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Senate Finance

February 25, 2020

The Senate Committee on Finance met on February 25 to discuss the following interim charges:

  • Investment of State Funds: Review the investment strategies and performance of funds invested through the Teacher Retirement System, the Permanent School Fund, and university funds. Make recommendations to better coordinate and leverage Texas’ purchasing power to maximize investment income to the state. Examine the long-term facility plans of the Teacher Retirement System, and specifically review the facility space costs of the Investment Management Division.
  • Natural Disaster Funding: Review federal, state, and local eligibility and receipt of disaster funds from Community Development Block Grants – Disaster Relief and the Federal Emergency Management Agency. Identify any barriers to the effective utilization of those funds and recommend any changes to statute, rule, or practice to promote the efficient deployment of those funds and expedite recovery by affected citizens, businesses, and communities.
  • Monitoring:
    • House Bill 3384, relating to the authority of the comptroller to conduct a limited-scope review of an appraisal district located in an area declared by the governor to be a disaster area;
    • House Bill 4388, relating to the management of the permanent school fund by the School Land Board and the State Board of Education and a study regarding distributions from the permanent school fund to the available school fund;
    • House Bill 4611, relating to certain distributions to the available school fund; and
    • Contingent upon voter approval, study the implementation of House Bill 492 and House Joint Resolution 34, relating to a temporary exemption from ad valorem taxation of a portion of the appraised value of certain property damaged by a disaster.

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.

Opening Comments

  • Chair Nelson – Teachers Retirement System (TRS) and Permanent School Fund (PSF) charge was expanded by Gov to look at facilities as well
  • Very successful last session on TRS, PSF, and ESF

Investment of State Funds: Review the investment strategies and performance of funds invested through the Teacher Retirement System, the Permanent School Fund, and university funds. Make recommendations to better coordinate and leverage Texas’ purchasing power to maximize investment income to the state. Examine the long-term facility plans of the Teacher Retirement System, and specifically review the facility space costs of the Investment Management Division.

LBB Presentation

George Purcell, LBB

  • Reviewing data in interactive graphics on the LBB website (Link) data goes through 2018 currently, but working on 2019
  • Provides presentation on investment funds (Link)
  • TRS fund is larger than all other funds, 61% of market value of funds tracked by LBB
  • Funds largely exceeding benchmarks in 2018

LBB Staff

  • Graphic is available on the website, can select any year between 2001-2018, will be continually updated with new data
  • Paper report is also issued yearly and will be published on the website
  • Highlights SB 12 – TRS bill, investment changes
  • Provides a history of the interaction between the PSF and the School Land Board (SLB), 2001 bill broadened SLB authority to invest land sale and mineral royalty with 2-year deadline, unused funds would then move to State Board of Education (SBOE)
  • Deadline was eliminated, in 2011 a bill broadened authority to distribute
  • HB 4611 changed statute relating to SBOE earmarking 50% of distribution to Technology & Instructional Material, moving forward this applies to both SBOE and SLB distributions from Available School Fund (ASF)
  • Chair Nelson – Back to the beginning, this all totals around $250 b, correct? This provides a really good overview on how funds are performing compared to each other, have we compared to other states?
    • As far as I’m aware, no
    • Major State Investment Fund report has benchmarks, but does not go on to compare to other states; LBB could find most recent comparison data
  • Chair Nelson – Can you speak as to how each fund determines asset allocation and manages risk?
    • Each fund ahs different investment goals and fiduciary boards determine asset allocation
  • Chair Nelson – Some of these are internal and some are external?
    • Yes, plans are making changes to external v. internal, not static
  • Sen. Hinojosa – You have also sent out percentages of internal v. external investments?
    • Yes, bottom chart on Pg. 3 for the funds focused on, there are more that are focused on in the interactive graphic
  • Sen. West – Has not been a lot of progress on Historically Underutilized Businesses (HUB), has been a lot of lip service & would like an update
  • Sen. Kolkhorst – As I’m looking at ASF distribution by SBOE, it is relatively flat while the SLB distribution becomes greater over time, is there any reason for that?
    • SBOE operates under constitutional total return distribution methodology, also approaches this from the concept of intergenerational equity, e.g. a percentage that preserves corpus of the fund
    • Takes into account inflation, long-term enrollment growth, money received from SLB; begins with assumption of Rate of Return (RoR)
  • Sen. Kolkhorst – Is interesting that there has been more distribution from the SLB over the SBOE
    • Recently yes, distributions from the SLB are more discretionary; in 2020-21 the full $600 million was distributed
  • Sen. Bettencourt – Primary purpose of the data is to see that the distributions are keeping up with the rate of change of the corpus, largely due to some of the recent changes; want to look at this from the aggregate
  • Chair Nelson – ESF returns are from before last session’s bill that allowed Comptroller to invest greater portion of the ESF; do we know how much additional revenue we’ve received from those investments?
    • Comptroller can likely speak to that
    • Mike Reissig, Texas Safekeeping Trust Company – Last year our return was 4.1%, about 1.7% above treasury pool return
  • Chair Nelson – Will be asking that again as we go

