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The following report covers the following bills discussed in the March 22 meeting of the House Ways and Means Committee: HB 2510 (Noble et. al), HB 1869 (Burrows), HB 2014 (Lucio, Shine), and HB 1391 (Middleton). The full agenda and notice can be found here. A link to the archive can be found here.

This report is intended to give you an overview and highlight of the discussions on the various topics the committee took up. It is not a verbatim transcript of the hearing but is based upon what was audible or understandable to the observer and the desire to get details out as quickly as possible with few errors or omissions.

 

HB 1197 (Metcalf), Relating to the period for which certain land owned by a religious organization for the purpose of expanding a place of religious worship or constructing a new place of religious worship may be exempted from ad valorem taxation

  • Increases exemption period to 10 years from 6 years
  • Can be difficult for smaller congregations to raise the funds needed for contiguous property and new buildings/renovations
  • Passed out of committee unanimously last session, caught in bill calendar

Left pending

 

HB 2014 (Lucio, Shine) (CS), Relating to ad valorem taxation

  • Amends tax code to enhance taxpayer accessibility and increase transparency
  • Property tax system requires procedural changes to increase fairness and transparency
  • Will require appraisal districts to post dispute resources
  • Clarify appraisal parcels to combine contiguous parcels into one account or divide up parcels
  • Specifies that charge for change of use change to a non-agricultural use
  • Clarify various issues with appraisal boards and districts
  • Guerra – How are panels set up and work?
    • 3 member panels participate in reviews
    • Taxpayers protesting an appraisal can select a single member for the pandemic

 

James Popp, Popp Hutcheson LLC – For

  • Pandemic allowed for single member selection of review members for dispute
  • Panel decision is the final decision on a dispute; they can appeal to district court or enter in binding arbitration
  • This bill addresses issues that will make the system more fair
  • Bill is good for taxpayers and appraisal districts
  • Murphy – Are electronic notices opt in?
    • Yes, currently orders for protest come through certified mail, costs about $15 million over last 5 years
    • Can request electronic delivery under new law, and it will be fulfilled
  • Meyer – So you can have either 3 or 1 on a panel?
    • Yes, just an option to move more quickly through the protest

Rep. Lucio closes and asks for favorable consideration

Left pending

 

HB 1869 (Burrows), Relating to the definition of debt for the purposes of calculating certain ad valorem tax rates of a taxing unit.

  • Will strengthen SB 2’s taxpayer protections from 86th Session
  • Some debt types, like COs, do not require voter approval before issuance unless 5% of voters submit participants
  • Cities, counties, and hospital districts can issue COs
  • Account for large amounts of debt in each issuing body
  • COs can circumvent SB 2’s taxpayer protections; including the 3.5% cap according to a conference discussion he heard about
  • This bill would not prevent the issuance of non-voter approved debt
  • Shine – Would this affect existing debt?
    • No, only new non-voter approved debt
    • On or after effective date of the act, a go forward basis
  • Cole – How will this impact local control?
    • This will give taxpayers more approval, control of their taxes
    • Currently not given an opportunity to vote on CO packages, even if they raise M&O taxes above 3.5%
  • Rodriguez – If a city currently implements COs, it wouldn’t affect the 3.5%, and would have to pay it going forward?
    • Yes

 

