BILL ANALYSIS |
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C.S.H.B. 114 |
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By: Flynn |
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Investments & Financial Services |
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Committee Report (Substituted) |
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BACKGROUND AND PURPOSE
There are concerns that, due to a rapidly expanding population, school districts with limited financing options are using capital appreciation bonds to meet immediate development needs. Interested parties note that use of such bonds may be supported by the belief that the number of taxpayers will continue to increase and the subsequent tax base growth will enable repayment of the obligation. However, the parties contend that the school-aged population in Texas, and in other states where such bonds are used, is expanding faster than such tax base growth can support.
The parties further 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. It has been reported that the issuance of these bonds has made it possible for a local governmental entity to borrow large sums of money, forgo any payment on principal or interest for decades, and, once current officeholders have long vacated their positions, then be required to pay back as much as 10 times the original amount once the bond matures. C.S.H.B. 114 seeks to address this issue.
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CRIMINAL JUSTICE IMPACT
It is the committee's opinion that this bill does not expressly create a criminal offense, increase the punishment for an existing criminal offense or category of offenses, or change the eligibility of a person for community supervision, parole, or mandatory supervision.
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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.H.B. 114 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, as defined by the bill, that are secured by property taxes unless certain conditions, as specified by the bill, are met. This prohibition does not apply to the issuance of refunding bonds or capital appreciation bonds for the purpose of financing transportation projects.
C.S.H.B. 114 requires a governing body of a political subdivision that determines, in accordance with one of the specified conditions of bond issuance, that a personal or financial relationship exists between the members of the governing body and certain professionals associated with the bond issuance to submit the determination to the Texas Ethics Commission. The bill requires the governing body of a political subdivision to regularly update the total amount of the political subdivision's outstanding bonded indebtedness, including the amount of principal and interest to be paid until maturity, that is required to be posted on the political subdivision's website, in accordance with one of the specified conditions of bond issuance, to ensure that the information is current and accurate.
C.S.H.B. 114 prohibits capital appreciation bond proceeds from being used to purchase items more regularly considered maintenance items or transportation-related items. The bill limits the use of capital appreciation bond proceeds unspent after completion of the project identified as the proceeds' intended use to a use identified on the political subdivision's website, in accordance with one of the specified conditions of bond issuance, unless another use is approved by the voters of the political subdivision at an election held for that purpose.
C.S.H.B. 114 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, but authorizes a political subdivision to extend the maturity date of an issued capital appreciation bond only if the extension of the maturity date will decrease the total amount of projected principal and interest to maturity or if the political subdivision is a school district and the maximum legally allowable tax rate for indebtedness has been adopted and the Texas Education Agency 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, 2015.
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COMPARISON OF ORIGINAL AND SUBSTITUTE
While C.S.H.B. 114 may differ from the original in minor or nonsubstantive ways, the following comparison is organized and formatted in a manner that indicates the substantial differences between the introduced and committee substitute versions of the bill.
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