Texas Lawmakers Propose New Restrictions on Municipal Borrowing
In a significant move aimed at curbing local government borrowing, Texas legislators are introducing measures that could change the landscape of municipal finance. The proposed adjustments are part of ongoing efforts to exert control over municipal spending.
Proposed Changes to Bond Elections
If passed, local governments such as cities and school districts would see bond elections require a two-thirds majority rather than a simple majority. Additionally, these elections would need to take place in November, shifting away from the traditional May schedule that has been common for cities like San Antonio.
House Bill 2736 Overview
The proposed legislation, outlined in House Bill 2736, reflects Governor Greg Abbott’s initiative announced during this year’s State of the State address. This new bill aims to apply the stricter borrowing limits across all political subdivisions, including cities, counties, and school districts throughout Texas.
Rationale Behind the Changes
Supporters of the bill, such as James Quintero from the Texas Public Policy Foundation’s Taxpayer Protection Project, argue that these changes serve as essential safeguards for taxpayers. “This is a very important taxpayer protection that ensures that a small minority of voters are not responsible for massive tax increases,” said Quintero.
Bonds are typically issued by municipal entities to finance large-scale projects, with repayments sourced from future property tax revenues. This approach allows cities to leverage economic growth, which is particularly beneficial in areas experiencing population increases.
Impact on San Antonio
In San Antonio, where many residents face lower-than-average incomes compared to other major Texas urban centers, bond programs have been instrumental in funding significant civic projects while minimizing the individual tax burden. For instance, San Antonio’s 2022 bond program is set to finance 183 initiatives with an estimated budget of $1.2 billion.
Mayor Ron Nirenberg pointed out that due to historical socioeconomic challenges, San Antonio has had to explore innovative financial solutions. He emphasized the importance of using bond funds wisely while maintaining strong bond ratings.
Legislative Timeline
Should HB 2736 be enacted, it would take effect in September, in time for potential bond elections, such as the one under consideration to fund ongoing infrastructure projects related to Project Marvel. A separate House Bill, House Bill 5490, proposes a similar framework but with an effective date pushed to 2026.
Previous Restrictions on Revenue Growth
This legislative proposal follows earlier efforts to cap property tax revenue increases for large municipalities at 3.5% annually, excluding revenue from new developments. Any attempts to exceed these limits would require a voter referendum, further complicating the financial landscape for cities.
Public Sentiment and Popularity of Bond Elections
Bond elections in San Antonio have historically enjoyed substantial support among voters who participate. However, the last bond election, held in May 2022, drew about 65,000 voters from a city population of approximately 1.5 million. Notably, while essential projects like road repairs received adequate backing, proposals for affordable housing fell short of the necessary support.
Critics argue that the bundled nature of bond items can obscure specifics, making it challenging for voters to make informed decisions. Furthermore, concerns have been raised regarding the influence of contractors and developers in promoting these bond measures.
Potential Consequences for School Districts
The amendments will also influence school district bond elections, which have struggled to gain traction in recent years. Many recent proposals have failed to achieve even the current 50% threshold. Under the new rules, approval of bond funding would require an even higher bar, potentially exacerbating challenges faced by districts in maintaining essential services.
Conclusion
As Texas lawmakers navigate these changes, the implications for municipal financing and public services remain to be seen. The proposed restrictions on bond financing could reshape the financial strategies of local governments and impact the ability to undertake critical infrastructure projects now and into the future.