BILL ANALYSIS

Senate Research Center	C.S.H.B. 1131
	By: Cole et al. (Hughes)
	Education
	5/16/2019
	Committee Report (Substituted)

AUTHOR'S / SPONSOR'S STATEMENT OF INTENT

The Texas Public Finance Authority (TFPA) was established in 1983 and offers beneficial financing options for 28 state agencies, some of which are institutions of higher education. When a state agency has been authorized and appropriated funds for a legislatively authorized purpose, TFPA can assist that agency with financing options and be repaid with appropriated state funds. Having one entity that serves state agencies in this way reduces the costs of financing.

The same concept can be applied to public schools, particularly smaller school districts in rural areas that may not have many financing options. For example, a school district cannot afford to go through a costly bond issue for standard equipment purchases or maintenance items. Alternative financing options may not be readily available, however. Under H.B. 1131, TPFA would be able to assist school districts with lease or lease-purchase agreements and financing for smaller-scale expenses related to maintenance, equipment, repair, and renovation (not new construction). Financing offered by the TPFA would be guaranteed by the Permanent School Fund (PSF). Default and repayment provisions under Chapter 45, Education Code, related to guaranteed bonds would be applied to the TPFA program under H.B. 1131.

State money payable to a school district is available under the bill to reimburse any default covered by the PSF. The total amount of financing is limited to $100 million, and new obligations may not be issued after September 1, 2023 to allow the legislature to review the program after several years of operation. (Original Author's/Sponsor's Statement of Intent)

C.S.H.B. 1131 amends current law relating to the creation of a state financing program administered by the Texas Public Finance Authority to assist certain school districts with certain expenses and grants authority to issue bonds or other obligations.

RULEMAKING AUTHORITY

Rulemaking authority is expressly granted to the Texas Public Finance Authority (TPFA) in SECTION 1 (Section 45.115, Education Code) of this bill.

Rulemaking authority is expressly granted to the board of directors of TPFA in SECTION 3 (Section 1232.1031, Government Code) of this bill.

SECTION BY SECTION ANALYSIS

SECTION 1. Amends Subchapter E, Chapter 45, Education Code, by adding Sections 45.114 and 45.115, as follows:

Sec. 45.114. ASSISTANCE FROM TEXAS PUBLIC FINANCE AUTHORITY. Authorizes a school district to:

(1) borrow money from the Texas Public Finance Authority (TPFA) made available in accordance with Section 1232.1031, Government Code; and

(2) as necessary in connection with obtaining loans or other financial assistance from TPFA in accordance with Section 1232.1031, Government Code:

(A) issue bonds and notes, provided that the term of an obligation issued for this purpose is prohibited from exceeding 15 years; and

(B) enter into loan agreements, lease agreements, lease purchase agreements, or other appropriate financing agreements with TPFA.

(3) make payments on an obligation or agreement issued or executed under this section using any available funds, including maintenance and operations tax revenue; and

(4) secure the payment of an obligation or agreement issued or executed under this section through:

(A) creating a lien against equipment obtained using the proceeds of the obligation;

(B) creating a lien against and pledging any fund of the district available for that purpose, including maintenance and operations tax revenue; or

Sec. 45.115. PAYMENT PROTECTIONS FOR TEXAS PUBLIC FINANCE AUTHORITY. (a) Defines "obligation" for purposes of this section.

(b) Requires a school district, immediately following a determination that a school district will be or is unable to pay maturing or matured principal or interest on an obligation, but not later than the fifth day before maturity date, to notify the commissioner of education (commissioner).

(c) Requires the commissioner, immediately following receipt of notice from a school district under Subsection (b), to instruct the comptroller of public accounts of the State of Texas (comptroller) to transfer to TPFA from the next payment of state money payable to the district from appropriations to the Foundation School Program (program) the amount necessary to pay the maturing or matured principal or interest.

(d) Requires TPFA, immediately following receipt of the funds for payment of the principal or interest, to forward the canceled obligation to the comptroller. Requires the comptroller to hold the canceled obligation on behalf of the TPFA.

(e) Requires the comptroller, following full reimbursement to TPFA with interest, to cancel the obligation and forward it to the school district.

(f) Provides that if a school district fails to pay principal or interest on an obligation at maturity, other obligations not yet mature are not accelerated and are not due by virtue of the district's default.

