From the Texas Tribune: Senate bill would let Houston voters weigh in on fix to pension crisis

The question is, should they?

- Click here for the article.

If the Texas Senate gets its way, Houston city officials could have to get voter approval for a plan to partially shore up massive, multi-billion-dollar shortfalls in some of the city’s public pension funds.

The Senate on Wednesday voted 21-10 to give preliminary approval of a bill that would require voters to sign off before cities issue pension obligation bonds, a kind of public debt that infuses retirement funds with lump-sum payments. Issuing $1 billion in those bonds is a linchpin of Houston officials’ proposal to decrease the city’s unfunded pension liabilities that are estimated to be at least $8 billion.

Houston Mayor Sylvester Turner told The Texas Tribune earlier this month that if the bill becomes law and voters reject the $1 billion bond proposition, a delicate and hard-fought plan to curb a growing pension crisis would be shrouded in uncertainty. He also argued that the debt already exists because the city will have to pay it at some point to make good on promises to pension members.

But lawmakers said voters should get to weigh in when cities take on such large amounts of bond debt.

From CityLab: The Stadiums That Ate Texas Why are these Dallas suburbs funding the most expensive high school football stadiums ever built?

Good question.

For 2306 - mostly.

- Click here for the article.

In Texas, the old hands say there are only two seasons: spring football and fall football. But lately there’s a year-round game getting played as well: the competition to build the most expensive high school football stadium in the world.

Why would relatively small exurban school districts like McKinney build enormous football stadiums that will sit empty most of the year (and are often less than half-full even on game day)?

Part of the answer involves the area’s projected future growth. The town’s population has tripled over the past fifteen years. In the 2000 Census, McKinney had 54,369 residents. The most recent estimate (July 1, 2015) put the population at 162,898. Rick McDaniel, superintendent of the McKinney ISD and a former high school football coach, seems to be confident that the spectacular new McKinney stadium will soon fill up. “We’re visionaries,” he told the Dallas Morning News, and said that the stadium was part of “a vision for McKinney ISD that will propel us forward for a long time.” (His office did not respond to requests for comment for this story.)

The structure of the Texas school system also seems to encourage such infrastructure spending. By law, each ISD board has the power to call referendums when they choose to raise bond money. They act and can raise funds separately from their local municipal governments. But the bond money can go only toward construction and renovation of facilities, acquisition of land, and purchase of equipment, not toward expanding education opportunities for students or paying for teachers. (Texas ranks 38th out of 50 states in per-pupil education spending; in McKinney, per-pupil expenditures totaled $7,345 in 2013, compared to a national average of $11,841, according to an Education Week analysis of federal data.)

Curtis Rath, a McKinney community activist and blogger on city politics, has been an aggressive critic of this arrangement on his site, Texas Transparency; there, fans and foes of the McKinney stadium project hotly debate the issue in the comments. Rath argues that firms that stood to benefit from construction projects joined forces with local landowners, contractors, boosters, and school officials to market the benefits of high-profile school structures to McKinney voters. “They sold it by overstating the need for the new stadium,” he says.

Along with the political and business forces pushing to build new facilities for which there may be questionable need, there’s also the “wow” factor. Like many fast-growth Sun Belt communities, the burgeoning municipalities north of Dallas span vast landscapes interlaced by highways, office parks, and new housing developments. With all of these towns scrambling for residents and businesses to move into their new neighborhoods and shopping centers, splashy sports facilities serve as branding tools.

McKinney City Manager Paul Grimes says that the new stadium will help him better market the town as it competes with Allen, Frisco, Plano and beyond. “While it is a significant investment,” he says via email, “the stadium will…help to attract visitors and families to our rapidly growing community.”

From the Cancer Letter: Slamming the Door - How Al Gilman Taught Texas a Lesson in Science

I'm editing the 2306 slides for Article 3 of the Texas Constitution and ran across this article related to the Cancer Prevention Research Institute of Texas which is the subject of the final section. This look sat the politics surrounding the institute, including the money grab that seems a natural consequence of making $3 billion available.

- Click here for the article.

And a taste of what's in it:

Planeloads of academics would come to Texas to review CPRIT scientific grants. Scientists who reviewed research proposals for the state-funded institute would later tell me that they had never served on a better peer review committee. For the first two-and-a-half years, the system worked smoothly.

