By Tim Brown, County Information Senior Analyst
As it has for several years, local debt continues to be an issue in Austin. The Texas Bond Review Board (BRB) recently released its “Local Government Annual Report” for Fiscal Year 2018. So let’s update the County Information Program’s article on county debt from the Nov./Dec. 2014 issue of County, which looked at principal debt, as of Aug. 31, 2013, using the Census Bureau’s population estimates for 2013 to calculate each county’s per capita debt load.
We can calculate each county’s debt load using debt data for Aug. 31, 2018, from the BRB. Unfortunately, the Census Bureau has not yet released population estimates for 2018, so we have to use population estimates for 2017 to calculate the per capita debt load for counties.
As with the Nov./Dec., 2014 article, the following analysis considers principal only and therefore stated amounts will not include outstanding interest. Also, as with the earlier article, BRB’s data excludes commercial paper1 and conduit debt2. In addition, the per capita debt calculations exclude toll road debt for both 2013 and 2018.
Map 1 (above) from the Nov./Dec., 2014 article, showing per capita debt by county as of 2013, is included for comparison purposes. Clearly, the “no debt” bracket includes many more counties as of 2018 than in 2013. Also, note on Map 2 (below) that fewer counties appear in the dark green bracket, which even has a lower maximum value. Naturally, Loving County still exists in its own bracket, although the per capita value is significantly reduced.
While some of the differences in per capita debt load can be explained by population growth, in those counties that actually grew the decrease in counties’ total principal debt statewide played a role. Chart 1 and Chart 2 (below) show total debt outstanding, as of Aug. 31, for their respective years, 2013 and 2018, revealing a decrease of approximately $107 million. Had we adjusted for inflation, that number would have been larger.
The difference in total county debt may not be obvious when comparing the two charts, given how small the county slices are. Conversely, the increase in total public school district debt of $65.1 billion in 2013 to $84.2 billion in 2018 stands out on the charts. School districts’ $19.1 billion increase in outstanding principal resulted in their share increasing from 32.6 percent of local governments’ total outstanding principal debt in 2013 to 36.6 percent in 2018.
Why did school districts debt increase by 29.3 percent? A part of the answer lies with the fact that we did not adjust for inflation. Had we done so, the percentage would have been reduced, but it would still have been significant. So what could explain the majority of the increase? For example, did restrictions on school district maintenance and operations property tax rates or declining per capita state funding create an incentive or need for school districts to issue more debt? It is beyond the scope of this article to investigate why school district debt loads increased so noticeably; however, one cannot help wondering if a lack of funding for maintenance and operations led school districts into an attempt to fund their operations through bonds rather than with current revenue.
In reporting debt outstanding for school districts and other types of local governments, the BRB included commercial paper and toll roads in the total principal outstanding. Therefore, the total county debt used to calculate per capita debt in the maps does not match exactly with the total county debt used in the pie charts.
As Charts 1 and 2 establish, total county debt decreased from 2013 to 2018, but that does not mean that counties stopped issuing debt.
Chart 3 (below) shows how much debt counties issued by fiscal year from 2014 to 2018. The amounts are broken down into “new money” and “refunding” debt. Over the last few years, interest rates dropped to the point that counties could save money over the long term by issuing new bonds and using the proceeds to pay off old bonds that had been issued at higher interest rates. These types of bonds are referred to as refunding or refinancing bonds. Counties issued quite a bit of refunding bonds, particularly in 2015 and 2016 when debt issued for refunding purposes topped other types of debt — classified as “new money.”
In fact, 55.1 percent of the $10.0 billion in debt issued by counties from 2014 through 2018 consisted of refunding debt. New money debt comprised the remaining $4.5 billion, or 44.9 percent, of counties’ total issuance over the period. Although not shown in the chart, new money debt comprised $35.2 billion, or 53.3 percent, of the $66.1 billion in debt school districts issued over the same period.
Even without adjusting for inflation, total county debt outstanding decreased from 2013 to 2018. Not only did counties decrease their total debt, they managed to replace much of their debt with bonds carrying lower interest rates, thereby reducing future interest payments. Clearly, anyone concerned with local debt should focus on the growth in school district debt and the reasons for that growth.