Drew Masterson, Masterson Advisors – Against

  • Over 54% of COs are issued for “self-supporting” core infrastructure, such as water, sewer, electric – they pay for themselves
  • Interest rates would be much higher under new legislation, anywhere from 10-30 points higher
  • Single issuance saves money in certain efficiencies
  • Under bill issuance costs would be much higher due, COs straight forward whereas if they move to revenue bonds it will cost more since it has a complicated nature
    • Provides further examples of revenue bonds vs COs
  • Most cities that don’t issue revenue bonds would have to immediately increase water and electricity rates by 18-20% to cover the losses
  • At a minimum, exempt refunding bonds from the provisions in bill
  • Shine – How long have COs been used by municipalities?
    • Since the 1970s
    • Started out as equipment financing, and the legislature then added other uses
  • Shine – Could you discuss marketability more for us, and the restrictions that smaller cities would face?
    • Credit ratings matter to determine interest rate
    • Cities and counties would have to move to revenue bonds to finance projects, and credit would see higher interest rates as well
    • Almost nobody would issue COs with this bill – if the debt service tax is subject to the M&O cap, if you wanted to increase bond payments you would have to cut other city services
  • Shine – Have any cities dipped into reserve funds to service COs?
    • Not really, sometimes raise taxes, sometimes use debt service fund balance and not fully levy for that year
  • Shine – Can you discuss difference in coverage?
    • COs would not be applied anymore, but revenue bonds, which are subject to credit review
    • Subject to higher interest rates
  • Shine – Difference between GO and Revenue Bond rates?
    • 10-30 points over 10 years
  • Shine – On Refunding, would COs not be available to be refunded?
    • A refunding of even GO bonds would be subject to the tax, no one would ever refund those issues again if bill passed as drafted
    • A major service we provide is refinancing old debt at lower interest rates, would effectively kill that service
    • Would take away all GO refunding around the state unless bill adds exemption for refunding’s
    • Shine – so this will effect schools as well?
    • Yes on refundings
  • Button – What percent of counties currently use COs?
    • Its significant, but don’t know the exact number
    • Very popular
  • Button – What is the default rate of a CO vs GO? Revenue Bonds?
    • Revenue bonds have a slightly higher default rate, but the municipal utilities generally won’t default
    • Only in major crisis is there risk, like after the winter storm and expands on this detail
  • Murphy – How often are COs used, what kind of bond issues are made?
    • Depends on size so medium size in the top 25..maybe every 1-2 years, every 5 years for smaller cities
    • Used for basic infrastructure
    • Other than self-supporting, tax supported projects out of the general fund
  • Cole – What impact are you predicting this bill has on implementing repairs from the deep freeze?
    • Election would have to wait for the bond passage, and financing would take months
    • Cole – could be a big delay?
    • Yes
    • Public notice is very effective for COs
  • Cole – How are schools districts affected?
    • They are affected with the ability to refund their GO bonds
    • Their ability to save money from lower interest rates would be impaired
  • Meyer – Does the bill do away with COs?
    • Technically no, but a similar provision was imposed on school districts there have been almost no non-voted maintenance tax supported bonds
  • Meyer – So cities like to use COs for utilities because there isn’t transparency?
    • No there is transparency, rating agencies review the issuance

 

Cheryl Johnson, Galveston County Tax Assessor Collector – For

  • Support for transparency reasons
  • Most people don’t know how much debt local governments have on their books
  • Other revenue sources exist for cities, such as water rates, and this bill only speaks to property tax
  • Fiscal note sold me – limited definition of debt can make it harder to raise property taxes
  • Bill will force entities to go to the voters

 

Steve Williams, Assistant City Administrator/CFO for City of Conroe – Against

  • Similar issues to Mr. Masterson
  • Refunding debt has been a huge issue for the city, saved over $10 million in interest rates due to flexibility provided by COs
  • COs allow us to be nimble and respond to growing demands for development and capital improvement plan
  • COs fund infrastructure programs, and help us keep costs and interest rates low
  • Cole – So you can increase savings to taxpayers, is that through savings of not having coverage requirements?
    • 2 parts: saved money by refunding bonds over last 15 years and also saved interest costs moving forward. We have also saved water and sewer rate payers by issuing non-voted COs to fund improvements
    • Bill will effectively stop COs and refunding bonds
  • Meyer – Which has a better rate? CO or voter-approved debt?
    • If you’re issuing a CO and water/sewer revenue bond, CO will be cheaper
  • Meyer – How much debt does Conroe have?
    • Taxpayer supported debt is around $300 million
    • About 2/3 is non-voter approved
    • To put in perspective, the debt tax rate is 12.5 cents

 