There were no separate study sections for specific areas of research. The review committees were broadly constituted: basic, translational, clinical. There were no quotas for cancer type or research approach. There were no quotas based on geography. There were no quotas for science versus commercialization. The state law mandated that up to 10 percent of the funds were to be spent for evidence-based cancer prevention programs. The rest went to peer-reviewed science, including grants to companies, which were reviewed for both scientific quality and commercial potential.

Gilman walked into his office fully realizing that the job of CPRIT Chief Scientific Officer would entail working around bureaucratic absurdity and Texas-sized egos. But even being a seasoned academic politician, he could never have predicted that he would ultimately end up turning whistleblower in the name of defending of peer-reviewed science.

A year before his death from pancreatic cancer, Gilman sat down with me and provided a detailed account of his epic battle to protect public money from what he described as an arrogantly conceived, sloppily executed incursion. The stories of the ungluing of CPRIT and controversies at MD Anderson Cancer Center developed concurrently.

. . . The 11-member oversight committee provided no shield from political meddling. Indeed, Gilman used to say that only one of its 11 members knew that cancer was spelled with a “c.” (That wise man would be Joseph Bailes, an oncologist.)

And, finally, there was a proposal for a $20 million biotech incubator that was going to be located at MD Anderson Cancer Center.

Through this proposal—and the role of Lynda Chin, a senior scientist and wife of that institution’s president, Ronald DePinho—the problems at CPRIT merged with controversies over interactions between MD Anderson leadership and private industry. Gilman’s resignation brought these controversies to the attention of scientists and the public.

“I built something I am proud of, and now it’s being taken apart,” Gilman said to me at the time. “I can’t work for people who are pushing their own interests at the expense of the interests of cancer patients.”

Gilman was disappointed but not surprised.

“A wise and experienced friend said to me: ‘This is always the way it works when you put a large amount of public money on the table. The vultures and the hyenas lie low for two or three years to see how the system really works. And then they come in for their feast.’”

From Investor's Business Daily: In Fast-Growing Texas, Local Debt Has Soared -- Now, Who'll Pick Up The Tab?

Yes Texas is debt ridden besides its claims to have a balanced budget. We just tend to look in the wrong places for it.

- Click here for the article.

Though Texas's state government has a reputation for fiscal moderation, its localities collectively owe about $213 billion, up from $130 billion in 2006. In 2015 alone, the Texas Bond Review Board reports, localities issued nearly $39 billion in new debt, compared with $20 billion a decade ago. The board now estimates the state's per-capita local debt -- $8,350 -- to be the second-highest in the nation, trailing only New York's $10,465 debt per person.

The Texas debt frenzy's apologists contend that the Lone Star State's situation differs from those of other heavy-borrowing states like New York, Illinois, and Pennsylvania. New York has managed to amass its record obligations despite nearly stagnant population growth of just 401,000 people, a 2.1% increase, during the first decade of the new millennium. Texas's population, by contrast, expanded by 4.3 million, or nearly 21%, during that same period.

New York's school enrollment, a key factor in education borrowing, has shrunk by 6% since 2000, meaning about 180,000 fewer students in classrooms. In fast-growing Texas, by contrast, the schools have swelled with 1.1 million additional students, a 30% increase, since 2000.

Texas officials have rushed to build the most basic projects needed to accommodate so many newcomers. School-district borrowing accounts for 34%, or $72.3 billion, of the local debt -- the most of any category. Another major borrower: water districts, which are working to install essential hydration and sewage systems to help transform undeveloped land into new communities before new residents, and their tax dollars, even arrive.

But some critics point to troubling signs that the debt surge is also fueling a massive growth of government. Local debt has been rising at about twice the rate of population growth, plus inflation. The increase in school debt has been particularly alarming. In a 2013 study, the state comptroller's office found that over the previous ten years, debt more than doubled even in districts with falling enrollment. The cost of servicing new debt rose 125%, more than double the rate of spending growth.

To borrow all this money, Texas localities have resorted to financing techniques typically associated with struggling communities looking to push costs off into the hazy future. Texas municipalities have made liberal use of so-called capital-appreciation bonds, which let the issuer make no payments to bondholders for years. Such bonds often increase the total amount that a community must pony up over the long term, meaning big bills for future taxpayers.

From the Houston Chronicle: Municipal Utility Districts in Texas have sweeping power to sell bonds, levy taxes

MUDs are among the smallest of the special districts, and are primarily a device used by developers to fund infrastructure, like "water and sewage systems, drainage, parks, recreational facilities, roads and fire stations." The Chronicle reports that their numbers are increasing, which increases the amount of debt held in the state - a state like likes to brag about not having any. Multiple other complaints about them exist as well, as this story lays out.