(g) Authorizes the commissioner, if a total of two or more payments are made using state money otherwise payable to a school district from appropriations to the program and the commissioner determines that the district is acting in bad faith, to request the Texas attorney general to institute appropriate legal action to compel the district and the district's officers, agents, and employees to comply with the duties required by law in regard to the appropriate obligations. Provides that jurisdiction of proceedings under this subsection is in district court in Travis County.

(h) Authorizes TPFA and the Texas Education Agency (TEA) to enter into a memorandum of understanding governing the duties of TPFA and TEA under this section, Section 45.114, and Section 1232.1031, Government Code.

(i) Authorizes TPFA to adopt rules necessary for the administration of obligations issued on behalf of school districts.

SECTION 2. Amends Section 45.252, Education Code, by adding Subsection (a-1), to authorize a school district to apply for credit enhancement under this subchapter of obligations issued under Section 45.114.

SECTION 3. Amends Subchapter C, Chapter 1232, Government Code, by adding Section 1232.1031, as follows:

Sec. 1232.1031. ISSUANCE OF OBLIGATIONS TO ASSIST CERTAIN SCHOOL DISTRICTS. (a) Authorizes TPFA to issue and sell obligations to finance:

(1) loans to school districts for eligible purposes;

(2) the purchase by TPFA of vehicles, equipment, or appliances for sale, lease, or lease purchase to school districts;

(3) a lease or other agreement that concerns equipment that a school district has purchased or leased or intends to purchase or lease; and

(4) costs associated with maintenance, repair, rehabilitation, or renovation of eligible school district facilities.

(b) Requires the amount of obligations issued by the authority under this section to be for the benefit of school districts with an average daily attendance of 1,600 students or fewer, as determined under Section 42.005, Education Code. Provides that not more than two percent of the obligations issued under this section may be for the benefit of a single school district.

(c) Authorizes TPFA to use proceeds of obligations issued under this section to pay costs of administering this section, including costs of issuing obligations.

(d) Authorizes TPFA, in connection with a purchase or project financed with the proceeds of obligations issued under this section, to:

(1) enter into loan agreements, lease agreements, lease purchase agreements, or other appropriate financing agreements with school districts;

(2) purchase obligations issued by school districts; and

(3) enter into credit agreements and exercise other powers granted to issuers under Chapter 1371 (Obligations For Certain Public Improvements).

(e) Authorizes TPFA to secure payment of TPFA obligations issued under this section with the pledge of money in the school district equipment and improvement fund established under Subsection (f).

(f) Provides that the school district equipment and improvement fund is established outside the treasury as a trust fund and is administered by the comptroller on behalf of TPFA as directed or agreed to by the board of directors of TPFA (board). Provides that the fund consists of proceeds of obligations issued by TPFA under this section and obligations and agreements issued or executed by school districts and purchased or funded by TPFA with proceeds of authority obligations. Authorizes money in the fund to be spent without appropriation and to be used only to fund activities under this section or to secure repayment of TPFA obligations. Requires interest and income from the assets of the fund to be credited to and deposited in the fund.

(g) Authorizes the board to establish funds and accounts determined to be necessary or appropriate in connection with the activities of TPFA under this section.

(h) Prohibits the aggregate amount of obligations issued by TPFA under this section outstanding at one time from exceeding $100 million.

(i) Requires the board to adopt rules necessary to implement this section, including rules prescribing requirements for school districts seeking assistance under this section, rules identifying eligible purposes for purposes of Subsection (a)(1), and rules identifying eligible school district facilities for purposes of Subsection (a)(4). Requires the board, before adopting or modifying a rule under this subsection, to consult with the commissioner.

(j) Authorizes rules adopted under Subsection (i) to establish a process under which a school district is required to obtain approval by the commissioner before the district is authorized to receive assistance under this section.

(k) Prohibits TPFA from issuing an obligation under this section on or after September 1, 2023. Provides that the prohibition imposed by this subsection does not apply to:

(1) refunding bonds issued by TPFA in accordance with Chapter 1207 (Refunding Bonds); or

(2) other obligations issued by TPFA to refinance obligations incurred under this section before September 1, 2023.

SECTION 4. Effective date: upon passage or on the 91st day after the last day of the legislative session.