Retirement Systems Panel

Porter Wilson, Employees Retirement System of Texas

  • Provides overview of ERS operations and governance structure
  • Provides overview of how ERS determines investment and risk, largely a liquidity question focused on what is needed to cover payments
  • ERS is a very long-term investor generally, on a 30-year basis currently seeing a 7.76% return, short-term fluctuates much more
  • Sen. Whitmire – Asks after the personnel making these distinctions, who has the ultimate decisions? Where is the oversight?
    • Ultimately decisions lie in the Board, makes decisions on what will be invested in in consultation with Advisory Committee and consultants
    • Investment Compliance Officer is there to ensure things are done in compliance
  • Sen. Whitmire – Who is the Advisory Committee generally? Are they political players?
    • Largely vetted by staff, try and make sure we have the appropriate level of expertise in varying asset classes
  • Sen. Perry – So you’re 60/40 external/internal, has this always been the case or does it shift?
    • Board made the decision to manage internally roughly 10 or 15 years ago
  • Sen. Perry – Historically you’ve shown returns equal or better to market?
    • Yes
  • Sen. Perry – Counterpart in TRS is consistently moving more internally, but you lose several things from a private sector market; you lose people who are hungry to make money for you, you lose the edge of educational opportunities
  • Sen. Perry – Not advocating against internalizing, but sometimes when you move internal you give up a lot of incentive pressure
  • Sen. Perry – Is it safe to say we haven’t made up the shortfall since the last session we had?
    • Yes, our pension is bleeding, number today is about $12b, based on 7.5%, but Board is getting ready to re-evaluate 7.5% as it is getting harder to achieve
  • Sen. Perry – I think it’s important to plant the seed that we can’t ignore this next session
  • Chair Nelson – My commitment was we are going to address ERS
  • Sen. West – Who is making recommendations to the Board in terms of external assets
    • Each asset class team has a group of members
  • Sen. West – Who on your staff makes those decisions?
    • Chief Investment Officer and myself
  • Sen. West – Would like to hear what has been done over last 10 years
    • There are statutory requirements
  • Sen. West – Do we have any African-American external managers
    • Tom Tull, ERS – Yes, we do, also holding a forum tomorrow for emerging managers
  • Sen. West – Talking about owners, not employees
  • Sen. West – How long have we been talking about this? This will be addressed this time around and would like you to think about how we can address this
  • Sen. Perry – Is there any information to know how many firms are minority managed, would be good to get this to the committee, would also like the performance ratings
  • Sen. West – Trying to put it on the back of the agency to provide info and then I can check if it is accurate; agree with concept of making sure performance goals are met, I know of many who are working with pensions funds around the country
  • Sen. Campbell – Hope is you’re choosing the best firms
  • Sen. Campbell – Is there a mindset of moving away from fossil fuels and towards renewables? Would hope investment is focused on returns and would hope fossil fuels are still a focus
  • Chair Nelson – Talk to us about the difficulty divesting could cause
    • Wilson – ERS is not looking to divest from energy, diversity of asset classes and within asset classes is important
  • Chair Nelson – Very important that we look difficulty diversities can cause
    • Statutes that do require divestment, it says to do so as long as it is not counter to the fiduciary duty
  • Sen. Hancock – Federal guidelines for retirement plans have changed, does this impact your decision-making?
    • Tull – It is a consideration, but we find opportunities based on this change
  • Sen. Flores – Need to ensure we get the right people to do the best job

Britt Harris, The University of Texas/Texas A&M Investment Company

  • Provides overview of UTIMCO staff numbers
  • Regarding diversification, $2.5b invested with minority managers currently
  • Fossil fuels will continue to be a significant part of the global energy markets over the next decades, but they are capital starved right now and fossil fuels are not performing well
  • Provides overview of operations and funds, real returns are 7% over the last ten years, updated for December this is 8.5%; fees paid are netted out of returns presented
  • UTIMCO focused on providing educational opportunities and fostering innovation
  • Chair Nelson – What is it about the UTIMCO model that works so well for Texas?
    • Worked with 7 funds, but this is the best Board I’ve ever worked with; independent, great expertise, dedicated
  • Sen. Bettencourt – What would you say the average yield is going to be given the Coronavirus, etc.?
    • Coronavirus mortality is low and world is bringing resources to bear, since the announcement are market is down 1.6% which is less than expected

TRS is called, Chair Nelson notes the Gov. Code sections that apply to conversations with TRS relating to items that are public information and items protected as restricted securities (Gov. Code 552.0225 and 552.143)

