Municipalities Seek Voter Approval of $24 Billion in Bond Salesby
More confident officials seeking most odd-year debt since 2007
Proposed borrowing far from estimated infrastucture needs
For the Dallas Independent School District, there may never be a better time to ask voters to approve $1.6 billion of bonds to replace and renovate half-century-old schools.
Borrowing rates are near historic lows. And the school system has rebuilt its fund balance to $357 million from $37.7 million in 2009, according to James Terry, the district’s chief financial officer. “This is a good time for us to address some of our priorities,” said Terry, whose district has the largest issue on Tuesday’s elections, when $24 billion of bonds are before voters across the U.S. for everything from schools to roads, parks, water and sewer systems, economic development and low-income housing.
The district is part of a growing number of governments feeling confident about asking voters for new bonding authority again. The $24 billion is the most in an odd-year November election since 2007, before the worst recession since the 1930s cut tax revenue and pushed state and local governments into a period of austerity. Yet the bonds will make a small dent in the estimated $3.6 trillion of needed infrastructure investment in the U.S. by 2020, according to the American Society of Civil Engineers, which compiled an assessment of the backlog in construction of roads, water systems, schools, ports, airports and other public works.
“It’s a step in the right direction,” said Brian Pallasch, managing director of government relations and infrastructure initiatives for the civil engineers group. “It’s one way to address part of the problem, but we won’t address the need until we find ways to fund new infrastructure more broadly.”
November general-election ballots typically contain more debt in even years, when congressional and presidential elections are held, than in odd-numbered ones. Last year voters were asked to decide on $44 billion of bonds, more than twice the amount sought in 2010, passing about 85 percent, according to Ipreo, a New York-based financial-market information provider.
Six years after the recession ended, state tax revenue is only 5 percent over the prior peak and far lower than in past recoveries, according to data released in July by the Nelson A. Rockefeller Institute of Government, which tracks state and local revenue and spending. The long recovery from the recession that began in late 2007, followed by a sustained decline in investment by state and local governments in infrastructure, has created demand, said Donald Boyd, director of fiscal studies at the Rockefeller Institute.
“States and localities are generally in an improving situation, though it has not been rapid and it varies around the country,” said Boyd.
Despite the turnaround of many municipalities, government officials and even voters are more cautious about committing to more infrastructure than they can afford, said Tracy Gordon, senior fellow who tracks the fiscal challenges facing cities and states at the Urban Institute, a non-profit policy research group.
“People are very wary of getting in trouble again, so there is some reluctance after localities got hammered by the last recession,” said Gordon. “The idea of increasing debt outstanding and debt service are making people pay close attention to it.”
About one-third of the larger bond issues on the ballot this year are for school improvements and construction. Many are in Texas, which has been home to some of the fastest-growing population centers in the country in recent years. Harris County, which includes most of Houston, and Denver and Arizona’s Pima County have the largest state and local issues. Texas also has two large issues for municipal districts to fund infrastructure for new developments.
Many Texas school districts have experienced large influxes of new students, but the Dallas school system has fallen behind in replacing and updating older buildings. Some built before the 1960s need new roofs and plumbing, heating and air-conditioning systems, according to district documents.
States meanwhile have been reluctant to ask for new borrowing authority. Maine, which is seeking $100 million for transportation and affordable housing, is the only one with statewide debt initiatives, according to Roy Eappen, analyst with Wells Fargo Securities in New York.
Some states such as Texas are addressing the need for new roads by taking money from other sources, rather than adding debt backed by taxes or tolls. Texas voters will decide whether to move $2.5 billion of surplus sales and motor-vehicle tax revenue to the state’s road fund to catch up with a backlog of projects.
Spending levels, however, haven’t returned to pre-recession levels and are likely insufficient to resolve the backlog of infrastructure needs, according to the National League of Cities. While municipalities are taking advantage of low interest rates to cut the cost of existing debt, they’ve been reluctant to take on new obligations, the league said. Borrowing costs have averaged just under 4 percent since 2012, the lowest since the mid-1960s, according to the Bond Buyer 20 index of yields.
Now the test will be in how much gets approved, said Michael Wallace, program director for community and economic development with the league.
“The economy is improving in many cities and that creates an environment where people are ready to see new infrastructure,” said Wallace. “When local officials began putting questions to the public, the amount that gets approved shows that people are willing to pay.”