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 CityLab: The Great Texas Pension Fix - Houston owes its police, fire, and city workers about $7.8 billion, and it doesn’t exactly have the cash on hand. Their hard-fought solution could serve as a model for the rest of Texas, and the nation.

Not only does this story touch on city budgets, but it also illustrates the concept of states - in this case cities - as laboratories of democracy.

- Click here for the article.

When Houston Mayor Sylvester Turner took office last year, he inherited a sweeping pension crisis. The city had an unfunded liability of $5.6 billion, a figure representing Houston’s obligations to its fire, police, and municipal pension systems.

Then it got worse: After he took office and got a closer look at the books, Turner saw the revised figure—$7.8 billion.

Pensions are the storm clouds on the horizon that threaten to wash out the so-called Texas Miracle, the wave of new jobs that kept the Lone Star State afloat through the Great Recession. Taken together, the four largest cities in Texas—Houston, Dallas, Austin, and San Antonio—owe more than $22 billion in pension shortfalls. Dallas and Houston rank second and fourth, respectively, on the list of cities nationwide with the largest unfunded pension liabilities, per a ranking by Moody’s. (At number one? Chicago.)

The road to pension crises is paved with good intentions. Officials in Houston and elsewhere tend to plan for funding pensions with sunny days in mind. When markets tank, the investments contributing to pension funds wither. And when the economy stumbles, cities sometimes withhold pension contributions to make up budget gaps. These effects add up over time, and correcting course usually involves contentious politics. Texas cities may have it worse than most because the local political climate is so hostile to tax revenues (even when Texas cities experience miraculous growth). Anywhere, though, officials and employees tend to kick the can down the road. It’s retirement, after all.

Admitting that you have a problem is the first step toward solving it; cities in Texas, whether they like it or not, are being forced to take that step.

Houston is further along than most. A proposal that the city will put before the Texas legislature this year would restructure the city’s obligations. The new dispensation would include benchmarks for bringing all parties back to the table to renegotiate terms, as necessary, until the unfunded liability is funded. It would also set a time period for meeting that obligation: a 30-year amortization schedule, something resembling a traditional home mortgage.

From the Fiscal Times: $1.7 Trillion in Unfunded State Pensions Is Squeezing Vital Public Programs

A key issue on the state and local level.

- Click here for the article.

Governments across the country are facing down at least $1.7 trillion in unpaid pension costs for public workers. As these growing commitments squeeze local budgets and crowd out essential services, taxpayers are being asked to cover a larger bill—and get less in return.

Public education is the largest and potentially the most important sector to be affected by pension crowd-out. Almost every state increased teachers’ retirement benefits in the booming 1990’s, but those increases were not accompanied by responsible funding plans. By 2003 teachers’ plans were short by $235 billion, and by 2009, pension debt had more than doubled to $584 billion.

Market growth since the Great Recession has barely put a dent in the shortfall, which still totals around $500 billion. Carrying such a sizable debt is expensive and has resulted in large cost increases.

These costs inevitably cut into education spending. Between 2000 and 2013, pension contributions per pupil increased at a rate five times higher than total education expenditures. This did little to halt the growth in debt: Pension debt per pupil increased by $9,588 over this period, more than nine times larger than the increase in total annual education expenditures per pupil.

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 Washington Post: New report: In tough times, police start seizing a lot more stuff from people

It's not that new - last year - but it helps explains what drives law enforcement policy.

- Click here for the article.

Recent years have brought public scrutiny on a controversial law enforcement practice known as civil asset forfeiture, which lets police seize and keep cash and property from people who are never convicted — and in many cases, even charged — with wrongdoing. But despite a growing public outcry spurred in part by news investigations and congressional hearings, a new report Tuesday from the Institute for Justice, a nonprofit civil-liberties law firm, finds that the past decade has seen a "meteoric, exponential increase" in the use of the practice.

The government does not measure the number of times per year that assets are seized. But one common measure of the practice is the amount of money in the asset forfeiture funds of the Department of Justice and the U.S. Treasury, the two agencies that typically perform forfeitures at the federal level. In 2008, there were less than $1.5 billion in the combined asset forfeiture funds of the Justice Department and the U.S. Treasury, according to the report. But by 2014, that number had tripled, to roughly $4.5 billion.

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 Houston Press: HOW HOUSTON USES THE TIRZ SYSTEM TO BENEFIT HIGH-DOLLAR AREAS AND IGNORE POORER NEIGHBORHOODS

Early on in GOVT 2306 - in the discussion on local governments - the concept of a Tax Increment Reinvestment Zone is introduced. Simply put, its a funding mechanism - a political subdivision - that allows a defined area within a city to collect funds for projects that improve that area. These are mostly used to enhance the economic and viability of the area.

The Houston Press writes up recent controversies over the recent use of TIRZs.

- Click here for the article.

It also points out recent - unsuccessful - efforts to modify them in the 84th Legislature. The power to establish these zones dates back to the Legislative session that met in the spring of 1987 and the passage of the Tax Increment Financing Act - which is now found in the Texas Tax Code, Title 3, Subtitle B, Chapter 311.

For more on the concept of tax increment financing:

- Wikipedia: Tax increment financing.
- Wikipedia: Tax Increment Reinvestment Zone.

And more on the use of TIRz's in Houston:

- What is a TIRZ?
- Not-so-super-TIRZ.
- TIRZ funds create predicament for cash-hungry city.
- Houston's TIRZ Explosion.

City of Houston passes $5.2 Billion Budget

For 2306's look at local government:

The budget is for the fiscal years starting July 1, 2015 and ending June 30, 2016.

- Here's the document itself: City of Houston: Fiscal Year 2015 Proposed Budget.