Brian Guthrie, Teachers Retirement System

  • 15% of investment is allocated to African-American owned firms, performance of certain emerging managers outperformed overall trust; will be participating in emerging manger forum tomorrow
  • 26% of portfolio is managed externally, 74% internally; statutory cap of 30% external management
  • Provides overview of governance structure, investment guideline development and general operations
  • Fund performance – value at end of FY was $157b, $160b at end of last month, fund has grown $70b over the past decade
  • Benchmark outperformed TRS last year, but overall gained $7b over benchmark in recent years due to fund management
  • Regarding fees & real estate proposal, prohibited from investing in anything that is not a security, in real estate TRS must set up a limited partnership; this is part of the reason I’m unable to speak to parts of long-term facilities planning; this set up is partly why fees can be low and can avoid management fee
  • Chair Nelson – You’re proposing a solution to lower fees, what are we currently paying?
    • Management is 1%, and then if benchmark of 8% is outperformed they receive 10% of additional profits
  • Chair Nelson – How much is this?
    • Jase Auby, TRS – Number for all private investment is $806m
  • Chair Nelson – How much
    • Real estate is roughly 15% of private market, would lower the $806m by roughly $100m
  • Chair Nelson – I understand that most of the state’s investment teams are downtown, which is why the current situation drew so much attention; why is it necessary for investments decision to be downtown?
    • Value is that there are a lot of state investment funds downtown and a lot of investment companies, easy to set up meetings and attracting/retaining investment professionals who prefer to be downtown
  • Chair Nelson – I understand what you’re saying, but I do think your Board made a good decision this week; was not good to consider the most expensive real estate downtown
    • Lease decision and solution we came up with is really a short-term interim as we consider a long-term facilities plan, looking at different aspects and wanting to make a good fiduciary decision later this year
  • Chair Nelson – Thought you would’ve considered this before you considered the expensive downtown property
  • Sen. Perry – I was surprised at lack of oversight legislature has over the TRS community; can you tell me what the legislature does beyond fund you? Didn’t seem like we had jurisdiction during budget talks
    • Legislature sets out the benefit structure and multiplier, appropriates state contribution, sets contribution by active members
    • On the health care side, you appropriate dollars to TRS-Care and indirectly to TRS-ActiveCare
  • Sen. Perry – I know we give you money, what level of oversight do we have that is unique to TRS compared to ERS and others?
    • Actual appropriation is made by the Board of Trustees, if you choose to appropriate GR you have more say, but only the Board of Trustees can make an appropriation from the fund active; However, have tried to work closely with the legislature and not work outside of that relationship
  • Sen. Perry – So in sum, we don’t provide GR for administration, so we don’t have control over those; to your credit you have promised not to make decisions that lower overall funds
  • Sen. Perry – Important for us to realize we don’t have the purse strings, what percent is the administration?
    • Less than 1%, longstanding internal policy
  • Sen. Perry – Good, I think this is reasonable
  • Sen. Perry – Important to recognize we don’t give you money for this and thus we don’t have control, but you have shown yourselves to be responsible
  • Sen. Taylor – Asks after staff level investment authority? Small percent, but can be large amounts of money
    • Staff can make investment decisions in a fund that’s less than 1% of total value, but decisions can be brought to the Board for review, typically very rare to see
  • Sen. Birdwell – Is there any requirement to consult with GLO or Gov’s Office to seek excess government property for moving?
    • Not in this current iteration, have in the past but none worked out
  • Sen. Birdwell – Last interim, the realty board was making property decisions without any coordination or looking at need; wondering about a law that requires agencies to look for excess property before making property decisions
  • Chair Nelson – What a nice idea
  • Sen. Birdwell – Had an interim charge in 2015, needs to be some mechanism to check that state agencies are coordinating on property
  • Sen. Whitmire – Asks after strategic partners
    • Auby – 6 total, 2 on private and 4 on public: Morgan Stanley, JP Morgan, Neuberger Berman, and BlackRock
  • Sen. Whitmire – Is this for account investment, specific buildings?
    • 4 public were given $1b to manage 10 years ago and we gave them our benchmark
  • Sen. Whitmire – Why would a decision like this be made?
    • Partners provide significant additional benefits like research projects
  • Sen. Whitmire – What about private?
    • Apollo and KKR, privates in 2012
  • Sen. Whitmire – How would we monitor the results?
    • Guthrie – We report on this and breakout partnership amounts, have performance meetings twice a year
  • Sen. Whitmire – Do you ever think about how legislators will explain your actions when poor decisions are made?
  • Chair Nelson – Agrees, what was TRS thinking? If you have chosen to partner with the legislature, would suggest you run this by us if there is even a sense it will be controversial
    • Sympathetic to this position, did consider the impact
  • Sen. Whitmire – Don’t need to hear how nice we are to each other professionally; why weren’t you thinking like this when the decision was being made? Each member now has to explain your severe bad judgment; I think it gets down to arrogance and lack of oversight and I think someone’s head ought to roll
  • Sen. Whitmire – We’re talking about billions of dollars that was mismanaged without looking at options; this ranks with the UT decision to purchase $300m in Houston with no stated purpose
    • TRS made a mistake when signing the lease, fiduciary information made it clear that it was a good, sound decision that was good for the trust fund
    • Did not realize that we could not disclose all this information publicly as to why this decision made sense
  • Sen. Whitmire – You never thought this would be on the front page
  • Chair Nelson – I have seen everything, decision was made eventually that saves $9.1 billion
    • We didn’t have any space to move into at 816 Congress at the time, since then we have been able to get a competitive lease at the new building
  • Chair Nelson – Maybe you should’ve pushed a bit harder
  • Sen. Campbell – How does working from home fit into any long-term plan?
    • We are using work from home considerably, staff is on the road a lot looking at investments
    • Regional office idea is a pilot we are looking at to meet unmet member needs; looking to pilot regional service center that members could go to instead of Austin
    • 85% of members would like to have the ability to seek services regionally
    • Regional office proposal is a short-term solution until eventually technology allows for remote access
  • Sen. Campbell – Appreciate you looking at how you can meet member needs, working from home and remote tech can lead to savings that mean more for our teachers
  • Sen. Bettencourt – We need to seriously look at this law and changes to this law, we need to be able to ask questions and receive answers publicly
  • Chair Nelson – This committee will be giving this a very in-depth look during the interim
  • Sen. Flores – Should remember purpose and mission before making decisions, your mission is to care for retired teachers and ensure they get their checks; another big issue is prescription drugs and the lack of our teachers to obtain them