Dale Craymer, Texas Taxpayers and Research Association – For

  • Bond elections provide taxpayers with a lot of information about the issuance, tax rate changes, property values, usage of funds, etc.
  • Other types of bonds, like COs, lack this transparency but accomplish similar goals
  • COs were first authorized in 1971, but initial language allowed only for issuance under the conditions of cost overruns of an ongoing project
  • However, use has exploded – $16 billion worth of CO debt outstanding which equates to $1600 for every family of three
  • Over 1/3 of all tax-supported debt in cities is non-voter approved, 1/5 for counties,  ÂĽ for hospital districts
  • Instances of when COs are used to fund items that voters would not approve are the concern – concerned they will be used to workaround the will of taxpayers
  • Closing off refunding issues can be addressed in the bill, not a policy position but a technical fix
  • Murphy – If an election was held for a GO bond for a project, you couldn’t turn around and use a CO to fund that same project. What are the rules about this?
    • Legislature made a 3-year grace period for a failed GO bond to be financed using CO bonds
    • To be fair, Travis county did restructure the CO bond to ensure cost effectiveness, but they did use it after the failure of the GO bond
  • Shine – What about a cap on issuance amount? Has that ever been considered?
    • Not to his knowledge
  • Shine – Have COs been limited in usage?
    • Certain bodies have been limited from issuing COs; among special district only hospital districts can issue COs, school districts cannot issue COs
  • Shine – If a GO failed, could we ban using a CO to ever finance that project?
    • We would be willing to study this issue
    • Only concern is that some local jurisdictions will just never go to GOs, they would go straight to COs to avoid being told no
  • Button – Has an analysis been done on the interest rates cost of GOs vs COs?
    • No information, essentially trade at the same interest rates
    • Only half of COs are tax supported
  • Cole – asked about Travis County?
    • Yes, but they went with a GO first (but it was not dollar for dollar the same proposal)
    • Voters can force a vote as they did in the Farmers Branch example; unless you are following the Commissioners Court the issuance could happen without the general public aware
  • Rodriguez – You have two Travis County individuals, could they have gone with COs in the first place?
    • Yes, they could have
  • Rodriguez – Would like to work with Rep. Shine on projects where COs are limited with project or by cap
    • Skeptical of hard caps, if did that may never be able to authorize a municipal utility district
    • Rodriguez – agree but think it worth a conversation
  • Meyer – So this bill does not eliminate COs? Can you speak to those who say it effectively does?
    • Not sure I agree, asking voter approval doesn’t limit issuance of COs
    • 3/4 of bonds pass, if you argue your bond clearly it will probably pass
    • If a CO can be rolled in to tax rate without changes it does not require approval
  • Meyer – Conroe testified about 2/3 of their debt was CO, is this common? About 80% of debt was non-voter approved?
    • It varies, but Conroe is higher above the average of the state
  • Rodriguez – What in the current law makes transparency requirements for cities and counties?
    • Governing board’s meeting will discuss bonds and COs, you have to do digging on these issues to find CO issuances
  • Rodriguez – so you would have to do a bit of digging?
    • Yes
  • Shine – going back to previous question, is it possible to have a relationship based on per capita basis based on COs?
    • It is, but one issue to work on is not al cities provide the same level of services
    • Shine – could you bracket it by size? And bracket on utilities?
    • Its feasible but that is the thought process they would need to go through
  • Cole – Do you think this would impede emergency response funding?
    • Sees a path to define emergency issuances for COs
  • Martinez-Fisher – How does this play out? How do cities and counties bid on contracts if they don’t have access to COs for tourist issues, like NCAA requirements for arenas and such?
    • For many major events, these are not tax-supported events
    • Governor’s office has a fund dedicated for tourism-related capital improvements
    • Even for capital projects, there shouldn’t be an issue asking voters to approve the debt
  • Martinez-Fisher – What is the largest event trust fund grant you’ve seen?
    • Probably Circuit of the Americas, about $250 million pledge for a ten year period
  • Martinez-Fisher – If an issue has already been approved by voters, but overflow is needed, then a CO could be possible? CO tool will allow you to reconfigure finances such as HOT taxes
    • Will role up sleeves and help them work on this
    • Yes could support CO if debt has already been voter approved, that sounds like a technical issue
    • If you’ve already gotten voter approval, they need to finish the project, and may need to issue additional debt to do so
  • Martinez-Fisher – waiting for testimony that shows wait period and protest not functional?
    • The cases they are seeing is a work around, they are using CO for a project the voters would not approve
    • Martinez-Fisher – believes there is a fix for that and does not burden the others that were using COs the way they were meant to be used

 

Bill Longley, Texas Municipal League – Against

  • Most city debt is self-supporting revenue debt
  • Cities seen move recently to use more COs instead of revenue bonds due to lower rates and cheaper implementation
  • Ex. Denton estimates switches to COs over revenue bonds will save $18 million over next 20 years
  • Bill does not legally prohibit a CO but much less marketable; it would result in lower bond ratings and higher interest cost so it does have a cost to taxpayer and would negatively impact them
  • This bill goes beyond COs – includes any debt that isn’t voter approved
  • Lease purchase agreements, tax notes, and other debt issuances that give cities and counties flexibility for contracting and purchases of needed supplies and resources
  • Bill will restrict quality of life improvements and limit improvements in the community
  • Shine – Is it possible that we can shift the double-barrel relationship that’s been created in the last few years to meet the intent?
    • Yes, totally possible

