LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE 75th Regular Session April 16, 1997 TO: Honorable Bill Ratliff, Chair IN RE: House Bill No. 1235, As Engrossed Committee on Finance By: Junell Senate Austin, Texas FROM: John Keel, Director In response to your request for a Fiscal Note on HB1235 ( relating to authorizing the issuance of revenue bonds for certain public institutions of higher education) this office has detemined the following: Biennial Net Impact to General Revenue Funds by HB1235-As Engrossed Implementing the provisions of the bill would result in a net negative impact of $(25,188,100) to General Revenue Related Funds through the biennium ending August 31, 1999. The bill would make no appropriation but could provide the legal basis for an appropriation of funds to implement the provisions of the bill. Fiscal Analysis The bill would authorize the following institutions or systems of institutions of higher education to issue up to $792.11 million of revenue bonds for the acquisition, purchase, construction, renovation or equipping of buildings, facilities, and infrastructure: (1) Texas Tech University $ 66.0 million (2) Texas Tech University Health Sciences Center $ 51.2 million (3) Texas A&M University System $172.5 million (4) University of Texas System $313.78 million (5) University of Houston System $ 8.2 million (6) Texas State University System $ 78.33 million (7) University of North Texas $ 24.0 million (8) University of North Texas Health Science Center $ 23.0 million (9) Texas Woman's University $ 10.1 million (10) Midwestern State University $ 15.0 million (11) Stephen F. Austin State University $ 10.0 million (12) Texas Southern University $ 20.0 million The bonds would be payable from pledged revenues, including student tuition. The bonds would not be general obligations of the State; however, the issuance of these bonds would have fiscal implications for the State. Although tuition income is pledged against the bonds, historically the Legislature has appropriated general revenue to reimburse institutions of higher education for tuition used to pay the debt service. It is assumed that the Legislature would continue this policy. It is assumed that $792.11 million of tax-exempt 20-year bonds would be issued over a four year period beginning in September 1998 with final maturity in fiscal year 2021. It is estimated that annual debt service reimbursement costs would continue for 20 years until the bonds matured. The total estimated amount of debt service from FY 1998 to Fiscal year 2021 is estimated at $1.4 billion. Furthermore, it is assumed that additional costs would be incurred for maintaining the additional physical facilities. It is estimated that the additional cost to the State would be $26 million each year beginning in FY 2001. Methodolgy The bill will result in additional costs for both debt service and operation and maintenance. It is assumed that the amount of bonds authorized would be issued over a four year period beginning in fiscal year 1998 and will remain outstanding for twenty years. The four bond issues would occur one year apart each September 1. For each bond issue, the first interest payment would be made on March 1 and the first principal payment would be made the following September 1. Following are the estimated amount of bonds issued over the four year period by year and the estimated amount of interest rates related to those issues: Fiscal Year 1998 $ 140.0 million 6.00% Fiscal Year 1999 $ 276.0 million 6.50% Fiscal Year 2000 $ 275.0 million 6.75% Fiscal Year 2001 $ 101.11 million 7.00% Total debt service payments through 2021 is estimated to be $1.4 billion. Operation and maintenance costs would be provided through formula funding and utility appropriations. It is assumed that these costs will not be incurred until fiscal year 2001. It is also assumed that 75 percent of the bonds proceeds would be spent on new construction at an average building cost of $100 per gross square foot. The fiscal year 1996 operation and maintenance costs per gross square foot has been applied to the estimated amount of new gross square feet to project the annual operation and maintenance costs. Based on these assumptions, the operations and maintenance costs from general revenue would be $27 million annually. An additional 15 to 20 percent would be paid from Other Educational and General Income funds. The probable fiscal implications of implementing the provisions of the bill during each of the first five years following passage is estimated as follows: Five Year Impact: Fiscal Year Probable Savings/(Cost) from General Revenue Fund 0001 1998 ($4,200,000) 1998 (20,988,100) 2000 (45,953,100) 2001 (95,270,075) 2002 (98,122,625) Net Impact on General Revenue Related Funds: The probable fiscal implication to General Revenue related funds during each of the first five years is estimated as follows: Fiscal Year Probable Net Postive/(Negative) General Revenue Related Funds Funds 1998 ($4,200,000) 1999 (20,988,100) 2000 (45,953,100) 2001 (95,270,075) 2002 (98,122,625) Similar annual fiscal implications would continue as long as the provisions of the bill are in effect. No fiscal implication to units of local government is anticipated. Source: Agencies: 781 Higher Education Coordinating Board 347 Texas Public Finance Authority LBB Staff: JK ,RR ,DB