Permanent School Fund Panel

Mike Morath, Texas Education Agency

  • Provides a background on the PSF, $46b fund providing direct funding for schools in Texas, bifurcated in management with $34b under SBOE and $12b under SLB; will be speaking solely on SBOE’s portion
  • Presents fund performance on 1, 3, and 10 and broken down on gross of fees, net of fees, and expenses
    • TEA began quantifying fees roughly a year ago, info is now available but was not historically standard practice to account for fees
    • Of $34b under SBOE management, $12b portion is managed solely by internal business unit, $22b managed externally with 82 basis points as the “annual charge” associated with management
    • 12 months ago, fund was at $33b, $1b was removed from corpus to fund public education, then saw $2b growth in assets and saw $280m management fee
  • Sen. Bettencourt – Net $855m increase?
    • Yes
  • Sen. Bettencourt – Have we done any past-year comparison?
    • Yes, we could theoretically produce this data for any year of the fund
  • Chair Nelson – HB 4388 created the PSF liquid account, do we have a forecast on how much we anticipate from this investment
    • We are roughly 100 basis points up, HB 4388 set up a mechanism for previously inaccessible funds ($4b from the SLB), not fully invested yet
    • Total is around $30 m, can’t project long-term yet, but speaking of significant amounts; expecting this to land several hundred basis points above prior performance
  • Chair Nelson – ERS, UTIMCO, etc. are focused totally on investment; how does TEA handle investments on behalf of SBOE
    • It is odd that the state agency is tasked with reading and writing as well as managing a $34b investment
    • Chief State Investment Officer reports to me, SBOE votes on and adopts goals; oversight structure with SBOE reviewing decisions allows us to have some confidence
  • Chair Nelson – Very unique
    • I’m the only education commissioner in the country that oversees a $34b investment, largest education endowment and benefits students tremendously
  • Chair Nelson – There were attempts to raid this during the Great Depression, WWII, etc., but they were fended off
    • And this is the job of the SBOE, to ensure the fund continues to exist
    • Corpus of the fund is designed to grow to deal with inflation and to handle new enrollment

Keven Ellis, State Board of Education

  • Provides overview of fund and its role in supporting education
  • Savings to schools is approximately $200m/year
  • Provides history of the PSF, both SBOE and SLB portfolios have real estate now
  • SB 608 Sunset provided pathway for collaboration between SBOE and SLB
  • PSF is the only fund managed by an elected board, 3 standing committees

Tom Maynard, State Board of Education

  • Describes constitutional process for determining contribution from PSF to ASF
  • Chair Nelson – This fund has a very unique governance structure between SLB and SBOE oversight; what challenges do you face operating within this structure?
    • Ellis, SBOE – Challenges probably began in 2001 with bifurcated structure, began when amount was very small
    • SB 608 was a very good step to ensure SLB and SBOE were working collaboratively
    • Maynard, SBOE – Fund has always been bifurcated as sovereign land and mineral assets were governed by a land committee and fund is defined by the land involved
    • Has unintended consequence of retaining earnings and creating investment portfolio of halting fund flow to SBOE, have not had an investment influx since 2005, but fund has performed well
    • Other question in maximizing return is if the elected members of the SBOE have the expertise to do this; SBOE has outside consulting experts
  • Sen. Nichols and Chair Nelson discuss the broad scope of SBOE districts, legislation that made positions elected also lowered the number of positions; many counties to each seat
  • Sen. Taylor – Study being done now on the bifurcated management to ensure we are maximizing the funds

Mark Havens, General Land Office

  • Mineral leasing is the primary source of investment for the PSF under the SLB, generated $1b in FY19
  • Sunset review found that SLB investments worked well and found no significant issues

Rusty Martin, General Land Office

  • GLO is happy that the liquid fund legislation passed and is working well
  • Regarding allocations, there has been talk of overlap between SBOE and SLB, but SLB only invest in private market transactions, SLB is really only in energy and real estate
  • Any overlap would be in real estate, but SBOE is more focused on sustained cashflow and SLB is more higher-risk so odds of running the same investments are slim; in contact with SBOE to review and compare for overlaps
  • 35% energy target, 32% infrastructure, 33% real estate; allocated 44 energy, 30 infrastructure 30 real estate; allocations move constantly
  • Returns are very good, much higher than the benchmark
  • Transferred $3.9b for liquid fund account initially, have done the first quarterly review and released another $145m for the liquid fund account based on this
  • Incurred management fees are $44m, roughly 1% of asset value

Morath emphasizes information at the end of his presentation that summarizes HB 3

Natural Disaster Funding: Review federal, state, and local eligibility and receipt of disaster funds from Community Development Block Grants – Disaster Relief and the Federal Emergency Management Agency. Identify any barriers to the effective utilization of those funds and recommend any changes to statute, rule, or practice to promote the efficient deployment of those funds and expedite recovery by affected citizens, businesses, and communities.

