Texas Tops US States in 2023 Debt Sales With No Signs of Slowing

(Bloomberg) -- Texas governments sold more debt that any other state this year, issuing $58 billion of bonds to finance school construction, water utility projects and airport improvements as its population surged. 

It’s the first time since at least 1990 that Texas municipal bond sales outpaced the debt-heavy powerhouses of both New York and California, according to data compiled by Bloomberg. The jump came even as borrowing costs hovered near decade-highs for much of the year and other governments pulled back on tapping the market. It’s the second highest yearly volume for Texas governments, dwarfed only by sales in 2020 when municipal benchmark rates fell to 0.5%.

“The one place you want to be a muni banker this year and going forward is in Texas,” said Keith Richard, senior managing director and head of the Texas region at Siebert Williams Shank & Co.

At the center of the bond boom is Texas’ increasing population. The state joined California as one of only two states to eclipse 30 million people in 2022, according to US Census Bureau figures. And the growth has been rapid, spurred by a lower cost of living and the state’s business-friendly environment. Since the turn of the century, Texas gained more than 9 million residents, the most of any state and 3 million more than Florida, the next largest influx. Eleven of its counties saw populations more than double in the past two decades.

“There are areas that are booming and with all this growth, comes with massive infrastructure needs,” Richard said. 

Those needs include ready-to-build projects to keep pace with the population, like bigger airports, more roads and larger schools. And existing infrastructure needs to be strengthened against major weather-related events, which have become more common. The largest Texas bond sale this year was a $3.5 billion transaction to bail out natural gas utilities that incurred billions of dollars of unexpected costs during a deadly winter storm in 2021. 

Despite the boom in sales, Texas’ muni market hasn’t been an easy place to do business for public finance bankers. In 2021, lawmakers enacted a pair of laws targeting Wall Street banks for their policies on firearms and fossil fuels — a decision that upended municipal bond underwriting in the state. 

In October, Texas Attorney General Ken Paxton launched a review, threatening to bar eight banks including Bank of America Corp. and JPMorgan Chase & Co. from managing bond deals because of their commitment to cut greenhouse gas emissions. That review, which is still ongoing, caused governments to shy away from banks that were being evaluated. RBC Capital Markets and Wells Fargo & Co. were both removed from transactions in the weeks following Paxton’s announcement. 

The vast majority of the banks under review maintain they should be able to continue to do business under the legislation. And Texas is a lucrative market for municipal bankers in an industry that has contracted overall. 

Texas municipalities pay an average of $6.37 in fees for every $1,000 issued, far higher than the national average of $4.92 on long-term bonds, according to data compiled by Bloomberg. 

Infrastructure will continue to be a big spending item for Texas governments in the coming years. Voters approved nearly $60 billion of school district bonds the last two years, according to data from the Texas Bond Review Board. Of that, $37 billion has yet to be issued, Richard, the Siebert banker said. 

“I anticipate in the near term, we will see pretty robust borrowing needs,” he said. 

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