- Click here for the article.

Across bright-red Texas, where many politicians tout small government and low taxes, MUDs and other so-called special purpose districts are proliferating - and selling bonds - at a rate many experts inside and outside government find increasingly problematic. They cite high indebtedness, insufficient state oversight, cozy relationships with developers, a lack of responsiveness to citizens and potential conflicts of interest. MUDs can be created either by the Texas Commission on Environmental Quality or the Legislature.

Their spread throughout the prairies that once surrounded Houston and other municipalities has helped fuel "growing unrest" about the property tax burden in Texas, said John Kennedy, senior analyst for the Texas Taxpayers and Research Association, a nonprofit group based in Austin. Many taxpayers like Gay find it hard to track all the property tax bills they receive from counties, school districts, MUDs and other special purpose districts, Kennedy said.

"Those special purpose districts sort of operate in kind of a semi-netherworld out there," he added.

There are 1,751 active water districts in Texas, a class of special purpose districts tracked by TCEQ, ranging from large river authorities to tiny irrigation districts, including 949 MUDs, according to the state.

The epicenter of water district financing: Houston's suburbs.

Forty-four percent of those 1,751 districts are in Harris, Fort Bend and Montgomery counties. Sixty-five percent of the 949 MUDs are in those three counties - 389 in Harris County, 146 in Fort Bend County and 85 in Montgomery County.

MUDs are the most popular type of water district in Texas with developers, in large part because they hold enormous sway over how they're created and because MUDs are empowered to issue tax-exempt bonds covering the developers' infrastructure costs.
Taxpayers' advocates increasingly view them as a problematic way to pay for infrastructure in the face of climbing local government debt, given their sweeping power to sell bonds and raise taxes.

 

From the Houston Chronicle: Houston senator’s work raises questions of conflict of interests

In 2306 we discussed a central problem in amateur legislatures. where the general session s very short and legislators paid very little, the expectation being that they work full time in the real world. Legislators often have conflicts of interest. The work they do as part time legislators can go hand in hand with the work they do in their full time jobs.

This may be an example.

- Click here for the article.

Over the past 26 years, state Sen. Rodney Ellis, D-Houston, has voted to confirm gubernatorial appointments to the Lower Colorado River Authority, a powerful electric utility in central Texas.

During the same time, financial firms he either owned, worked for, or owned stock in have profited handsomely by helping underwrite $3.7 billion in bonds sold by the authority.

His impressive legislative record is well-known — 676 bills he has authored or served as the lead Senate sponsor have become law, including major reforms to Texas’ criminal justice system, schools and community colleges.

But because of Texas’ lax ethics law, much less is known about Ellis’ equally impressive career in the lucrative government bond business, which has repeatedly placed him in a position to exercise authority over local governments and public agencies whose bond proceeds were being used to pay Ellis’ firms.

His dual role as lawmaker and bond underwriter has left him straddling the line between politics, municipal finance and public policy, raising questions about potential or actual conflicts of interest, or the appearance of conflicts.

Since first being elected to the Texas Senate in 1990, Ellis has been involved directly or indirectly in municipal bond deals totaling $120 billion in Texas, an analysis by the Houston Chronicle has found. Nearly all of those deals have involved several firms doing “underwriting” — when firms are chosen or bid to buy bonds from a government agency and then sell them to investors.

The cost of issuing government bonds is about 1 percent of the bond’s principal amount, or $1 million for every $100 million in bonds sold. About half that issuance cost, or $500,000, would go to underwriters’ fees, according to Public Sector Credit Solutions, a California-based research firm which examined 800 bond deals nationwide since 2012.

From the Houston Chronicle: City bond rating downgrade reflects oil bust, pension problems

What is impacting the state, is also impacting cities.

- Click here for the article.

The sluggish oil market and Houston's underfunded pension funds led Moody's to downgrade the city's credit rating this week, a move that underscores the challenges Mayor Sylvester Turner faces in wrestling the city's finances into shape. 

The change, the first time Moody's has revised Houston's rating in at least a decade, is expected to marginally increase the city's borrowing costs. But the announcement's real weight, observers said, will be the psychological impact at City Hall. Turner announced Friday about 40 layoffs will be needed to balance the budget he is preparing to submit to the City Council.

"It only reinforces the need for us to address these long term systemic problems we have," said Controller Chris Brown, the city's elected financial watchdog. "It heightens the sense of urgency."

