While the city of San Antonio’s infrastructure needs are orders of magnitude greater than the $1.2 billion proposed 2022 municipal bond, the city’s chief financial officer says taking a conservative approach to the size of the bond is “prudent and responsible.”
While city officials have pegged the cost to fulfill all its infrastructure needs at $6.6 billion, seeking a larger bond amount “could certainly have an impact on our [credit] rating if we’re getting too aggressive on what we’re doing,” said Ben Gorzell, who has overseen the city’s finance department since 2010.
San Antonio has maintained steady high bond ratings from three of the nation’s major credit rating agencies, although Fitch downgraded San Antonio from a AAA to AA+ in 2018. Fitch has not changed that rating, while Moody’s and Standard & Poor’s kept the city at a AAA grade. The agencies evaluate the city’s financial strength and its ability to repay the bond, and the rating indicates the credit quality of a bond. This affects the cost of borrowing money for the issuer — in this case, the City of San Antonio.
If the city gets too aggressive with how much debt it wants to take on for bond projects, that could lead to less funding available for projects down the road, Gorzell said.
San Antonio voters will see six bond packages totaling $1.2 billion on their ballots next May. That appears roughly in line with recent bond programs of other major Texas cities; in Dallas, voters approved a $1.05 billion bond program in 2017, while Austin voters approved $925 million in 2018.
And while $1.2 billion marks a record for the city, what’s not new is prioritizing the greatest needs for each bond program. The last bond program, in 2017, was for $850 million.
“You heard the need,” said Rod Sanchez, assistant city manager. “$6.6 billion is the need. But what it will help us to do is prioritize that $6.6 billion of need and address those critical issues.”
The 2022-2027 program will have funding for traditional bond projects, such as streets and drainage, and include affordable housing efforts for the first time.
In the early days of the pandemic, city staff had predicted a bond smaller than that while facing an uncertain economic forecast.
“We thought initially [with] property tax, we were going to see some negative growth for a couple years. That didn’t happen,” Gorzell said.
Every five years, San Antonio asks voters to approve a bond program. Projects within that bond program are funded by general obligation bonds that are paid off using property tax revenue, Gorzell said.
Because of that, the city makes “moderately conservative” predictions of what property valuations will look like over the next five years as well as assuming that the property tax rate for debt will not change, Gorzell explained. Right now, the city’s property tax rate to fund debt is set at about 21 cents per $100 property valuation; the rest of the property tax rate funds maintenance and operations.
The city will issue bonds in installments to pay for projects over the next several years, Gorzell said. Those bonds will make money available to the city immediately, and then the city pays them off over the course of 20 years with interest.
Last Wednesday, City Council shared their bond priorities with city staff during a regular council meeting. Council members largely voiced their support for funding basic infrastructure needs such as street repairs and drainage projects in their individual districts.
So far, the city has received and vetted $2.8 billion in requests, but there’s only enough money for less than half of that. There are projects that didn’t even make it to the list because city departments knew that there was only so much money to spend, and wanted to make sure the highest-priority projects had a shot, said Razi Hosseini, director and city engineer of the public works department.
The proposed bond program will still make significant progress on infrastructure needs around San Antonio, Hosseini said.
“We never have enough money to do what we really like to do, but this is a very good bond,” he said. “I think it’s going to meet a good amount of our needs.”
City Manager Erik Walsh told council members he understood the importance of their district-specific requests and made the recommendation to reduce the proposed housing bond from $250 million to $150 million to address more projects. The city can look to other funding mechanisms to meet its affordable housing goals, city officials said.
Walsh also urged council members to keep in mind other revenue streams, such as American Rescue Plan Act funding and Tax Increment Reinvestment Zone (TIRZ) funding for some capital projects that may not make the bond program cut. Though city staff hopes to loop in more dollars from those streams, Sanchez said the math on how much is left in ARPA and TIRZ funding has yet to be determined.
There is also the potential to use money from the city’s stormwater fund for drainage projects that can’t be included in the bond program, Hosseini said.
“Any time private development does development, they pay toward the regional storm fund,” he explained. “We anticipate for the next five years, that will generate $45 million; $7 million is already obligated to other projects.”
The deadline to propose bond projects has not passed yet, Hosseini said. People can still bring forward proposals, like Henry Cisneros’ recent suggestion to use bond money to create an arboretum on riverfront land recently donated to the San Antonio River Authority and Texas A&M San Antonio. But proposals must be vetted by city staff — and if a bond committee and ultimately City Council decide to take on new projects, another must meet the chopping block.
“We cannot add a new project without removing one of the old projects,” Sanchez said. “It has to add up to $1.2 billion.”