The Senate Committee on IGR met on April 17 to take up the following interim charges: 

Study and make recommendations to increase transparency in the authorization, issuance, and appropriation of debt at the local level. Make recommendations that will increase citizen awareness and understanding of a local government's fiscal state. Analyze reforms such as requiring local governments to move bond elections to a uniform date coinciding with state general elections, and requiring local governments to publicly post their annual budgets, annual financial reports, and check registers online. Survey other states' initiatives to increase transparency in the process of local governments incurring new debt obligations.

Examine the immediate and long-term fiscal impact that bonds and other types of obligations issued by local governments have on current and future generations of taxpayers. Specifically analyze whether local governments should be required to use ballot language that includes their current outstanding debt, existing per capita debt, current debt service, and any increase the ballot measure would have on property taxes. Make recommendations on additional ballot language that will better inform voters of their local governments' current and future fiscal states.

Texas Bond Review Board

  • Overviews of local debt accumulation were provided
  • There was discussion on differentiating debt that was revenue supported versus debt that was tax supported
  • There are 7 categories of local debt and what entities fell in that category caused questions
    • The committee members would like to see the local debt details broken down further to include details on which entities are included and how much tax payer debt each (this would not include debt supported by user fees
  • Tax Supported Debt Overview
    • The largest group would be public school districts
    • Assuming there was no more debt issuance – then total debt could be wound down by 2046
  • Chart provided which illustrated tax supported debt per capita for the next 10 years
    • $4,625 in 2013
    • $5k in 2017 (based on prior issuance of tax supported debt)
    • Request for this graph to also be broken down by entity was made by Sen. Taylor
  • If there was a pledge of ad valorem tax then it would be considered tax supported debt
  • Sen. Taylor pointed out to committee in 2006 when property taxes were cut, schools acquired bond debt

Texas Public Funding Authority

  • Manages $3.6 billion in GO and revenue debt for 24 universities and state agencies
  • In response to the question on transparency it was noted the authority submits reports to various agencies and also publishes reports on the website

Texas Municipal League/ Bill Longley

  • Municipalities have $26-28 billion of tax supported debt
  • Local governments are issuing larger amounts of debt than the state because they have to pay for services/infrastructure for citizens including all those who are moving to the area
  • Despite the rumor of local debt growing it was pointed out that
    • Between 2008-2012 local debt has increased 18% and city debt at 12% while the state debt has increased at 25%
  • SB 637 a transparency bill passed by Sen. Paxton made transparency changes including requiring data on the bond election to be posted in the polling place – they supported the legislation
    • However, they would caution against putting those details on the ballot for several reasons including that the information is not in context and could introduce a voter bias
  • Moving the date to bond elections every two year could be limiting
  • In regards to posting more data on the city websites it was noted that of many medium or larger cities are already doing this
    • However, there is a concern with the overall requirement of posting data on websites since cities with a population of less than 1k in population may not have a website
    • Trying a one size fits all posting regulation could be problematic
  • 8 of the 15 fastest growing states across the nation are located in Texas and cities need to have tools available to them to provide necessary infrastructure to meet the demand of a growing population
  • Sen. Nichols appreciated the comment about smaller population cities
  • The current election process is supported rather than move to a 2 year election cycle
  • Sen. Paxton claimed the per capita debt rate has gone up by 65%
    • Longley answered that public debt could be addressed with reasonable transparency measures
    • Per capita measures include those who are paying taxes but not all entities that are paying debt service such as companies
  • Sen. Paxton cautioned he does not want Texas to go down the same road as California
    • Longley speculated that maybe the cause to their problem is because California has significant restrictions on property taxes
  • Sen. Hinojosa inquired about Capital Appreciation Bonds (CABs)
    • $21 million issued by cities so it represents a small portion of city debt
  • Sen. Hinojosa stated there is no coordination amount the districts within the county – when discussing how amounts added to tax burden are broken up in the election process