Turner agreed the Moody's report - which chiefly highlighted continued weakness in oil prices, the pension burden, and a cap on city property tax collections - "without question" underscores the need for a fiscal fix.

While Turner said the oil market is outside his control, he pointed to the praise the Moody's analysts gave his administration for beginning work on a longterm plan to shore up the budget.

"They did note ... that we are taking conservative projections," Turner said. "The road map to balance the city's budget is already finished on my part. In the absence of the changes that we have already taken, it probably could have been worse."

Turner said he hopes to present council members with a plan in mid-April explaining how he will bridge a budget deficit that had been estimated at $126 million. Falling sales tax collections have pushed projections as high as $160 million.

The revenue cap, which voters approved in 2004 and modified two years later, lets Houston collect more property taxes each year than the year prior, but limits the increase to the combined rates of inflation and population growth.

For more on the subject:

- Moody’s Downgrades Houston’s Bond Rating, Cites Low Oil Prices & High Debt.
- Moody's Downgrades Houston's Credit but Mayor Turner Has a Plan. Sort Of.
- Houston Undaunted by Downgrades Ahead of $600M Deal.

Bonds, Bonds and more Bonds!

Texas Watchdog has a couple items on the assortment of bonds that will be on the ballot in the upcoming election. The first takes a critical look at the one that will be on our ballot, the one asking AISD voters to approve over $250 million in spending on several new campuses.

- Small town wants to build 5 of the costliest schools in Texas history. The author takes issue with the amount of money spent on school construction in the state. He also points to a potentially cozy relationship between something called the Fast School Growth Coalition - which hopes to eliminate caps on property taxes - and the Texas House Public Education Committee. It seems that the daughter of the chair of the committee lobbies for the group.

- Light turnouts, low information hike local debt in Texas. Here the author looks at the dynamic of bond elections and points out that many pass - he claims a 75% passage rate - largely because proponents of the bonds are able to take advantage of low turnout and low information and persuade a sufficient number of voters that the expenditures are in the best interests of their communities. He also points out that while the governing entities that are proposing the bonds cannot advertise for them, the interest groups that will benefit from them can and do.

The author also points to a handy page on the comptroller's website that lists all of the bonds on the various ballots throughout the state this November.

- Texas Transparency: Upcoming Bond Election Roundup.

From the Fiscal Times: 5 Things You Must Know About Our National Debt

This is as good a place as any to get a handle on the national debt, the issues associated and the conflicts over what to do about it and whether it is a pressing economic problem, or simply a political issue.

We will unpack the nature of the debt - what it is exactly - soon enough, but to get a look ahead click here and here. 

We will also later discuss how the debt is incurred. Put simply, the US gets into debt when it needs to sell treasury bonds to pay for items that it is obligated to pay for by law, but that we do not have the tax revenue to pay for. These bonds are offered in the open market at rates determined somewhat by the market (we'll wade into details soon enough). If the market consideres these bonds to be safe, the interest rate is low. If the market considers the bonds to be risky, the interest rate is high because that will guarantee the bonds holders will make money on the bonds even if they might be defaulted.

The question is this: When does the nature of the debt start to convince bond hoders that treasury bonds are risky? What is that level? Can we determine this ahead of time and adopt strategies to deal with it?

The article pooints out that a central dispute right now concerns goals. Should the gal right now be to pay down the debt, or to stabilize it? Democrats prefer the latter, Republicans the former. Much of the controversy right now over budget plans comes down to that dispute. Republicans are more likely to say we are at crisis levels, Democrats are not.

So while there is a shared assumption that excessive debt is not good for the nation and can suffocate the private sector, there seems to be no consensus among economists on what level of debt does so.

Right now the debt is 76% of GDP - which is double the historic rate of 39% of GDP. What debt to GDP ratio pushes the US over the edge? What is the tipping point? Soon after WWII, the debt to GDP ration was around 120%, but was quickly paid down.

The author toys with the problems posed - possibly - when the ratio hits 80% or 90%. We don't really know what the result is because if we cut spending right now when the economy is still struggling. Debt can be caused by a slow economy since it will not create the revenues that allow for the debt to be paid down. this is the argument against austerity. Paying down the debt prematurely can hamstring the economy which leads to greater debt.

The author states that it matter who holds the debt. Some of our debt is held domestically, by Americans. But some is held by foreigners, which creates risks. In Japan, most of their debt is held domestically so their 220% debt to GDP is tolerated. That might not be the case with US debt.

The author concludes by stating that bondholders need to have some level of trust in the ability of elected leaders to handle crises effectively. Stable debt to GDP ratios means nothing if levels of trust are low. 