 

Dan Davis, Self (Manvel City Council Member) – For

  • Not here for the city but for the community
  • Principal debt burden was $240 billion carried by local entities in 2019
  • Most common debt issuance used by local entities is CO because there is no requirement for voter approval
  • Some issues require COs, but more often than not it is used to avoid accountability from voters
  • Government needs to operate in the light of day
  • This bill is a viable solution, because unfettered debt growth is harming our communities and killing opportunity for growth
  • This bill results in better planning for projects and prioritizes taxpayer concerns
  • Where will our cities be 20 years from now, and how will our decisions impact our children and grandchildren, with growing debt issuances?
  • Cole – Have you ever used an opposition to COs to create a petition as part of the public notice requirement?
    • No, the last 4-5 issuances have been COs, but the lack of transparency makes it hard to get public involved
    • Voted against last one because revenue bond would have been better
  • Meyer – How many COs have you been a part of?
    • Just 1, only been on the council for 2 years
  • Meyer – Did anyone in the public step forward to protest it?
    • Personally, I knew very few people who were aware of the issuance
    • City has 14,000 people, and $28 million in debt and its unsustainable
  • Meyer – Any thoughts for increasing transparency?
    • Yes, Websites and digital awareness campaigns are great resources
    • Could send out notices to citizens as well
    • Council members need to engage with the community

 

Charles Reed, Dallas County’s Commissioner Court – Against

  • Court has not issued new GO bonds in 30 years, but we have been refinancing
  • We are very close to being debt free, but this bill effectively eliminates COs as an opportunity for counties and cities
  • Would have been protecting debt rate but trading for M&O rate
  • Under SB 2, we can get a better rate and lower the overall burden, but would have to tell the public that we were raising rates
  • Cole – 10 years ago, what impact would this have on your credit rating?
    • Not sure, the court has had a AAA rating for decades
    • One of the lowest tax burdens in the state, as well as low debt
  • Murphy – How has Dallas paid for infrastructure?
    • In 1992, a portion of the tax rate was carved out for infrastructure and capital projects, as well as debt payoff
    • As our debt rate gets smaller, the more we can do with the cash balance we gain from the tax carved out
  • Meyer – Has Dallas County issued a CO?
    • Yes, as refunding bonds, maybe 3-4 times in the last 15 years for a better interest rate on current GOs
  • Meyer – How much of the debt is non voter-approved?
    • 100% is COs, and all refunding debt

 

James Quintero, Policy Director, Texas Public Policy Foundation – For

  • Taxation with representation
  • Bill provides participation with tax policy
  • Important from both a truth in taxation and good governance perspective
  • Debt growth was due to only a few areas – top 20 issuers of debt account for 40% of CO debt
  • Current law incentivizes local governments to use COs because the costs are excluded from the 3.5% trigger
  • Bill may dissuade questionable expenditures
  • Provides examples of “questionable” expenditures funded by COs
  • Shine – Is there a breakdown in the packet you provided for the double-barrel approach?
    • No, but will provide it
  • Shine – In these figures, do you have information about refunding for a lower rate?
    • No, but I believe that the refunding issue could easily be resolved
  • Cole – Can you explain how the double barrel rate would work in these circumstances?
    • No, not off the top of my head

 

Rep. Burrows

  • If we are committed to protecting SB 2 and what voters have to say, we need to close this CO loophole
  • Despite the good uses of COs, it has been misused as well
  • Pro-taxpayer perspective must be followed
  • Martinez-Fisher – I share your concerns with the intentional avoidance of the 3.5% issue, do we have a brightline for CO usage pre-SB 2?
    • No, the triggers are just now getting into place
    • Regardless of the rate of utilization, the opportunity exists for the loophole, and its just good policy
  • Martinez-Fisher – sees COs as a financial tool, serve a purpose in how cities can refinance debt
  • Cole – would going out to voters prevent repairs from May to November election
    • Not entire debt but debt service would count against M&O
  • Cole – testimony by Craymer about disaster needs, would you support that?
    • Yes like a bridge type loan, would entertain the conversation and support the committee on

Left pending

 

HB 1391 (Middleton), Relating to the effect of an election at which the voters fail to approve or vote to reduce the ad valorem tax rate adopted by the governing body of a taxing unit.

