C.S.H.B. 3331 78(R) BILL ANALYSIS
C.S.H.B. 3331
By: Crownover
Higher Education
Committee Report (Substituted)
BACKGROUND AND PURPOSE
Chapter 53 of the Education Code permits a city to create a higher
education authority or a nonprofit corporation to exercise powers similar
to those of an authority. The authority or nonprofit corporation may
issue tax-exempt bonds to acquire, construct, or improve educational or
housing facilities for the benefit of institutions of higher education.
The authority may acquire land for those purposes and the acquired
property may be located within or outside the city that created the
authority. The facilities must be used exclusively for the benefit of
students, faculty, and staff members of an accredited institution of
higher education. The educational or housing facilities built by an
authority may qualify for an exemption from ad valorem property taxes.
In the last several years, some cities have used authorities or related
nonprofit corporations to finance the purchase or construction of student
apartment complexes outside of the cities that created the authorities and
have been able to take property tax exemptions. This has been possible
even when the facility financed by one city's authority has had no
specific connection to an institution of higher education, other than mere
location. Such facilities have been developed at a cost to taxpayers and
school children in another community.
Public schools are facing cutbacks due to fewer available funds. School
districts need the assistance of the Legislature to prevent the further
erosion of their tax base. This is especially appropriate in instances
where institutions of higher education have had no need for and have not
requested the facilities that are unilaterally removed from local tax
rolls by outside cities.
In addition, cities and counties must provide the same services for these
tax-exempt facilities as they do for others that are subject to taxation.
The local tax base must be preserved to ensure that cities and counties
have the necessary resources to provide services to their citizens.
Chapter 53 of the Education Code was intended to benefit higher education.
However, it has become a mechanism that has been legally manipulated to
benefit remote business interests at the expense of local school children
and taxpayers. Local governments and school districts are losing tax
revenues on productive property which is being taken off tax rolls by
other cities through the unintended use of Texas law that was designed to
assist institutions of higher education.
The purpose of CSHB 3331 is to protect the tax base of local jurisdictions
while at the same time preserving the original intent of the law.
Institutions of higher education will benefit from continued access to the
tax-exempt bond financing markets which allows them to provide quality
education and housing for the lowest possible cost.
RULEMAKING AUTHORITY
It is the committee's opinion that this bill does not expressly grant any
additional rulemaking authority to a state officer, department, agency, or
institution.
ANALYSIS
CSHB 3331 amends Section 53.02, Education Code, by adding Subdivision (14)
to define "borrower" and enumerate which entities may be a recipient of a
loan made under Section 53.34, Education Code.
CSHB 3331 amends Section 53.33, Education Code, to provide that a higher
education authority or related nonprofit corporation may acquire, own,
hold title to, lease, or operate an educational or housing facility or any
facility that is incidental or related thereto only if: the facility is or
will be located within the city that created the authority or nonprofit
instrumentality; the governing body of an institution of higher education
officially requests the authority or nonprofit to acquire or own the
facility for the benefit of the institution; the institution agrees to
accept, and has authority to receive legal title to, the facility after
the bonds or other obligations have been paid in full; and the ownership
of the facility by the authority or nonprofit is officially approved by
the affected city, county, and school district.
CSHB 3331 provides that an authority or instrumentality that exercises the
powers granted by Subsection (a) may contract for the operation of the
facility by public or private entities or persons on the terms and
conditions set forth in a contract relating to the operation of the
facility.
CSHB 3331 provides that changes in law made by this bill do not affect the
validity of certain powers exercised by an authority with respect to land
acquired or facilities acquired, constructed, or improved prior to March
15, 2003 and that the law in effect immediately before the effective date
of the amendment to this section is continued for that purpose.
