Neither a Lender, Nor a Borrower Be...

by Alex de Marban A street refurbishment here... A nuclear power plant there... Throw in an airport and sundry multi-year projects that Austin has bankrolled with borrowed money and the city government is in a $3.7 billion hole and going deeper. Rapidly.

Just two years ago, Austin owed $3.2 billion, but a $390 million loan from bond purchasers on August 17 for the construction of the Austin-Bergstrom International Airport, plus the refinancing of $144 million in short-term debt into long-term debt, brought us to the current level - about $5,553 for every man, woman, and child in Travis County. (All Travis County residents, not just Austinites, are included in this per capita figure because the city's utility service area comprises 95% of the county.) And that doesn't even include the debt portfolio of other local governments like the Austin Independent School District or Travis County.

"Our city's growing and it's getting bigger and our debt should increase," reasons Betty Dunkerley, the city's director of administrative and financial services. "The key thing to look at is our bond rating. If the rating agencies didn't think our level of debt wasn't high, they wouldn't give us such a good rating. If we didn't have this kind of debt picture, they would ask, `How are you building these roads, and keeping the parks up?'"

To have the new roads, new parks, and new libraries in the first place, the city must borrow. The Capital Improvements Plan (CIP) is where multi-year projects like new parks and libraries get approved, the Capital Budget is where they get funded, and the cash comes primarily from bonds.

The city has two types of bond debt: General obligation (GO) debt must be approved by the voters since it is repaid with property taxes. Revenue debt is issued out of revenue-generating departments like the Electric and Water/Wastewater Utilities, and is repaid by ratepayers. Revenue debt, which does not have to be voter-approved, makes up about 88% of the city's total outstanding bill. The two types of debt hold different bond ratings - the GO bonds carry a AA rating, while the revenue bonds boast only an A. The highest rating is AAA; Austin hasn't seen that kind of rating in over a decade.

Revenue Bond Debt

While the city's bond ratings are "in the middle of the pack for cities of Austin's size, the potential for deregulation in the electric utility industry" could negatively influence the city's bond rating for the majority of its revenue debt, says Mal Falon, director of the municipal infrastructure group at Standard & Poor's.

According to Falon, the rating house gave Austin's revenue bond rating a "negative outlook" this past May. "Austin's revenue bond rating is still a single A," says Falon. "But looking at the costs that [the Electric Utility Department has], the possible deregulation, and the uncertainties of the [partially city-owned] South Texas Nuclear Project [STP], that rating may be lower over the next one to three years." Which means, of course, that the city will have to pay higher interest rates on the revenue debt it issues in the future.

Still, the threat of a lower revenue bond rating isn't slowing down the train; according to the capital budget document, the city proposes issuing $168 million in revenue debt in fiscal year 1996, approximately $93 million more than what will be issued by the end of this current fiscal year on September 30. Ironically, the biggest increase comes from the troubled Electric Utility Department (EUD), which plans to issue $115 million in debt this coming fiscal year, approximately $40 million more than the current fiscal year's proposed issuance, primarily for general maintenance to existing facilities.

"Our expenditure plan has increased dramatically," says David Kasper, the EUD's director of budget and financial planning. "We have to do all of our [proposed] projects, [and] we're serving new customers and bigger loads."

In order to keep the revenue bond rating from slipping further, Kasper recommends, "We need to start being real careful. We won't let the amount of money we transfer to the general fund increase [this year the EUD will contribute $59.9 million, up $2 million], and I think the bond houses will understand if some of these projects, like STP, are operated successfully."

A lower rating will also drastically affect the Water and Wastewater Utilities, which proposes issuing $40 million in revenue debt this year to pay for about 80% of its proposed capital expenditures. "The bond rating is something we're watching closely because it will impact us quite a bit," says Maria Alicia Garcia, the department's assistant director for finance. "The way [the EUD] goes is the way we're going to go. We're talking to our financial adviser to make sure we're meeting all our requirements and that [the EUD] is meeting all of its requirements."

Like the EUD, many of the Water and Wastewater Utilities' proposed expenditures are in response to growth. Two of the biggest projects include: $1.5 million for a new transmission main in Northwest Austin to increase capacity and water pressure to the rapidly expanding Anderson Mill area; and $1 million for the enlargement and relocation of an interceptor along Little Walnut Creek to accommodate population growth in Northeast Austin.

General Obligation Bond Debt

In addition to the proposed new revenue debt, the city also plans a $30.25 million GO bond sale on September 7 for voter-approved projects repaid with property taxes.

The bond sale will boost the city's total outstanding GO bond debt to $433 million, or about $845 for every man, woman, and child in Austin, according to the city's treasury department. While the figure seems high, says City Manager Jesus Garza, Austin's debt standing is actually in good health; the median per capita debt for a city with Austin's population is $882, according to Moody's Investor Service.

Included in the GO bond sale:

* $15.7 million for the last phase of the Barton Creek Wilderness Park. The city has already spent $18 million to acquire the 1,000-acre park, and will reimburse itself for most of that cost with proceeds from the bond sale. The park comprises several tracts of land on either side of Barton Creek from Loop 1 to the Lost Creek subdivision.

* $2.53 million for the construction and design of three libraries. Voters authorized the bond sale for the libraries in 1992. The Dove Springs Library and the Zaragoza Library are scheduled for construction this year in Southeast and East Austin, respectively. The North Loop branch in Central Austin is expected to receive design funding.

* $1.11 million for construction of a new fire station at Foremost and Congress, and improvements to the Harris Branch fire station.

* $10.9 million for street repair, flood control, parks maintenance, and other miscellaneous projects and repairs.

Previously approved GO projects that won't get a bond sale this year:

* The Windsor Park Library. Voters approved $1.9 million for the library in 1992. Officials now say that $250,000 in bonds will be sold in September, 1997, and the remainder in September, 1998.

* Downtown Art Museum. In 1985, voters approved $14.7 million for this project. About $3 million has already been spent for architectural plans. According to the Capital Improvement Plan (CIP), a five-year planning document, $5.4 million in bonds for construction won't be issued until the year 2000.

* A police substation in South Austin. Voters approved $1.7 million for the substation in 1992. According to the CIP, the bonds won't be sold until September, 1996.

* Fire station at US71 and Fletcher. Voters approved $2 million for the station in 1992. According to the CIP, the bonds won't be issued until 1999 and 2000.

There's more debt to be issued on September 7 in this year's capital budget: almost
$17 million in contractual obligations and certificates of obligation. Both are repaid with revenues from various departments. Notable here is $2.25 million for the Greater Austin Area Telecommunications Network, a high-speed governmental communication system. The system will allow seven governmental entities located in Austin, including the University of Texas and the State of Texas, to exchange reams of data over fiber-optic lines and to eventually engage in two-way video communication. The money will upgrade the city's electronic data technology and the city's main telephone switch, allowing the city to latch on to the system, which is already up and running in part.

Moody's Vice President Mark Campa, citing the city's rapid growth and the recent swelling in tax-appraised value, agrees. "We feel very positive about the city, and we don't have any negative credit implications," he says. And he adds that the bond house for now will continue to rank Austin's bond status for property-tax supported bonds as AA, or "pretty much in line with other large cities in Texas."