Abe Alvarenga, LBB

  • Provides overview of actions taken during the 86th Session on disaster response (Link)
  • Highlights state funding on Pg 4,
  • Funding allocated to the state Pg 5, $7b from FEMA, $10b from HUD
  • Total disaster participation including state participation totals over $35b+
  • Chair Nelson – $19.2b was the number talked about last session, does the larger number include funding going directly to local community?
    • Yes
  • Chair Nelson – Do we know how much disaster funding will eventually flow through the state treasury?
    • Can look into this
  • Sen. Kolkhorst – So the $35b includes individual assistance?
    • Yes, from FEMA and includes CDBG funding
  • Sen. Kolkhorst – This would be total impact, not all has been distributed?
    • Correct, roughly $31b has been distributed
  • SB 500 appropriations to respond and make improvements were $3.641b in All Funds

LBB Staff

  • Provides overview of SB 7 and 8 regarding the statewide flood plan and infrastructure fund, Pg 7
  • Flood Infrastructure Fund (FIF) was approved last November, appropriated $793m through SB 500 and administered outside of the legislature
  • Texas Infrastructure Resiliency Fund (TIRF) appropriated $685m through SB 500, more complicated as it consists of 4 sub-accounts (Pg 8 – Floodplain Management, Flood Plan Implementation, Hurricane Harvey, and Federal Matching)
  • Sen. Kolkhorst – Regarding $638m in the Hurricane Harvey fund, has any of this been distributed?
    • Would doubt it as it was so recently created
  • Sen. Kolkhorst – Regarding SB 500, it has $3.641b and some of this was meant to do matching funding, but GLO monies have a 0 match; is all of this spent or is some left over?
    • John McGeady, LBB – Highlights Pg 6 of presentation, monies that went for immediate response are spent, also a portion that was effectively sent to ISDs for recovery and loss of revenue
    • TWDB can likely give an update on timeline of state participation amounts
    • There are shovel-ready projects for the flood infrastructure plan money, do not necessarily need to wait for the state plan to be developed
  • Sen. Nichols – Regarding the $200m for the US Corps Coastal Barrier, this is really more of a down-payment; can you speak to how much more will be needed?
    • Cannot, this was intended as a signal of the state’s commitment to this
  • Sen. Nichols – We need to get those numbers so everyone understands the cost; this part does not include the Port of Houston and is just a down payment on one of the largest infrastructure projects the state has undertaken; will also have maintenance costs to maintain this project
  • Sen. Hinojosa – Are there any federal funds available for the coastal barrier project?
    • If this project were to move forward, it’s a multi-billion dollar project that federal government would foot the large portion of, but the state would have some required funding
  • Sen. Nelson – Staff tells us Texas would have to commit another $1.6 billion to complete this
  • Sen. Nichols – This is just the first piece
  • Sen. Taylor – This initial outlay are the “bookends” for the project, if we did not make this $200m commitment at the outset, we would likely be at the bottom of the pile for US Corps project selection
  • Sen. Taylor – This is the largest petrochemical complex in the world and large portions are wide open; this project is important and is using proven concepts
  • Sen. Taylor – If we have another event and we do nothing to protect this region, we won’t get assistance to put it back where it was
  • Sen. Perry – I think today it is a 75/25 match out of the federal government for a project like this; we need to have an honest discussion about how we carve out infrastructure
  • Sen. Perry – $150m for repair and improvement of earthen dams is a down payment as well, part of a $600 million over 10 years
  • Sen. Perry – Very frustrating not to be able to get a handle on all the dollars in the system, SB 563 happened as a result of that
  • Sen. Nichols – Clarifies, very supportive of the coastal barrier project, just wanted everyone to understand we will see this $200m every budget cycle; would like the data to differentiate the initial payments from the one-time
  • Sen. Taylor – Not defensive, just wanted to explain the importance of the region
  • Chair Nelson – Regarding the $139.6m provided as short-term grants to local governments from the Office of the Governor, what is the timeline for paying those back and have they been?
    • Only one that hasn’t been paid back is the $5m to City of Houston
  • Chair Nelson – I think this is the $50m for the City of Houston
  • Sen. Kolkhorst – Are they required to pay this back? After the City of Houston got $50m, many other communities felt left out and Comptroller Hegar identified funds that we were able to help with 90/10 federal matches
  • Sen. Kolkhorst – Houston got a $50 million and other communities were provided funds through the 90/10

