LEGISLATIVE BUDGET BOARD

Austin, Texas

FISCAL NOTE, 78TH LEGISLATIVE REGULAR SESSION

April 7, 2003

TO:	Honorable Robert Talton, Chair, House Committee on Urban Affairs
FROM:	John Keel, Director, Legislative Budget Board
IN RE:	HB3551 by Chavez (Relating to the authority of a municipality to use commercial paper instead of certificates of obligation.), As Introduced

No fiscal implication to the State is anticipated.

The bill would authorize a municipality to use commercial paper instead of certificates of obligation if the use would provide an economic benefit over that of certificates of obligation. The bill would take effect September 1, 2003.

Depending on the needs, in some instances certificates of obligation would provide the best value and in others, commercial paper would. For example, according to the Texas Bond Review Board, assuming a $20 million certificate of obligation issuance versus a $20 million commercial paper issuance with the full dollar amount outstanding, cost of issuance only (excluding interest rate and term), the certificate of obligation would have a one-time cost of issuance of $183,400. Assuming a term of 180 days, remarketing cost of $30,000 (remarketed twice at $15,000 each), and 11 basis points liquidity, the cost of issuance of commercial paper would be $52,000 annually.

Local Government Impact

The option to use commercial paper or certificates of obligation would provide flexibility for a municipality that would assist in obtaining the lowest cost relative to the municipality's needs. Savings would vary depending on the needs, the dollar amount, and the term of financing.

Source Agencies:	352 Bond Review Board
LBB Staff:	JK, JB, DLBa