TO:	Honorable Kelly Hancock, Chair, Senate Committee on Business & Commerce
FROM:	John McGeady, Assistant Director     Sarah Keyton, Assistant Director Legislative Budget Board
IN RE:	SB1349 by Watson (Relating to authorizing the sale of certain real property by the Texas Facilities Commission on behalf of the state.), As Introduced

The bill authorizes the sale of the William P. Hobby Complex (Hobby Building) by the Texas Facilities Commission. The bill takes effect immediately if it receives a two-thirds vote of all members elected to each house of the Texas Legislature, or on September 1, 2019

Based on analysis by the Texas Facilities Commission, there would be one-time and ongoing savings to the state associated with the sale of the Hobby Building. The agency estimates outstanding deferred maintenance costs of $49.6 million for the Hobby Building, which would be avoided with the completion of the sale. In addition, the agency estimates that 2 full-time equivalent maintenance and inspection employees currently assigned to the Hobby Building could be reassigned to support operations of other state facilities. In addition, annual custodial and pest control costs of $247,000 would be avoided with the sale. However, because the timing of the sale cannot be estimated, the exact nature of these savings cannot be determined at this time.

Based on analysis by the General Land Office, the provisions of the bill relating to property appraisal activities could be absorbed using existing state resources. The General Land Office is unable to provide an estimate of the fair market value of the Hobby Building at this time, therefore the amount of proceeds expected from the sale cannot be determined at this time.

According to the Texas Public Finance Authority, the sale of the Hobby Building while the tax-exempt bonds remain outstanding could cause the bonds to lose their tax-exempt status.
However, the IRS Regulations contain a safe harbor provision relating to the proceeds generated from such a transaction.  Strict compliance with the applicable IRS Regulations relating to the sale of the property and to the disposition of the sale proceeds would allow the State of Texas to remain in compliance with its bond covenants and allow the bonds to retain their tax-exempt status.

Local Government Impact

No fiscal implication to units of local government is anticipated.