes that includes lower assessment rates for most property and a cut in the state's flat income tax rate.

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

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