LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE, 76th Regular Session April 19, 1999 TO: Honorable Bill Carter, Chair, House Committee on Urban Affairs FROM: John Keel, Director, Legislative Budget Board IN RE: HB 3326 by Gallego (Relating to the allocation of programs maintained by the Texas Department of Housing and Community Affairs to the state planning regions based on population.), As Introduced ************************************************************************** * Estimated Two-year Net Impact to General Revenue Related Funds for * * HB3326, As Introduced: negative impact of $(5,200,000) through * * the biennium ending August 31, 2001. * * * * The bill would make no appropriation but could provide the legal * * basis for an appropriation of funds to implement the provisions of * * the bill. * ************************************************************************** General Revenue-Related Funds, Five-Year Impact: **************************************************** * Fiscal Year Probable Net Positive/(Negative) * * Impact to General Revenue Related * * Funds * * 2000 $(2,600,000) * * 2001 (2,600,000) * * 2002 (2,600,000) * * 2003 (2,600,000) * * 2004 (2,600,000) * **************************************************** All Funds, Five-Year Impact: ***************************************************** * Fiscal Year Probable Savings/(Cost) from * * General Revenue Fund * * 0001 * * 2000 $(2,600,000) * * 2001 (2,600,000) * * 2002 (2,600,000) * * 2003 (2,600,000) * * 2004 (2,600,000) * ***************************************************** Fiscal Analysis The bill would amend Section 2306, Government Code, requiring the Texas Department of Housing and Community Affairs (TDHCA) to allocate housing finance division funds to each geographic state planning region using a formula developed by TDHCA based on the proportion of households in each region that are in need of housing assistance. The bill would take effect September 1, 1999. Methodology Currently, TDHCA receives approximately $100 million each year in private activity bond cap authority through the Single Family Bond Program which it uses to issue tax-exempt bonds that are bought by private investors. TDHCA makes mortgage loans through local lenders geographically dispersed across the state based on lender demand. The loans are originated through lenders who apply to TDHCA and indicate regions in which they will originate loans. Currently, the lender's ability to make loans is considered to be the primary issue of importance since this ensures the program's financial integrity. Under the provisions of the bill, TDHCA estimates that 1,600 loans would be issued by the department through the Single Family Bond Program and that the cost per loan would increase by $125 per year as a result of an interest rate increase of 20 basis points. The agency estimates a 13 year life span for each loan issued and that interest rates on these loans would increase from 5.85% to 6.05% as a result of the risk investors would associate with the regional allocation required by the bill. TDHCA estimates that a demand for loans would not be reflected through the regional allocation required by the bill and that bond proceeds would be unused which would require TDHCA to repay unused portions to bond investors. The agency estimates that $2,600,000 in additional general revenue would be required each year to implement the provisions of the bill by "buying down" the interest rate so that borrowers would not pay additional risk premium costs and so that TDHCA could ensure its ability to provide affordable loans below the market rate. It is assumed that implementing the provisions of the bill for the other housing finance division programs would have no significant impact. Local Government Impact No significant fiscal implication to units of local government is anticipated. Source Agencies: 332 Department of Housing and Community Affairs LBB Staff: JK, TL, MW