BILL ANALYSIS |
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C.S.S.B. 449 |
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By: Hinojosa |
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Ways & Means |
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Committee Report (Substituted) |
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BACKGROUND AND PURPOSE
Capital appreciation bonds defer the payment of principal and interest until the bond matures, typically many years after the issuance of the bond. The bonds are typically used by school districts that have limited financing options but in which immediate development is needed due to a rapidly expanding population. Interested parties note that the rationale for the bonds is that the number of taxpayers will increase and the anticipated tax base growth will enable repayment of the obligation. The parties contend that these bonds are increasingly used in Texas and other states in which the school-aged population is expanding faster than can be supported by the current tax base.
However, the parties assert that this buy-now, pay-later approach often results in crippling repayment obligations, with the repayment costs being greater than the benefits derived from the bond, and that the repayment ratio of these bonds is much higher than that of other types of bonds. For example, it has been reported that in certain school districts, taxpayers will have to repay around nine times the amount the school district originally borrowed and that statewide during the last few years, Texas municipalities issued capital appreciation bonds sufficient to receive more than $2 billion in immediate funding, but in doing so committed to future repayment obligations of more than $20 billion. C.S.S.B. 449 seeks to address these concerns.
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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.
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ANALYSIS
C.S.S.B. 449 amends the Government Code to prohibit a county, municipality, special district, school district, junior college district, or other political subdivision from issuing capital appreciation bonds that are secured by property taxes unless the bonds have a scheduled maturity date that is not later than 20 years after the date of issuance; the governing body of the political subdivision has received a written estimate of the cost of the issuance; the governing body of the political subdivision has determined in writing whether any personal or financial relationship exists between the members of the governing body and any financial advisor, bond counsel, bond underwriter, or other professional associated with the bond issuance; and the governing body of the political subdivision posts prominently on the political subdivision's Internet website and enters in the minutes of the governing body certain information regarding the bonds, bond projects, the political subdivision's bonded indebtedness, the estimate of the cost of the issuance, and any such relationships. The bill exempts the issuance of refunding bonds and the issuance of capital appreciation bonds for the purpose of financing transportation projects from this prohibition.
C.S.S.B. 449 caps the total amount of capital appreciation bonds at 25 percent of the political subdivision's total outstanding bonded indebtedness at the time of the issuance, including the amount of principal and interest to be paid on the outstanding bonds until maturity. The bill prohibits a county, municipality, special district, school district, junior college district, or other political subdivision from extending the maturity date of an issued capital appreciation bond, including through the issuance of refunding bonds that extend the maturity date, except that the bill authorizes a school district to extend that date only if the maximum legally allowable tax rate for indebtedness has been adopted and the attorney general certifies in writing that the solvency of the permanent school fund's bond guarantee program would be threatened without the extension.
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EFFECTIVE DATE
September 1, 2013.
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COMPARISON OF ORIGINAL AND SUBSTITUTE
While C.S.S.B. 449 may differ from the engrossed version in minor or nonsubstantive ways, the following comparison is organized and highlighted in a manner that indicates the substantial differences between the engrossed and committee substitute versions of the bill.
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