With its famed Riverwalk entertainment district and attractions like the Alamo historical site, San Antonio is well established as one of the Lone Star State’s leading metropolises. In May, San Antonio voters will consider a historic investment for the next phase of their city’s future when they weigh in on an $850 million municipal bond package—the largest in the city’s history.
The upcoming San Antonio vote is only one example of how cities, states and local communities throughout the United States turn to the municipal bond, or “muni,” market to borrow the funding they need to address large-scale capital investments and infrastructure development.
“Given its size, [the 2017 bond issue] allows us to make meaningful investments in our neighborhood and district projects all throughout the city but also to make investments in some of the larger catalytic projects that we haven’t had the ability to address in the past,” San Antonio Mayor Ivy Taylor said in a recent interview. “A lot of those are in the urban core, and we have to have a strong urban core to be vibrant as a city.”
Long-term borrowing through munis is a popular form of financing in U.S. communities, since it allows the borrowing entity to address long-term needs.
Particularly at a time of historically low interest rates, long-term debt financing through muni bonds is a cost-effective way to spur investment in local priorities like street and bridge construction, water and drainage systems, transportation facilities, public safety, schools and hospitals, and more. (For a previous primer on how muni funding works, check this November 2014 Project Invested article on how bond financing built a Minneapolis medical center).
Munis aren’t only a popular option among civic leaders and voters—they’ve also historically served as a favored investment option for investors seeking to manage risk and returns within a diversified portfolio. This preference is highlighted by the fact that many muni bonds enjoy tax advantages, with the interest received often exempt from federal, state, and/or local taxes. (If you’re unsure about the tax status of a particular municipal bond, talk to an investment professional for guidance).
If approved by voters on May 6, the San Antonio muni bond package will build upon earlier rounds of municipal financing spearheaded by the city. Most recently, the city took advantage of low interest rates and a decline in construction costs to advance a $550 million bond package in 2007, followed by a $596 million round in 2012. However, the 2017 package differs in its scope: at $850 million, it’s more than 40% larger than the previous offering five years ago.
Should voters approve the 2017 package, it will mean San Antonio will have approved more than $1 billion in capital investment over a decade. The debt will be repaid over time through the city’s existing property tax base. The previous 2007 and 2012 bond issues completed all projects on time and on budget, which may boost voter confidence as city leaders make the case for the next round of investment.
The 2017 bond issue, if approved, will fund 180 projects around the city, developed after extensive public input from a series of 25 open meetings. The 2017 bond program will be listed on the ballot as six separate propositions corresponding to the following categories:
- Streets, bridges and sidewalks (64 projects at $445.26 million)
- Drainage and flood control (19 projects at $138.98 million)
- Parks, recreation and open space (79 projects at $187.31 million)
- Library and cultural facilities (13 projects at $24.02 million)
- Public safety facilities (5 projects at $34.41 million)
- Neighborhood improvements (a variety of smaller projects citywide at $20 million)
About 20% of the funding is slated for investment in San Antonio’s downtown area, where an ongoing revitalization efforts in recent years has sparked more business investment while making the area more attractive for visitors and younger residents.
San Antonio’s recent history of creative muni bond financing illustrates effectively how capital markets make a big difference in connecting those with money to invest with those who want to put that money to work.
But getting to that step requires the critical work of persuading San Antonio voters about the benefits of that investment. City leaders are building that case, and hoping for a positive response from voters in May.
“People want to make sure that cities believe in themselves,” Archer said. “Passing bonds like this is an affirmation of the citizens believing in the future of their city.”