What is a bond issued by a city?

Municipal bonds are a way for a city to raise money for some set of projects.

The city basically says, “We have a lot of taxpayers and we aren’t going anywhere, so you can trust us to pay back a loan.”

Then bond purchasers, such as life insurance companies, corporations, and other investors will loan the city money in exchange for a small bit of interest paid each year. Most of this type of bond interest is also tax deductible on U.S. federal income taxes, so the bondholders end up saving on their federal tax bill in addition to the money they make each year from their bonds.

Each bond, like a loan, has a fixed term—a number of months until the bond pays the money back or “matures.”

What kinds of bonds are there, and how are they funded?

Cities typically issue two kinds of bonds (take out two kinds of loans from bond purchasers):

• General obligation bonds – secured by the city’s reputation of payment and existing city revenue streams.
• Revenue bonds – secured by the revenues from a specific project, like a toll road or airport.

The Austin City Council issues a number of bonds, with the consent of voters, every year to fund various new projects and improvements to things in the general shared interest of city residents.

The city pays the bond interest and maturity by raising revenues in the form of property taxes. As of 2018, the city taxes property at a rate of 44.48 cents per $100 of property value. 10.55 of those cents are the “debt rate” and go into the Debt Service Fund, which the city uses to pay the city’s general obligation bonds.

For the median Austin homeowner with a home value of $305,510 this comes out to a tax bill of about $1,250 per year, or $104.17 per month. So the median homeowner is paying about $24.70 per month to service the city’s bond debt.

How does Austin compare on bond debt and property tax rates in Texas?

Compared among the five most populous cities in Texas, Austin ranks 5th for overall property tax rate, 5th for debt rate, and 4th overall for debt-to-revenue ratio. But Austin also has generally higher home values, which increases both the amount of revenue from those lower rates, and—without commensurate increases in median income—the portion of median family income spent on city property tax.

When looked at as total city property taxes paid as a percentage of median family income, Austin ranks 3rd among those same top 5 cities.

Property Tax & Debt Rates, Top 5 Texas Cities, FY 2017–2018
City	Property Tax Rate † ↓	Debt Rate †	Debt to Revenue Ratio	% of Median Income ‡
Fort Worth	80.5¢	16.35¢	20.3%	1.7%
Dallas	78.04¢	22.24¢	28.5%	2.4%
Houston	58.42¢	16.39¢	28.05%	1.45%
San Antonio	55.83¢	21.15¢	37.9%	1.55%
Austin	44.48¢	10.55¢	23.7%	1.6%
Average	63.45¢	17.34¢	27.33%	1.74%
† Property tax rates and debt rates are expressed in cents per $100 in assessed property value, less any relevant homestead exemption, and any additional senior or disabled exemptions. ‡ Approximate rates pulled from City of Austin budget linked below.

Sources

• City of Austin 2017–2018 Budget
• City of Dallas 2017–2018 Budget
• City of Fort Worth 2017–2018 Budget
• City of Houston 2019 Adopted Budget
• City of San Antonio FY2019 Adopted Budget
• Wikipedia: Municipal bond

Bond-related propositions on the ballot

• Proposition A – Affordable Housing
• Proposition B – Community & Cultural Facilities
• Proposition C – Public Parks & Recreation
• Proposition D – Flood Mitigation & Water Quality
• Proposition E – Health & Human Services
• Proposition F – Fire Department & Emergency Services
• Proposition G – Transportation Infrastructure