More on the rise in local debt

This builds off a post below regarding the rising level of local debt in the state.

The Texas Comptrollers office has released a report - Your Money and Local Debt - pointing out the rising level of local debt over the past ten years. She argues that not enough information is provided people about the amount of money already owed "for roads, schools and other public projects."

The Chronicle comments on the plan, and point out that critics argue that increased local debt is a consequence of decreased state support for local services. They add this nugget from Harris County Judge Ed Emmett:

Although Harris County has no bond proposals on the ballot this fall, County Judge Ed Emmett criticized the report's use of population growth and inflation as a benchmark to compare spending and debt. The state built the University of Texas and Texas A&M University with proceeds from oil discoveries, Emmett said, and could not have done so if it had been constrained by that alone. "The Ship Channel, the highway system, all those things were built in anticipation of future growth, not waiting until you get the growth and then saying, 'OK, now you can spend the money,' " he said.
Emmett stressed the difference between debt backed by property taxes and that backed by revenues, such as tolls paid to the Harris County Toll Road Authority.
Combs acknowledged that "there is plenty of good debt" that voters approve to help finance highway and water-related projects, for example. Still, she charged that too many governmental bodies are piling up debt without regard to its impact on future generations of Texans. "Have they done all their due diligence? Have they tried as hard as they know how to be strategic, to be careful?"

She makes this recommendation for how referenda for bond approvals ought to be presented to the public:

Combs suggested several ways to make debt obligations more transparent. As new debt is presented to voters for approval, her report recommended including on the ballot the amount of outstanding debt, debt service, per capita obligation, the amount of new debt, estimated debt service and the estimated per capita burden for proposed bonds.

Local debt increases in Texas

Here's a story from Quorum Report about the rising debt in local governments (local jurisdictions they're called in the story) in Texas. It amount to an increase of 36% to a total level of almost $193 billion.

The details are contained in a report issued by the Texas Bond Review Board, as presented to the Pensions, Investments and Financial Services Committee. Part of the problem is that the state has shifted financial burdens to local governments and still uses "antiquated state funding formulas" to determine what level of funding is required by the state to local jurisdictions.

Here's the full story:

Jurisdictions across Texas now carry debt on the books of almost $193 billion, an increase of a third over the last five years and a total that keeps the state pegged as having the second heaviest local debt load in the country.

The Texas Bond Review Board, bowing to public interest, has published its first report on that debt. Executive Director Bob Kline told the Pensions, Investments and Financial Services Committee the increasing debt load is the results of local jurisdictions that moved forward with debt at the height of economy.

“Local debt has increased by 36 percent over the last five years, to $193 billion,” Kline said. “That’s a lot of local debt issuance.”

According to a report issued by the Texas Bond Review Board in May, debt issues by local jurisdictions breaks down as roughly a third to school districts, a third to municipalities and the balance to various other jurisdictions. The total debt per capita has risen from $4,359 in 2002 to $7,507 in 2011.

No jurisdiction has teetered on the brink of bankruptcy in Texas, as they have in other states, but Kline still sees the stressors on local jurisdictions. On the other hand, cities and school districts have steeply increased bond re-fundings. In most cases, the re-fundings bring down interest costs on outstanding bonds.

“That’s a positive out of this,” Kline said. “I think the concern is that the erosion of the tax base and the ability for the debt service to occur.”

Former Superintendent Joe Smith, who tracks school bond and tax rate elections over at the website Texas ISD, agreed that school districts are under additional stress to repay bonds out of current revenue. Despite those limits, many school districts strapped for cash have turned to bonds to pay for items that once came out of operating expenses, such as district-wide technology upgrades.

“I see the stress on funding, even on the operating side,” Smith said. “School districts oftentimes are funding things off of bonds that they once funded off of maintenance and operations.”

The state also has failed to keep up its end of the bargain when it comes to sharing the cost of bond issues, Smith said. The rate for equalizing debt hasn’t been changed in more than a decade, and because it’s equalized to 1999 levels of property wealth, fewer districts qualify for the state subsidies.

“That rate hasn’t changed since 1999, and so more of it is falling on the districts, and the districts don’t have any avenues for meeting the need except for bond issues and tax increases,” said Smith.

Growth hasn’t stopped in Texas, Smith said, but the number of bond issues that have been called in recent years has declined steeply. Putting together a plan to pay off bonds is tough, especially for property poor districts, which typically have much longer bond terms than their property wealthy counterparts, Smith said.