Nim Kidd, Texas Division of Emergency Management

  • Highlights large numbers of disaster project closures during 2019, $873m worth of disaster projects occurring before Harvey
  • Roughly 74% of Harvey projects have been obligated, but on 32% of funding available
  • Since Harvey have had 4 major disaster declarations
  • Have set up a compact organization with other agencies to review projects needing funding
  • Sen. Kolkhorst – Asks after $638m given to TDEM that LBB said was not allocated?
    • Have around $30m ready to deliver to local govs, waiting on TWDB rules; this will only be for projects FEMA has closed
  • Sen. Kolkhorst – Your office in the first round of FEMA money, you identified projects and got a part way down the list and then stopped?
    • Correct
  • Sen. Kolkhorst – $129 million is being delivered and you will continue down that list? Who picks that and how is it scored?
    • Complicated, previously needed to be Harvey-related, received applications for over $4b, but only received roughly $800m; worked with county judges, etc. to determine need and next level of complexity is we will need to work with the CDBG-DR
  • Sen. Kolkhorst – Would like to see specifics on the original layout
  • Sen. Perry – USDA has proposed rules saying that if you have been federal declared, then you no longer are eligible for CDBG grants flowing through USDA; if you don’t meet the FEMA thresholds then you will no longer be eligible
    • I understand the concept, but not familiar with USDA rules
    • We’re seeing this not just with Ag, but with the Natural Resource Conservation Group; if another federal entity has responsibility for the program then it is not counted for the FEMA threshold
    • Federal Gov is being very careful that no federal programs are being double tapped
    • Another point is that the threshold will likely rise as of the next census
  • Sen. Perry – If we’re going to do individual assistance, then we should not allow the overall damage assessment to be the determining factor of if we will help or not
  • Chair Nelson – Cannot count on federal assistance in the future, need to try and leverage dollars we have now
  • Sen. Bettencourt – Regarding the explosion in Sen. Whitmire’s district, if this had been in a smaller community would it have been declared a disaster?
    • No, it wasn’t declared a disaster as it was an industrial complex that was insured
  • Sen. Hinojosa – Have heard that FEMA constantly changes the rules
    • Exactly right, has been a struggle across the state that as soon as rules are understood, new rules are implemented
  • Sen. Kolkhorst – SB 6 will really help, AgriLife will have a person in each region focused only on disaster preparedness
  • Sen. Hinojosa and Kidd discuss how meeting federal requirements is a moving target
  • Sen. Nelson – Ask after the Imelda appeal
    • FEMA agrees and acknowledges that there was well over $500m in claims, but when we ask for public infrastructure assessments they say $14m
    • Trying to continue to push on federal partners to try and get proper damage assessments, will appeal initial denial
  • Sen. Birdwell – When can you close out disaster events? What is the normal lifespan?
    • Last ones closed in 2019 were 2007 events, has a lot to do with size
    • FEMA likes to see 8 years, our experience is that anything over $50m in damage is longer and less is shorter

Mark Havens, General Land Office

  • Sabine-Galveston study for the coastal barrier reef, $200m was an initial down payment for the state’s eventual $1.4b; working with Jefferson, Brazoria, and Orange counties to ensure they can tap into funds available
  • GLO recently submitted action plan for long-awaited mitigation funds, appropriated by Congress in 2018, but state cannot move until HUD puts out the federal register which came out in August 2019
  • Provides overview of GLO funding and HUD organization of committees, encourages local communities to partner up
  • Money is being set aside for HMGP projects, communities have done large majority of the work and the idea is GLO will come in behind for those CDBG eligible
  • Set aside $400m in supplemental funding initially for mitigation
  • Have a lot of money for regional and state planning programs, largely done by local communities before and now looking at this from a watershed basis
  • HUD has until April 3rd to approve the plan, will keep asking if they do not meet the deadline
  • Chair Nelson – Houston and Harris County got $2b directly sent to them?
    • $5.6b initially came down from HUD for housing to the state as a whole, Houston and Harris County asked for $1b directly and we supported this
    • HUD directed us to set aside $1b for Houston and $1b for Harris, GLO is still responsible for oversight
  • Sen. Kolkhorst – How many projects have they done in housing?
    • GLO managing in the remaining 48 counties have 1,500 complete or under construction with more approved
    • Houston has 15 complete
  • Sen. Kolkhorst – I want to make sure the state of Texas is not on the hook for money that went directly to a jurisdiction
    • It did not go directly, it was more of a pass through and ultimately the state is responsible, which is why the GLO is monitoring everything coming from Houston and Harris County
  • Sen. Kolkhorst – Concerned about potential claw backs
  • Sen. Kolkhorst – Regarding housing oversubscription, have some constituents looking at SBA loans and getting denied for grants, have we fixed this problem?
    • SBA loans have come up as a big issue, biggest issue was with those who already completed work and could get a portion reimbursed; federal register initially stated that if they had taken an SBA loan then they were not eligible
    • Later regulations removed the SBA provision, but HUD did not put out rulemaking until June of 2019 and GLO could not issue checks to those who took SBA loans during this time period
  • Sen. Perry – SB 8 was very clear about watershed planning, a lot of these projects are currently ongoing and SB 8 will not be implemented until 2024, should be nudging communities that have done independent plans towards this goal; ultimately the state will look at & review the process, hopefully SB 8 will force coordination

