The Senate Committee on Intergovernmental Relations has received an interim charge to study and make recommendations on the immediate and long-term fiscal impact that bonds and other types of obligations issued by local governments have on current and future generations of taxpayers. I was invited to testify at a recent hearing on this issue and presented some important information to the Committee.
Public debt is the means of financing infrastructure and distributing the cost over time among both present and future taxpayers. With over 400,000 new citizens arriving in Texas annually, additional infrastructure will be required, and these new taxpayers should assume their share of the cost.
Since the State of Texas does not provide assistance to local governments for infrastructure, these projects must be financed at the local level, primarily through bonds and certificates of obligation. For counties, these obligations are dependent upon the property tax for repayment. Local taxpayers determine whether to approve bonds and may petition for a referendum on certificates of obligations. Local voters decide whether to re-elect the county officials who propose these projects.
However, counties issue only about 7 percent of the local government debt with 66 percent issued by school districts and cities. Special districts account for the remainder. In recent years, 40 percent of the county obligations have been issued to refinance or refund obligations, ensuring the benefit of lower interest rates for our taxpayers.
Counties use debt to finance infrastructure projects, primarily roads, courts, correctional facilities and flood control. As state support for transportation projects has diminished, counties have assumed the burden of improved county roads and TxDOT projects.
As legislators consider imposing additional restrictions on the issuance of local governmental debt, please remind them that 1) counties only issue 7 percent of the local debt; 2) counties are responsible to local taxpayers for these decisions; 3) state government does not assist in the payment of these obligations; 4) extended financing equitably distributes the cost of capital improvements; and 5) counties are constitutionally limited on the debt that may be issued.
For more information, please call me at 1-800-733-0699.