  • Changes what happens when tax increase is put to voters & voters reject; taxing entity must adopt lesser of voter approval rate or no new revenue rate
  • Cole – Asks about difference between the two rates
    • New construction, improvements, etc. don’t get included in no new revenue rate

 

Will Holliman, Texas Association of School Boards – Against

  • Against bill as currently written, conflict in applying to different sections of code; can have a difference in tax rates for tier 2 enrichment & could end up in a reduction in state aid

 

Cheryl Johnson, Dallas County Tax Assessor-Collector – For

  • Data collected usually only for school districts, only 8% of these fail and then usually tacked to state compression rate; no new revenue rate is hardly ever used
  • These elections are extraordinarily costly & want to encourage governments not to have them
  • Need to look at data used as a base
  • Fiscal note is based on hypothetical that all elections fail, not realistic

 

Christy Rome, Texas School Coalition – Against

  • Before 2019, was much clearer how many cents voters were being asked to approve
  • Districts could lose considerable revenue due to differences in school finance funding and recapture
  • Does not line up with districts whose fiscal year begins on July 1
  • Cole – Trying to understand impact on school districts with recapture?
    • If the rate impacts copper & gold pennies, it would reduce recapture, if it increases tier 1 it would increase recapture
  • Rodriguez – Asks after impact I&S pennies
    • Exact impact varies district to district, district may need to use M&O

 

Amanda Brownson, Texas Association of School Business Officials – Against

  • As tax effort falls, state aid falls; found often that no new revenue was a penny or two below voter approval rates, but total revenue was the same; if this tax rate gets pushed down districts can see lower total revenue than the prior year
  • If district is issuing new debt, no new revenue does not take this into account; in order to meet the rate may need to use M&O pennies
  • If tax rates are pushed down, may not be able to get voter authorization to even reach prior funding again; could be a permanent revenue reduction

 

Dan Davis, Manvel City Council – For

  • Understands need to raise revenue, but unchecked growth can cause harm to community

 

David Patterson, Assessments of the Southwest – Against

  • Could negatively impact MUDs, small differences can have huge impact
  • Murphy – When you’re facing a situation where your debt cannot be levied on the full value, what does that do to the cost of debt underwritten? Expectation is you will levy against the full value
    • Correct
  • Murphy – Important because city, county, etc. do not support, people in the districts support

 

Drew Masterson, Masterson Advisors – Against

  • Would bring the carefully crafted special district provisions from last session in under the bill
  • Restriction on I&S tax would render MUD bonds unmarketable or barely marketable
  • Murphy – Asks after impact on homeowners, would it increase cost of houses?
    • Yes
  • Murphy – Would triple the cost of debt
    • Correct

 

Adam Haynes, Conference of Urban Counties – Against

  • SB 2 was discussed and negotiated; penalizing districts for going to the voters would change the concepts discussed under SB 2

 

James Quintero, Texas Public Policy Foundation – For

  • No disincentive for taxing entity to solicit tax increases year after year, would discourage repeated tax increases

 

Russel Schaffner, Tarrant county Commissioner’s Court – Against

  • Concerned about unintended consequences that could impact Tarrant County specifically; large costs that affect counties & being penalized for asking would be detrimental

Rep. Middleton closes

Left pending

 

HB 2510 (Noble et. al), Relating to a sales and use tax exemption for animals adopted from or sold by nonprofit animal welfare organizations.

  • Currently, if a Texan adopts from a non-profit animal shelter, there is no sales tax, but if they adopt from a non-profit animal rescue, there is
  • Clarifies that all animal adoptions are exempt from sales tax
  • 0 fiscal impact according to LBB fiscal analysis
  • Comptroller cleanup bill

 

Katie Jarl, Texas Pets Alive! – For

  • Animal Shelters take in hundreds of thousands of animals per year, and local rescues remove a significant burden from government shelters and ensure survival of many animals
  • Rescues are a significant help to all kinds of shelters and ensure higher survival rates for animals in delicate situations
  • Gives an example from winter storm that saved over 1,000 cats and dogs from euthanasia

Rep. Noble closes

Left pending

 

HB 2429 (Meyer) (CS), Relating to the alternate provisions for ad valorem tax rate notices when the de minimis rate of a taxing unit exceeds the voter-approval tax rate.

  • Clean up bill provides clarity on exemptions, such as ticket resellers
  • Addresses issues raised in last session and resolved with the help of the comptroller’s office

 

John Kroll, HMWK – For

  • Provides software as a service for entities that want to issue tickets, as well as a marketplace platform where ticket holders can resell their tickets if they would like
  • Bill provides needed clarity on this issue

Rep. Meyer closes

Left pending