Here are a series of links related to the process and the result:

- A time to make tough decisions.

One of the city's city council members (who represents a single member district - G and plans on running for mayor in 2015) outlines the challenges presented by the budget, namely the fact that deficits are projected for next year's budget.

- City of Houston 2015 Budget Amendments.

This lists both the proposed amendments and the response to them by the mayor's office. 63 amendments were offered. 

- Live Coverage: Houston City Council budget decision.

A Chronicle reporter tweets as the process goes forward. 

- Houston Matters: City Council Passes 2015 Budget.

A radio conversation. 

- City of Houston: Fiscal Year 2015 Annual Operating Budget Bootcamp.

This is kinda cool. It stems from a project proposed in a city sponsored hackathon. It walks you through the budget, the process, the lingo - everything.  

Is law enforcement addicted to drug money?

Andrew Sullivan looks at evidence that it is.

- Click here for the post.

Law enforcement agencies get additional revenue from forfeitures resulting from drug convictions, and they have grown used to - even dependent upon - that revenue. They are not that happy about the legalization of marijuana. Local law enforcement in states that have legalized marijuana are finding ways around it:

When voters in Colorado and Washington state approved legalizing marijuana in 2012, those votes undermined an abusive—and profitable—police practice: civil forfeiture. Unlike with criminal forfeiture, undercivil forfeiture people do not have to be convicted of or even charged with a crime to permanently lose their cash, cars, and other property. Police can then auction off that seized property and use the proceeds to fund themselves. In the 42 states that allow police departments to profit from forfeiture, that cash flow has funded both themilitarization of police and allowed law enforcement to make ridiculous purchases, including a margarita machine, a Hawaiian vacation, and a Dodge Viper.

In Colorado and Washington, the federal government processed more than $36 million worth of cash and other property in civil and criminal marijuana forfeitures between 2002 and 2012. Pursuing cannabis cases earned local law enforcement in Washington an additional $6 million to $9 million in forfeiture revenue since 2008. Nationwide, the Wall Street Journal reported the federal government scored $1 billion in forfeiture from marijuana cases over the past decade.

Legalization now threatens that forfeiture revenue for the police departments that have relied on it. Legal cannabis and the subsequent drop in forfeiture have already caused one drug task force in Washington to cut its budget by 15 percent. That’s great news for due process and property rights.

But marijuana is still illegal under federal law, so local legalization has created ambiguity in civil forfeiture proceedings. Even in states where recreational or medical marijuana is legal, property owned by innocent people is still at risk thanks to “equitable sharing.” This federal program lets local and state law enforcement do an end run around state law and profit from civil forfeiture, simply by collaborating with a federal agency.

In 2306 yesterday we looked at the following part of Article IV (Section 23) of the Texas Constitution:

The Comptroller of Public Accounts, the Commissioner of the General Land Office, the Attorney General, and any statutory State officer who is elected by the electorate of Texas at large, unless a term of office is otherwise specifically provided in this Constitution, shall each hold office for the term of four years. Each shall receive an annual salary in an amount to be fixed by the Legislature; reside at the Capital of the State during his continuance in office, and perform such duties as are or may be required by law. They and the Secretary of State shall not receive to their own use any fees, costs or perquisites of office. All fees that may be payable by law for any service performed by any officer specified in this section or in his office, shall be paid, when received, into the State Treasury.

I may be wrong, but it appears to me that the part in bold is designed to prevent the activities mentioned above. Fees collected from an activity do not do to the department that collected them, but to the general treasury. This creates a disincentive for aggressive collection of the fee, since there is no direct benefit in doing so.

A subtle restriction on state governing power. I do not know if similar restrictions exists on the local level.

Next week - in 2306 - we discuss criminal justice policy. Obviously this reality encourages aggressive prosecution of drug laws, and also encourages law enforcement agencies to lobby to maintain them.

From the Houston Chronicle: Harris County puts appraisal district on notice

The chronicle reports on a dispute between the Harris County Commissioner's Court and the Harris County Appraisal District over the latter's valuation of business properties.

- Click here for the story (needs a subscription)

The story provides insight into the appraisal process, how this is impacted by the legislature as well as court decisions, and the internal disputes between county organizations.

Some detail:

Officials said HCAD's Appraisal Review Board in recent years has agreed to set values for commercial and industrial properties that are far below what those properties later sell for, suggesting the independently governed agency did not adequately fight property owners who challenged their appraisals in court.

Commissioners Court on Wednesday took the unprecedented step of agreeing to hire independent appraisers to double-check HCAD's valuations of business properties. Court members said they would take the appraisal district to court, if necessary, but suggested their action was meant more as a warning to the agency or the Texas Legislature.

Large scale property owners have the ability to successfully challenge property appraisals, and recent changes have made that easier to do:

Radack and others cited Greenway Plaza, which sold last year for nearly $200 million more than its appraisal value, set shortly before in a courtroom settlement.

Counties statewide have, in some cases, watched their tax bases shrink by hundreds of millions of dollars in recent years as big businesses take advantage of a controversial a 1997 amendment to the tax code - a provision HCAD publicly has opposed - that was intended to make sure homeowners were treated fairly.

Lawsuits have flooded the courts since the Texas 14th Court of Appeals ruled in 2005 that tax consultants testifying for property owners did not need to use approved methods for determining value; the judge only has to believe that the testimony is reasonable.
More than 2,700 such cases involving commercial or industrial properties are pending against HCAD.

The county has hired independent appraisers to double check the HCAD numbers, but HCAD says nothing is wrong and undervaluation is due mostly to the volatile real estate market.

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.

Houston Mayor Introduces Budget

Total city spending is $4.5 billion.