This report focuses on the presentation from the Legislative Budget Board regarding debt and the Bond Review Board.
Chairman Jane Nelson introduced the hearing by recognizing the Committee’s need to protect future generations from the burden of debt. Sen. Whitmire asked for economic surplus funds to be placed towards services (e.g. education and transportation) instead of cash dollars to tax-payers.
Legislative Budget Board
Lara Bell, General Government
- $44.3 billion state debt has been broken down to relate to the debt service with SB 2
- Local debt $205.3 billion – second largest debt of the ten most populous states
- State debt $44.3 billion – ninth largest debt of the ten most populous states
- State debt is broken into two categories – general obligation debt and non-general obligation debt backed by a self-supporting revenue source
- Chairman Nelson asked for clarification on what is included in the $5.7 billion conduit debt
- For instance, Texas Windstorm Insurance Association (TWIA) bonds are not issued by the state but rather TPFA – there is no obligation made by the state
Emily Morganti, General Government
- $19 billion of state debt has been authorized but not issued
- Sen. Whitmire wants further supervision of this list before looking over the state’s balances
- Sen. Watson asked if the authorized but not issued list included tuition revenue debt
- No, the largest portion of authorized but unissued debt is toward water-development bonds and is backed by self-supporting revenue
- Chairman Nelson asked for the average debt when local and state debt is combined per Texan
- Local government general obligation debt per capita is $4,627 in 2013
- State general obligation date per capita is $560 in 2014
- Sen. Kolkhorst questioned where tuition revenue bonds for universities are included
- Universities are included in non-general obligation debt which are self-supporting sources
- Sen. Eltife highlighted the doubled debt and unfunded liabilities of the state over the last ten years (e.g. Texas Tomorrow Fund and pensions) – not the conservative way to fund state government
- Government should either pay for services, raise taxes or do nothing
- Sen. Watson agreed with Sen. Eltife and disagreed with previous legislators’ desire to promote local debt, because the state is not taking care of its local obligations (e.g. transportation and education)
Greg Owens, Higher Education
- Sen. West asked for clarification on tuition revenue bonds
- Schools use all available revenue for bonds and enroll into revenue financing system – tuition is used to back bonds and reimburse schools
- Sen. Seliger challenged the committee to focus on university capital construction – can pay for everything in SB 149 with cash and do not have to incur debt
- Sen. Whitmire asked for a range of cost in existing bonds in terms of interest charges in regards to examining debt that can be retired early for cost savings
- Sen. Hinojosa is pushing for an amendment that states you can pay down debt without going against the spending cap
- Whitmire encouraged others to join Hinojosa
- Sen. Bettencourt concerned about the rapid increase in recent local debt – asked how long it would take to conduct a sensitivity analysis
- Sen. Eltife noted debt has been issued without assigning or creating a source for a new revenue stream
- Sen. West pulled information from a recent Houston Chronicle article stating local debt totals up to $333 billion, which is much higher than the total estimated in the LBB report – requested a chart showing debt percentages based on category of project (e.g. transportation and healthcare over ten years)
- Bond Review Board has some of this information and maybe it could be further disaggregated
- Sen. Hancock is interested in lifespan of bonds and in regards to school debt could be tendency to extend out debt to stay below cap – are there details to show trends of type of debt being occurred
- 20 year bonds for TPFA and 30 year bonds for TxDOT is average and believes norm is 20 year
- Hancock would like to see the trend because guessing based on current law the trend could be 30 years because of what is being done with caps – in some local areas only way to continue to build is to push debt out over longer period of time to reduce tax increase
- Sen. Schwertner notes state and local debt per capita is still much better than the federal government
- State debt outstanding with debt service include in the SB 2 as introduced is further reviewed
- The Constitutional Debt limit is currently at 2.71% for FY 2014 (the limit is 5%)
Bond Review Board
Laura Bell, LBB
- Summary of Recommendations reviewed
- Sen. Taylor noted that Texas has one of the highest bond ratings by all the agencies which shows responsible debt and not necessarily fair for today’s taxpayer to pay for something to be used 20-30 years
Robert Kline, Executive Director of the Bond Review Board
- Total state debt outstanding – compound annual growth rate is 7.6%
- Sen. Eltife clarifies growth rate – it has grown 107% over the past 10 years?
- Right
- Sen. Eltife – from $21 billion to over $44 billion in the last 10 years?
- Correct
- Sen. Hinojosa seems like most debt issued is self-supporting debt?
