Austin bond advisors warn of escalating debt service and potential credit rating impact

In a recent Austin City Council work session, financial advisors and city officials discussed the implications of rising debt levels on the city's financial health and future projects. The meeting highlighted concerns about the potential doubling of the city's debt burden and its impact on property taxes and borrowing costs.

Blake Roberts, a financial advisor from PFM, explained that the debt service portion of property tax bills could increase by approximately $500 due to existing debt. This increase does not account for any additional debt that may arise from future borrowing. The discussion emphasized the importance of understanding how the city's debt per capita affects its bond ratings, which are crucial for determining borrowing costs.

Roberts noted that the city's current debt per capita is approaching a critical threshold. If it exceeds $4,500, the city's bond rating could be downgraded, potentially increasing borrowing costs by 10 to 15 basis points. This could translate to an additional $20 million in total debt service on a billion-dollar borrowing, which, while not significant for individual taxpayers, could accumulate over time and affect the city's financial flexibility.

The council members were informed that maintaining a strong financial position is essential, especially as the city considers new projects. A higher debt load could limit the city's ability to fund capital programs and necessitate stronger reserves to counterbalance the increased borrowing costs. This situation underscores the need for careful financial management as Austin navigates its growing infrastructure and service demands.

As the city continues to grow, the discussions from this work session will likely influence future budget decisions and project funding strategies. The council's awareness of these financial implications is crucial for ensuring sustainable growth and maintaining the city's creditworthiness in the long term.