Mike Ball, CFO Rockwall ISD and member of fast growth district

  • 96 districts in the state are fast growth
  • There are 620k students coming to Texas – 80% of the growth is coming to fast growth districts
  • 50 cent test and decrease funding from the state are requiring them to look towards bonds including CABs in order to fund growth
  • The Governor of Texas has made it a priority to bring business to Texas but then they must educate the children that are coming with increased population growth
  • Schools are seeing state funding decrease
  • Debt must be issued to fund construction of facilities to support growth or other option would be portables which is not an optimum environment to conduct classroom work  
  • CABs can be used to:
    • Refinance debt to achieve a lower interest rate
    • Reduce total cost for taxpayers
    • Provide stability in the tax rate
  • Sen. Hinojosa agreed that “in general costs are being pushed down to local entities” but he disagreed with comments on CAB
    • Sen. Hinojosa said maybe they are useful for transportation and refinance but the problem is that interest is not being paid down for a number of years which is pushing down the debt to future generations.
  • Sen. Nichols inquired about the date that the state stopped paying for a good portion of capital expenses for schools
  • Ball said the state does still appropriate some funding but it is much less
  • Sen. Nichols postulates that it will take several special sessions to address the anticipate school funding lawsuit from the courts but notes the state does have a responsibility to provide facilities
  • Sen. Taylor stated he does sympathize with the growth concern but not all construction funding in school districts go towards classrooms. He further stated –
    • Recently $27m went to an administration building or what about a recent bond for a large football stadium
    • Schools need to be cost conscious
    • He would like to see what schools are at the 50 cent cap and in getting to that cap – were funds spent on education
    • Maybe the 50 cent cap is not appropriate for fast growth schools but only if they can show money is being spent in a prudent fashion

James Schiele, CFO in Eagle Mountain-Saginaw ISD and member of fast growth school district

  • Their trustees are very conservative but have had to use CABs
  • They have been a tool used to save money
  • They are not a wealthy district
  • CABs can be dangerous if overused and can have extreme consequences if overused
  • 50 cent test has been the biggest hurdle for his district – they are at 52 cents currently
  • Sen. Hinojosa noted that CABs have a useful purpose but he does not want the district to commit financial suicide
  • Portables have issues in that the municipalities only allow use for a couple years, there are issues with safety and security, and it is so expensive to put in a portable
  • Tornado shelters now being required by the uniform commercial code will add further expense to building facilities
  • Sen. Hinojosa asked about patterns – or cookie cutter schools to save costs on design
    • Schiele said they have a prototype they have used for the past 5 years but were not planning to on this next one since they need to make changes for their special needs population

Comptroller’s Office/ Tom Currah

  • Reviewed transparency bill language from last session and then expounded on the current local debt transparency website housed with the Texas State Comptroller
  • The website shows among other things: debt at a glance, debt obligation, population, authorized debt and offers comparison by population of every school, every city and the largest 100 counties with outstanding debt
    • The Comptroller’s office will expand the site to include all counties and special purpose districts in the near future
  • There are two people at the Comptroller’s office who are, for the most part, responsible for collecting and posting the information
  • They get most information through the Texas Bond Review Board and the State Demographers Office but they also made an open records request to the schools to generate a better response than voluntary request on school debt details

General Counsel for County Judge and Commissioners/ Jim Allison

  • Provided a handout to the committee on how they use public debt
  • They are attracting 400k residents every year and they need infrastructure
  • The county debt is only 7% of total local debt issued in the state
  • Courts, jails, public buildings and certain transportation systems are delegated to counties
  • Counties rely very heavily on property taxes to pay for infrastructure – in other states they rely on income tax
  • TxDOT is not able to build many new highways and if an improved highway or county road system is wanted then the counties need to be able to do it and provide a source of financing
  • Moving the elections to every two years will have unintended consequences as there is already a lengthy ballot during that time and would run into problems with voter fatigue
  • They supported Sen. Paxton’s transparency bills as they made reasonable changes
  • Counties already had to post budgets online but the bill extended it to debt information
  • Since the Comptroller already has gathered debt data into a central location, why don’t counties just link their website to the Comptroller’s website with the gathered data
  • Sen. Hinojosa asked Allison if he has heard of counties paying private companies to construct a building and then leasing it and at the end of the lease buying the building for $1
    • Allison said only in large counties has he heard of such a case. Travis County is considering. It would be good option to allow a private entity to utilize space in a facility until the county needs it and then they could gradually pay it out. That way they would have space for growth without having to incur public debt

PUBLIC TESTIMONY/WITNESSES
Officials from several cities and local entities from San Antonio and the Houston area testified on transparency initiatives underway which include updating websites with information

Geri Bentley as a tax payer and city council member spoke against uniform elections and stated she wants more financial transparency

  • When running for office she was surprised how no one knew how much debt the city or school district had.
  • She argued for laws to change on how schools run elections, would like to items separated on bond elections and more coordination between the state and school districts on elections

Two other citizens/tax payers testified on their difficulty with the election system from an anecdotal story where an office actually handed her mail in ballots instead of applications to another showing how hard it is to figure out where to vote and send in ballots