Peter Lake, Texas Water Development Board

  • Speaking on the comprehensive flood mitigation effort
  • Information Clearinghouse is the focus of interagency cooperation, purpose is to examine funding options and lay those out for local leaders
  • TWDB will be deciphering federal regulations to allow local leadership to make informed decisions
  • Currently in the rulemaking process for SB 7 and 8, anticipating completion next month
  • Provides overview of mitigation plan development and base level engineering
  • Intending state plan to be a guideline for local communities, regions can be divided into different subgroups and each regional plan will be rolled into state flood plan
  • TWDB has been hiring staff to fill out this new section of agency operations
  • Provides overview of project types that are eligible for funding, many will be shovel-ready, some will need to be built from the ground up and goal is to ensure state does not fund improper infrastructure
  • All projects will roll into the regional and state flood plans
  • TWDB working rapidly to get this running, applications will open later this Spring, seeding regional planning groups this Summer, will also be holding financial assistance workshops
  • Sen. Nelson – There are potentially projects that could begin construction today, do we know how many?
    • No, we won’t know until we open applications and many local leaders unsure on what they need
  • Sen. Hinojosa – Regarding base level engineering and mapping, would imagine we would focus on areas we know have a flooding problem?
    • Yes, this is what we’ve done, TWDB has a lot of the LIDAR mapping information at hand, want to keep it updated, but utilizing data we have in house and prioritizing high-risk areas
  • Sen. Nelson – back to page 2 of handouts, that slide elaborates what we want agencies to achieve, but any local feedback on if clearinghouse is useful tool
    • Won’t be up and live until next month, feedback is they don’t know where to start
    • want to have one website

Rex Isom, Texas State Soil and Water Conservation Board

  • Discussion on Dams, 514 classified as high hazard
  • Addressing backlog of need of repairs $21 million of $150 million has been obligated
  • Remainder will be obligated by May 31, 2021
  • Will attempt to match federal dollars
  • Will continue coordination with TWDB
  • Current funding meets 7.5% of need
  • Sen. Nelson – Asked if projects listed on a handout were all eligible for federal funding
    • If federal funding is available
    • Pursue federal funding “at every turn”
    • Planning and design phase can take 2-5 years before construction can begin
    • Working on federal side to streamline the process
  • Sen. Nichols – example of personal experience where there was nothing wrong with a dam but the water supply, are we expecting any new standards from the corp?
    • Corp dealing with much larger water supplies, we are 200 acre feet or less 
  • Sen. Bettencourt – refers to story where tremendous amount of money went to Harris county but argues it was not sent out, where are we at in carve out money? Housing assistance? Homeowners assistance? Any stats?
    • Haven, GLO – 48 counties, 675 complete, 810 under construction, etc
    • Haven – Does not believe a “single home” has been built in Harris County this is different from multi-dwellings
    • Haven – asked individual in room and then said 21 homes complete in Houston
    • Haven – $1.5 million spent by Harris County, $458k by City of Houston
  • Sen. Bettencourt – part of problem getting government involved, voiced concern
  • Sen. Taylor – do we have any idea on applications received in Harris County for homeowner program, Harris county is a huge county
    • Haven – program in Houston and Harris county is same as in other 48 counties
    • Haven- stated over half of applications they have seen have been approved
    • Haven- don’t know if they have a number of how many received at the City and County level  
  • Sen. Taylor – assume there is a delay, any idea on what is causing the delay?
    • Haven – understand initial handling, intake of applications had a lot of errors that had to be sent back
  • Sen. Taylor – these people apply to city and county and then it comes to you, how long does it take for you to approve
    • Haven – 14 days
  • Sen. Taylor – asked more details about the process
    • Haven – not running same programs as GLO, Harris has multi-programs within their program
  • Sen. Taylor – do you get a lot of inquiries from people in Houston area?
    • Haven – we do, a lot of questions on if they at GLO are holding up process
    • Haven – in November sent strike team to Harris County to look at bottlenecks and help speed up process, seen some improvements but not yet on housing side; also doing this with City of Houston
  • Sen. Taylor – when was $1 billion set aside, carve out for them 
    • Dec 2018
    • Taylor – how long will it take them to spend $1 billion
    • Haven – housing has 6 years time limit, mitigation is 12 years
    • Haven – concern that 25% of funds going to Harris County and Houston and will not be spend
  • Sen. Taylor – risk of federal government taking money back, asked Chair Nelson what can be done to get them going
  • Sen. Taylor – thinks it important to note that the situation is not the feds doing or the state doing, implementation is on local folks to get this done
  • Sen. Hancock – Could all day sit up here and say it’s not our fault but if don’t do everything they can to get message to federal government, we need to do this another way it is not working, if we continue to wait then we may not have time to take care of these homes; any suggestions on sending a message to HUD?
    • Haven – HUD auditors asking currently
    • Haven – the only option is state steps in and takes over programs, trying to run programs in 48 counties and allow local counties to manage
  • Sen. Hancock – what do we need for state to step in and run programs
    • Haven – Governor’s office ultimately has say, funds flow into state at Governor’s discretion
    • Haven – at some point the decision has to be made to let them go or step in and take over
  • Sen. Hancock – what timeline do you think we should step in before it is too late?
    • Haven – there has been discussion, no hard deadline
  • Sen. Hancock – nothing has been done with the billion at a county level and close to nothing at a city level, state may need to step in
  • Sen. Bettencourt – no possible way this money could be spent at this point in time, preposterous bad policy to hand a county $1 billion and to this point there are zero homes

