Local government debt is a problem.

Every time someone says that, a well-meaning local politician from a small town appears, waving his hand in the air to get your attention.  “Not here!” he says, urgently.  “Not in our town!”

Maybe not, in his town.  But local government debt IS a problem, the kind that spreads faster than weeds in an unkempt yard.  The Texas Legislature has a few opportunities to help reign it in – notably House Bill 3416 and Senate Bill 449, legislation crafted to put limits on the issuance of capital appreciation bonds.

Capital appreciation bonds, or CABs, are bonds that defer the payments  until the bond matures – essentially creating a balloon payment on principal and interest after a substantial period, in some cases 40 years.  That’s a huge burden to place on future taxpayers (that’s “the children,” for those keeping score at home), in the name of “keeping up with growth.”  You see, CABs are especially popular with school districts that wish to sell the bond idea to taxpayers with a promise that taxes won’t go up (they are also used by cities using the money for development they don’t otherwise have the means to support).  There’s more here in a great article by Chuck DeVore.

SB 449 passed the Senate easily, with only three of the usual suspects registering opposition (Senators Lucio, Van De Putte, and Watson).  But HB 3416 is languishing in the House Ways and Means committee – testimony was taken back on April 18 and the bill left pending.  House committees have until Monday, May 6 to vote out House bills and House joint resolutions, and then the House has until close of business on May 9 to consider HBs and HJRs on second reading (click here to see what other deadlines loom).

The HB deadline isn’t the end of the story – SB 449 could still go to the House for a vote, if reported out of House Ways and Means by Saturday, May 18.  But let’s face it, if there isn’t a lot of noise, right now, local governments like Leander ISD will continue to get away with issuing these highly problematic bonds for at least another two years.

That’s a lot of time to do significant financial damage.  It’s time for the House Ways and Means committee to let one of these bills out for a vote.



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