LEGISLATIVE BUDGET BOARD
Austin, Texas
FISCAL NOTE
74th Regular Session
March 1, 1995
TO: Honorable Ken Armbrister, Chair IN RE: Senate Bill No. 381
Committee on State Affairs By: West, Royce
Senate
Austin, Texas
FROM: John Keel, Director
In response to your request for a Fiscal Note on Senate Bill No.
381 (Relating to the provision by the state of guarantees and
indemnification relating to surety bonds for historically
underutilized businesses; authorizing the issuance of bonds.)
this office has determined the following:
The bill would establish the Texas Historically Underutilized
Surety Bond Fund as a revolving fund in the state treasury. The
fund would be used as a GUARANTEE OF SURETY up to 90 % for HUB
loans less than or equal to $1,250,000. The TDOC policy board
would be authorized to issue up to $50 million of general
obligation bonds for this purpose, however, there would be a
maximum allowable amount of $25 Million in bonds for FY 96, the
first year of the program.
The fund would be administered by the Small Business\Community
Economic Development program at the Dept. of Commerce (TDOC).
The agency would be responsible for enhancing the opportunities
available to HUB's for bid contracts which require a surety bond.
TDOC would administer and market the program. The act would be
contingent upon adoption of a constitutional amendment proposed
by SJR 30.
The agency will add 6 FTE's to their existing staff. It is
presumed that the program will be designed to be self-supporting
and not require a draw on general revenue to pay debt service.
Additional assumptions used in generating debt service estimates
include:
(1) the bonds will be taxable due to the beneficiaries of the
program being either corporations, sole proprietorships,
partnerships, or joint ventures;
(2) the structure will consist of two bond issues, each with a
term bond that matures and is payable in the twentieth year;
(3) only interest will be paid in years one through nineteen;
(4) the initial and only issuance in the 1996-97 biennium will
be for $25 million and will be issued on February 1, 1996;
(5) the subsequent issuance will be on February 1, 1998 and will
be of the same structure and amount as the first issue;
(6) based on customary terms and conditions, it is assumed that
actual losses due to default will be nominal and be absorbed by
the fund;
(7) it is assumed that surety bond fees will be charged. Fee
revenues will be lower in early years and will eventually by year
4 be sufficient to cover all costs of administration.
If, during the time any general obligation bonds became payable,
the policy board determined that insufficient funds were
available to pay the debt service during the following fiscal
year, the Comptroller's Office would be required to transfer a
sufficient amount to the bond surety fund from the General
Revenue Fund to cover the cost of the debt service.
The probable fiscal implication of implementing the provisions of
the bill during each of the first five years following passage
is estimated as follows:
Fiscal Probable Cost Out Probable Maximum
Year of the HUB Surety Debt Service Cost
Bond Fund out of the HUB
Surety Bond Fund
1996 $325,530 $1,312,500
1997 290,137 2,250,000
1998 290,137 3,562,500
1999 290,137 4,500,000
2000 290,137 4,500,000
Similar annual fiscal implications would continue as long as the
provisions of the bill are in effect.
No significant fiscal implication to units of local government is
anticipated.
Source: Office of the Attorney General, Comptroller of Public
Accounts,
Treasury Department, Texas Public Finance
Authority, Bond Review Board,
Department of Commerce
LBB Staff: JK, VS, DF