Monitoring Charges on HB 3384 and HB 492

Korry Castillo, Comptroller Property Tax Division

  • HB 3384 handouts and overview provided
  • HB 492 handouts and overview provided
  • Sen. Nelson – are you tracking how often these bills are used to initiate reappraisals
    • Under previous law could initiate reappraisals, some information on those who initiated reappraisals after natural disaster
  • Sen. Nelson – constituents still talking about property taxes, confused about whole appraisals system, who holds boards accountable and what recourse is available when they don’t believe they are being treated fairly
    • Oversight is mostly on appraisal district itself, board of director information is in the packet
  • Sen. Nelson – until we do something about appraisals, the public is not going to be happy
    • Packet reviews board of director duties
    • Discusses there may be an alternative way to selecting if the taxing units agree to a resolution
  • Sen. Hinojosa – many times the appraisal board is selected on behalf of entities, need an ARB more representative of taxpayers not just those that receive the taxes
    • Sen. Nelson – agrees and will be filing legislation to address
  • Sen. Hancock – if there was an abnormality in the data, what is done
    • Would have recourse if not followed a procedure or followed the law
    • No recourse if not
  • Sen. Hancock – would it be beneficial to allow Comptroller to point out spike and what is causing it
    • If policy legislature wants them to follow, they can do that
    • For invalids in PVS can do another review to address but for most part limited
  • Sen. Hancock – would be good to have an assessment of spikes before it becomes a broad base issue
  • Sen. Flores – still have a lot of work to do, each county does it its own way
    • Yes
  • Sen. Flores – board of directors have very limited oversight, Chief Appraiser can come up with own methodology
  • Sen. Flores – check and balances seems not to apply to appraisal district, argues Comptroller has little enforcement over appraisal district
    • Some check and balance, do a ratio study, following general methodology and if they are not then they are reported to licensing TDLR
  • Sen. Nelson – would like to know how many have lost their license or been reprimanded
  • Sen. Nichols – ultimate goal is fair value for schools, Comptroller has method to go routinely audit and looking for fair market value
    • Yes, if fail get re-checked next year
    • They turn over amounts to TEA for estimating school funding
  • Sen. Nichols – if shoot under, there is a penalty paid by district
    • District will receive less funding
    • Right now district can get grace but agrees district get “hit”
  • Sen. Hinojosa – when property taxes are too low, asked about who gets penalized
    • They have to get to fair market value
    • Sen. Hinojosa – pull or push by state on taxes

Mike Soto, Chief Appraiser in Rockport

  • Hard hit by Harvey
  • Discusses how bills have impacted them
  • Points out they had a windstorm event in Harvey and statistically had a good model and hopes it will hold for exemption
  • Sen. Bettencourt – all numbers better than FEMA number
  • Sen. Kolkhorst – regarding if something needs to be changed, frustrations with number of insurance adjusters over time and need to look at TWIA and others
  • Personally he had three different adjusters for his house and still in conversations
  • Says Sen. Hancock brought up good point about spike

Paul Pennington, Citizens for Appraisal Reform

  • HB 492 – 98% pro on everything in bill but there are a few minor things that could have been done differently
  • They had tornado in Fall in Dallas Co.
  • Concern on forms and applications to be filled out and why law says parts mandatory but after a certain time it can be voted on
  • SB 2 – group was involved in ARB reform and worked on it very hard, will tell committee there was a property tax advisory committee that was set up to advise but only problem with committee was that there were 15 members and most were employed or worked with appraisal district
  • Makes recommendation for term limits on board of directors, those in the arena that retire then go on board and bringing in new blood brings in new questions
  • Thinks people on board of directors need to be accountable

Rich DeOtte, Southlake Texas and a member of the Tarrant County Board of Directors 

  • Worked on SB 2 during last session, during discussions heard concern on appraisal district
  • Has now served as board member and one of first thing he did was call meeting for public input
  • Reviews experiences with variations in numbers, Tarrant County situation has had media coverage, feels there is still something wrong 
  • Believes 20% of those in Tarrant County are protesting values
  • These details, he believes, are background for why SB 2 was needed
  • Expects over next 2 years expects to see cost savings in Tarrant County as a result of SB 2
  • Sen. Nelson – need to hear from everyone how do we fix this?
  • Bettencourt – for every Tarrant there is also a Travis, which has decided not to do any appraisals this year and a good appraiser is something in the middle

Public Testimony

Arlene Hopkins, self

  • Heard about outrageous TRS lease
  • Don’t think they need London or Singapore offices
  • Need a COLA and better benefits
  • Wants money to be spend wisely 

Leigh-Anne Nuckles, self  

  • Asked for COLA
  • Retired from Katy ISD, thanks legislature for 13th check 

Timothy Lee, Texas Retired Teacher Association

  • Have 99k members, thanks legislature for work on TRS and grateful lease decision was added to committee
  • Commend TRS board, but would like less focus on non-return peer review
  • Thanks Sen. Kolkhorst for earlier comments
  • Sen. Kolkhorst – $326k a month could be a note payment on a building, shocked at that number
  • Sen. Kolkhorst – mix on 70/30% of inside and outside investments, where do you want to see disclosure?
    • On all sides, can certainly do it internally

Jimmy Sylvia, Chambers County Judge

  • Questions asked show members listen to their questions
  • Chambers County built over 100 homes in 18 months. Some have better programs than other cities and counties.
  • Nichols – had judges going through same thing, going through audit and asking for documentation many years after

Two hearings will be coming up: March 24 and June 2