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The city of Austin sold its first $645 million installment of bonds this month to help finance a $1.6 billion expansion of the downtown convention center, committing most hotel occupancy tax (HOT) revenue to repay debt that credit analysts consider investment grade but not without risk.
The sale, which came after the city delayed releasing a key credit report sought by the Austin Free Press, covers about 40% of the project’s estimated construction cost. The city expects to issue another similarly sized round of convention center bonds, as one convention researcher questions if there will be enough business to fill the many convention centers expanding around the state.
Heywood Sanders, a University of Texas at San Antonio professor who wrote a book on convention centers and is researching another one, said that San Antonio, Houston, Fort Worth and Dallas – not to mention many national competitors – are all expanding their convention centers.
It’s “possible that one or more of (those expansions) will succeed,” Sanders said. “Is it likely that all of them will succeed to the degree that each of their respective consultant studies suggest?” he added. “That strikes me as singularly unlikely.”
Last year, theAustin City Council unanimously approved issuing up to $650 million in convention center bonds and the city commissioned S&P Global Ratings to provide preliminary credit ratings on its originally proposed $620 million in convention center debt. Credit risks are important because they affect how much interest the city ultimately will pay to build the new convention center.
Investment grades
S&P tentatively assessed two types of convention center bonds as relatively low risk in an Oct. 14, 2025, report that the Austin Free Press recently obtained under the Texas Public Information Act. For the $645 million in bonds just issued, for example, 81% is less-risky “senior” debt, which is repaid first. Another 19% is “junior” debt is second in line for repayment, making it riskier and potentially costlier.
Source: City of Austin
“Based on assumptions” provided by Austin Treasurer Belinda Weaver, S&P deemed both types of Austin Convention Center debt to be “investment grade” bonds, which pose relatively low risk of nonpayment. S&P gave the “senior” bonds a “very strong” “AA-” rating and the riskier “junior” bonds an “adequate” score of “BBB+.”
Source: S&P Global Ratings
The Austin Free Press asked the city to provide separate interest rate breakdowns for the senior and junior convention center bonds that the city recently sold. Instead, the city stated in a written statement that, “The bonds were issued with a combined true interest cost of 4.88%.” The statement said more information will be posted on a city bond website in late August.
The city of Austin recently became the only major Texas city to obtain a perfect AAA credit rating from all three major bond ratings after Moody’s Ratings upgraded Austin’s grades in July, the Austin American-Statesman reported. Heavily dependent on hotel occupancy taxes, the Austin Convention Center received a credit rating that was not quite as stellar.
S&P’s convention center report characterized Austin’s overall economy as “positive” due to a “large tax base and expanding population.” A “significant rebound” in the hotel occupancy taxes – most of which are dedicated to the convention center – makes that funding “relatively stable,” S&P determined.
Survival of fittest
The firm cautioned, however, that “Heightened economic uncertainty, persistent policy unpredictability, and market volatility have begun to affect hotel demand nationally, particularly at the low end, which contributed to a slight decline in the city projected (hotel occupancy tax) HOT revenue in 2024.”
One bond metric estimated the extent to which the funds dedicated to repaying bonds will be able to cover those debts over time. S&P rated that debt service “coverage” for the convention center’s senior-lien bonds as “adequate-strong” but “weak” for the riskier junior-lien bonds.
The city’s recent $645 million bond sale is equivalent to 40% of the new convention center’s estimated $1.6 billion construction cost. Last year, the city instructed S&P to assume that “over the next two years” another roughly comparable round of convention center bonds would be issued – also mostly backed by the same hotel taxes. This aligns with a city staff memo at the time that said that, “Approximately $1.2 billion of the $1.6 billion construction budget will be debt financed” (75%). The city intends to pay cash for the remaining costs.
“What is particularly interesting to me,” Sanders said, is that the city is “not going to (the bond) market with the full cost of the expansion.” And S&P’s October 2025 report “mentions a proposed (initial bond) issuance in November” 2025 yet “I don’t think those bonds have been issued,” he told the Austin Free Press in a July 31 interview. “I think they’re stalling.”
The city issued the bonds four days later.
Spotty disclosures
In December, the Austin Free Press formally asked the city for a slew of convention center records – including the bond ratings. Other requested records included:
- Convention center construction cost and timeline updates;
- Calculations that the city used to estimate that the convention center will cost $5 billion over 30 years;
- Details on pre-booked events for the convention center slated to open in 2028; and
- Recent convention center projections for future events, attendees and related hotel room nights.
After charging the Austin Free Press a $411 deposit to provide the records, the city asked the Texas attorney general, who oversees the Texas Open Records Act, to withhold all the requested records based on disclosure exceptions related to attorney-client privilege, deliberative proceedings and competitive bidding.
The attorney general ruled March 20 that the city could withhold all the requested information except the bond ratings. Yet the Austin Free Press did not receive this ruling – nor the preliminary bond ratings report until July 16, four months later.
Responding to questions about this delay, city of Austin Public Information Officer Dan Davis called the Austin Free Press on Aug. 4 – the day the city issued the bonds. Davis said that the city was refunding the $411 records charge and would contact the Austin Convention Center to see if it would release any of the other requested records (it released a couple more).
The following day, city spokesperson Erik Johnson called the Austin Free Press to explain that “a team that’s short-staffed” had “lost that (Austin Free Press) request after it came back” from the Attorney General’s office. Describing that blunder as “atypical,” Johnson said that the Austin Public Information Office now is “back to a full three-person team.”
These disclosure problems did not surprise Sanders. He said there has been “a continuing problem of getting the most basic information to the public about this project.”
Andrew Wheat is the Data, Information and Enterprise Editor of the Austin Free Press.
