Texas lawmakers seeking to eliminate non-voter-approved debt issuance by local governments

Two Texas senators have filed legislation to eliminate non-voter-approved debt issuance by local governments and scrap a 2019 provision that allows low-population counties to raise property tax rates above the new limits.

Sens. Paul Bettencourt (R-Houston) and Mayes Middleton (R-Galveston) filed three bills together — Senate Bill (SB) 976 by Middleton and SB 977 and SB 978 by Bettencourt — as a kind of “divide and conquer” strategy.

Middleton’s bill is the “omnibus” version, whereas Bettencourt’s split the goals between two separate pieces of legislation.

First, the slate aims to move all debt issuance by political subdivisions under the voter-approval umbrella. There are a few different mechanisms in state law by which cities and counties may issue debt for projects without needing to seek voter approval. The most-used example of that is through Certificates of Obligation (CO), of which the statewide total reached $22 billion in 2020.

During the last session, the Texas Legislature reformed the mechanism, limiting the circumstances in which COs may be used; this was a response to incidents such as Bexar County’s CO to purchase a 45-foot tall floating head statue and Amarillo’s use of it to build a water park.

Bettencourt led the bill’s push in the Senate and Rep. Dustin Burrows (R-Lubbock) authored and carried it in the House.

The mechanism’s original purpose was for emergency spending that cannot wait until a future election for voters to give their approval.

That bill’s original version would have done exactly what Middleton and Bettencourt intend here, but it was watered down as opposition mounted. The final version still laid out a set of requirements that excluded superfluous purposes such as the statue and the water park.

Over the interim, legislators heard testimony from Alex Fairly, an Amarillo businessman fighting with the city’s elected officials over their maneuver to move forward their civic center project.

Amarillo voters shot down a $275 million bond proposal in 2020 for the civic center, but rather than wait or scrap the project, officials approved $260 million in Tax Anticipation Notes (TAN) in 2022. TANs are a public debt mechanism intended to act as a kind of bridge loan to get a locality through a dry period until expected revenues begin flowing in. But this use of TANs, especially in context of the voters’ rejection, caused a stir and pushback by the community.

Fairly sued and won; Judge Bill Sowder halted the TANs’ issuance back in October after a months-long court fight. One House member called the maneuver the “most egregious abuse of Texas financing law that I’ve ever seen in my long career” during the committee hearing last summer.

The pair of senators had these examples and more in mind when crafting the reform.

One section of the bill reads, “The term ‘debt’ includes a bond or other obligation issued to refund a bond, warrant, certificate of obligation, or other evidence of indebtedness regardless of whether the refunding bond or other refunding obligation was approved at an election.”

In 2019, part of the Texas Legislature’s marquee property tax reform included reducing the voter-approval rates — the year-to-year increase at which point officials must seek voter approval — from 8 percent down to 2.5 percent for school districts and 3.5 percent for cities and counties.

Passage of this reform would require COs, TANs, and any other current forms of non-voter-approved debt to be included in the tax increase calculation.

The other half of the slate is aimed at the de minimis rate, a provision of the 2019 tax reform that essentially wrote out counties below a certain size from the new 3.5 percent limit.

Any locality below 30,000 in population whose proposed bond would bring in less than $500,000 is effectively exempt from the voter-approval limitations. Meant as a carveout for tiny, fiscally barren localities to make purchases of things like fire trucks or other emergency equipment without waiting for voter approval, it theoretically allowed increases by certain counties anywhere from 7.4 percent to 63.2 percent.

These new bills would strike that provision entirely, limiting all localities to the 2019 limits.

Bettencourt, chair of the Senate’s Local Government Committee, and Middleton, this year jumping from the House to the Senate, both maintain a substantial focus on bond issuance and tax rates by localities.

And just like in 2019, property tax reform is a key issue for the Legislature during the current session, which ends May 29.

Post a Comment

Previous Post Next Post