S.B. 1778 78(R)    BILL ANALYSIS


S.B. 1778
By: Ogden
Financial Institutions
Committee Report (Unamended)



BACKGROUND AND PURPOSE 

Under current law, public institutions of higher education can issue
tax-exempt bonds to build or improve facilities, but private institutions
of higher education cannot.  Chapter 53, Education Code (Higher Education
Authority) provides a mechanism whereby a municipality may create a higher
education authority ("authority") to issue bonds to benefit private
institutions of higher education or to nonprofit corporations to benefit
primary, secondary, and charter schools.  Facilities built or improved
using bonds issued by such authorities are exempt from taxation, even if
they are located in another municipality and regardless of whether a
private institution of higher education requests or directly benefits from
the facilities. 

S.B. 1778 authorizes certain nonprofit instrumentalities, in addition to
higher education authorities, to issue and execute revenue bonds for
certain purposes.  The bill also requires facilities utilizing bonds under
Chapter 53, Education Code to be located in the municipality that created
the authority issuing the bonds, unless a specific exemption applies. 

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

S.B. 1778 amends Section 53.33, Education Code to permit authorities or
nonprofit instrumentalities to acquire, own, hold title to, lease, or
operate an educational facility, housing facility, or any facility
incidental, subordinate, related to, or appropriate in connection with an
educational facility or housing facility, if certain conditions are met: 
_The facility must be within the corporate limits of the city that created
the authority or instrumentality; 
_The institution of higher education officially requests the authority or
instrumentality to acquire and own the facility for the benefit of the
institution; 
_The institution of higher education officially agrees to accept the
facility not later than the date on which any bonds or other obligations
issued to acquire the facility are paid in full; and 
_The authority or instrumentality's ownership of the facility has been
approved by governing bodies of the city, school district, and county in
which it is located. 
The above changes do not affect the acquisition, ownership, construction,
or improvement of a facility or land that were approved by official action
of an authority or instrumentality before March 15, 2003.  The bill
deletes the current, unconditioned ability of an authority to own,
construct, or improve facilities.  The bill explicitly permits an
authority or instrumentality to contract for the operation of a facility. 

The bill amends Section 53.34, Education Code to permit an authority or
instrumentality to issue and execute revenue bonds or other obligations to
loan or otherwise provide funds to a borrower, subject to specified
conditions, and clarifies the types of security for such bonds or
obligations.  The bill amends Section 53.02, Education Code to define
"borrower," with respect to a recipient of a loan made under Section
53.34, Education Code.  The bill specifies that the issuer of bonds or
other obligations -under this section is considered to be acting on behalf
of the city which created it.  A facility funded in this manner is not
required to be located within the corporate limits of the city  which
created the issuer.  The bill permits an authority or instrumentality to
issue and execute revenue bonds or other obligations for the purpose of
its acquiring, owning, or operating educational or housing facilities, or
creating debt service reserves for and to pay issuance costs related to
the bonds or other obligations.  The bill establishes the types of
security for such bonds or obligations. The bill specifies that changes
made to this section affect and apply only to transactions involving bonds
or other obligations issued or executed after March 15, 2003. 

EFFECTIVE DATE

On passage or, if the Act fails to obtain the necessary vote, the Act
takes effect September 1, 2003.