- Right
- Sen. Kolkhorst asked if SWIFT included in this total?
- This is only issued outstanding – SWIFT has not been issued yet
- Sen. West asked for clarification on self-supporting and ratings
- Back by revenues coming in
- There have not been any defaults on self-supporting debt and it is detail considered when determining Texas’ ratings
- Sen. West notes biggest increase appears to be self-supporting debt but tax payers are not on the hook for that
- Not self-supporting debt in the charts shown are paid for out of general revenue
- Sen. Huffman asked about TRB’s being called self-supporting but still being paid for out of general revenue – how can that be?
- TRB could be considered a hybrid
- Sen. Huffman asked for examples of self-supporting debt
- Tolls for toll roads or mortgages for veterans
- Sen. Hinojosa points out self-supporting bonds by Water Development
- Paid back by user of services
- Sen. Seliger said graph presented to committee would look very different if Tuition Revenue Bonds were accurate because he does not consider TRB as self-supporting debt – he wants more accurate graphs
- Sen. Eltife said there is caution needed when looking at what is supported and what is not supported
- Eltife said legislature asked them to call it a TRB so the legislature could “game the system” and they are doing what they have been asked to do
- Sen. Nichols would like to see actual list – largest to smallest of debt holders and would like to see the percent of budget now going to debt service versus 10 years ago
- Sen. Watson asked about Moody’s recently indicated because of pension funds appearing unstainable that there was a chance Texas could be downgraded
- Yes, it was noted that the pensions put downward pressure on the ratings along with infrastructure demands and education demands
- GO not supported debt is the debt that affects the constitutional debt limit
- Debt per capita has increase 80% for 2014 – GO debt per capita
- There is $12 billion debt authority under the Constitutional Debt Limit
- Sen. Kolkhorst asked about average debt
- 20 year on average
- TxDOT issues debt for 30 year – $3.5 billion outstanding debt
- TxDOT only agency going out 30 year on not self-supporting debt
- Local government debt outstanding has grown from $85.83 billion to $205 billion in 2014 annual growth rate – 5.7% annual growth rate
- City and public school debt are 2/3 of local debt
- In regards to Sen. West’s earlier question staff noted, $15,000 per student debt
- Sen. West noted article in Chronicle on Feb 2 said debt per student was about $21,850 per student and Frisco ISD owed $2.8 billion or $62k per student
- Sen. Nelson pointed out that is the fastest growing school in the nation so that is buildings
- Sen. West confirmed there is a bond election – voters approved
- Sen. Uresti asked if the school district or state government is responsible for school-related debt
- Permanent School Fund debt is what backs up the debt
- Staff said in regards to debt to student – for year 2013 the average voter approved debt per student is $14,700
- Sen. Hinojosa said he knows many schools have cap in terms of bonds school districts can issue but schools are issued capital appreciation bonds (CABs) and last session they passed legislation in the Senate to provide control or oversight for CABs
- CABs are harmful for future generations – schools in California are going bankrupt for lacking the ability to pay back their debt
- Having to pay back 3 – 4x on the principal
- Sen. Schwertner agreed with Sen. Hinojosa – many school districts in his district are facing large debt through CABs and doesn’t think long term cost are fully illustrated when voting on the debt
- Sen. Seliger asked what part of the debt frequently issued by bonds are not voted on by the community but distributed as certificates out of obligation
- $9.42 billion – Seliger confirmed not necessarily a large percentage
- Sen. Huffman asked if Tax Increment Reinvestment Zones increment debt
- Would be inside the issuing entity – the city
- Sen. Bettencourt noted that the biggest component of debt problem is coming from Houston’s growing population massive TIRZ problem
- Sen. West asked if there are concerns for local debt that have been expressed
- High local debt – #2 among the ten most popular states
- Sen. Kolkohrst asked about largest local debt states
- New York is the state with the largest local debt per capita rank, Texas and then California
- Staff continued review of agency and budget request
- Sen. Kolkhorst noted there are $14,700 voter approved debt per student but asked what the average per person debt is for the state
- $560 per person for general obligation debt
- Sen. Watson noted fast-growth districts have a static yield but state is not putting enough money into these districts to help grow – need to pay attention to this, it’s a school finance thing but overlaps into debt
- Sen. Nelson when she started, Medicaid took up 10% of the state budget and Medicaid now takes over more than 30% of the state budget and will continue to grow – agrees with Sen. Schwertner’s earlier statement, this issue must also be addressed to address other budget issues