CSHB 3331 amends Section 53.34, Education Code, to authorize an authority
or related nonprofit to issue and execute bonds or other obligations in
order to loan or otherwise provide funds to a defined borrower if: the
governing body of the borrower by official action requests the issuer of
the bonds or other obligations to loan the proceeds under this subsection;
the purpose of the loan is to enable the borrower to acquire, construct,
enlarge extend, repair, renovate or otherwise improve an educational
facility or housing facility or any facility incidental, subordinate, or
related to or appropriate in connection with the educational facility or
housing facility, or for acquiring land to be used for those purposes, or
to create operating and debt service reserves for and to pay issuance
costs related to the bonds or other obligations; and under the terms of
the loan, and unless a mortgage lien granted to secure the loan is in
default, the ownership of the facility is required to be at all times
under the exclusive control, and held for the exclusive benefit, of the
borrower.
CSHB 3331 provides that in issuing bonds or other obligations under this
chapter, the issuer is considered to be acting on behalf of the city that
created it. The bill provides for how the bonds or other obligations shall
be payable and secured, and states that a facility financed by a loan
under this section is not required to be located within the corporate
limits of the city that created the issuer of the bonds or other
obligations. The bill provides that an authority or nonprofit that is
authorized to acquire and own educational or housing facilities under
Section 53.33(a) may issue bonds or other obligations for those purposes
and to pay issuance costs. The bill provides for how bonds or other
obligations issued and under subsection(e) shall be payable and secured.
CSHB 3331 provides that the changes in law made to this section only apply
to transactions involving bonds or other obligations issued or executed
under Chapter 53 after March 15, 2003. Any transaction involving bonds or
other obligations issued or executed under Chapter 53 before March 15,
2003 are governed by the law in effect immediately before the change.
CSHB 3331 amends Section 53.35(b), Education Codes, to provide that the
nonprofit corporations, that are created by this section and are permitted
to exercise the powers of the higher education authority, are now
permitted to exercise new powers granted to an authority under the
Sections 53.33 and 53.34.
CSHB 3331 amends Section 53.48, Education Code, to make conforming changes
to allow nonprofit corporations to issue and execute bonds and other
obligations for accredited primary and secondary schools and authorized
charter schools in the same manner the nonprofit corporation may do so for
institutions of higher education.
EFFECTIVE DATE
This Act takes effect immediately if it receives a vote of two-thirds of
all the members elected to each house, as provided by Section 39, Article
III, Texas Constitution. If this Act does not receive the vote necessary
for immediate effect, this Act takes effect September 1, 2003.
COMPARISON OF ORIGINAL TO SUBSTITUTE
CSHB 3331 modifies Section 53.33 of the Education Code, which allowed a
higher education authority to locate a facility outside the city that
created it, but only for a private institution of higher education and
only under certain enumerated conditions, by establishing the conditions
under which a higher education authority or related nonprofit corporation
may acquire, own, hold title to, lease or operate an educational or
housing facility or any facility that is incidental or related thereto.
Section 53.332, that required an authority to provide notice to each local
political subdivision where a facility was to be located, is removed
from the bill. CSHB 3331 amends Section 53.34 of the Education Code to
specifically allow a higher education authority or related nonprofit
corporation to issue and execute tax exempt bonds and other obligations
and loan the proceeds to a "borrower". Section 53.02 of the Education Code
is amended to define "borrower" and specifically enumerates which entities
may be a recipient of a loan made under the amended Section 53.34. CSHB
3331 specifies the conditions under which an authority or nonprofit
corporation may issue and execute bonds or other obligations and the
conditions under which those proceeds may be loaned to a qualified
borrower. It specifies how such bonds, other obligations, and loans shall
be payable and secured. It also specifies that any qualified facility
financed by such a loan is not required to be located within the
boundaries of the city or cities that created the authority or nonprofit
corporation lending the funds. Finally, any transactions involving the
issuance of bonds or the acquisition, construction, or improvement of an
educational or housing facility under Chapter 53 prior to March 15, 2003
is not affected by the changes made to the law and continue to be governed
by the law in effect immediately before the change.