Aug 21st 2015 | Posted in Legislation/Policy by J Lyn Carl

Photo by Lending Memo is licensed under CC BY 2.0

Photo by Lending Memo is licensed under CC BY 2.0

When a local bond issue fails, officials of the governing entities that called the election have a few options for further trying to secure the money for projects those bonds would have funded. That list of options will soon get a little shorter.

In the past, some entities have worked to trim down the costs of a failed bond election, paring out some of the projects that might not be absolutely necessary before putting the issue before voters again. Others, feeling that voters turned down the proposed bonds because they didn’t fully understand the necessity for the projects, launched public education campaigns to better familiarize the public with the bond issue – hoping to garner their support.

A third option is to forgo another bond vote and just issue certificates of obligation (COs) to pay for the failed bond issue projects. COs do not require voter approval.

That option is going away Sept. 1, when legislation from the 84th Texas Legislature, HB 1378, becomes law.

Most voters historically will support bond issues for projects that are vital to their communities and the local economy – such as new construction or expansion for public schools dealing with overcrowding, or for transportation infrastructure upgrades on aging roads and bridges or those damaged by increased traffic or extreme weather conditions.

But, in cases where bond issues have failed, government officials have always had the option of using COs to complete projects that did not pass muster with local voters.

HB 1378 addresses financial transparency and accountability of municipalities, counties and hospital districts regarding their debt obligation. But, it also includes a provision that revises the current law and now prohibits (with a few exceptions) those entities from using certificates of obligation to pay for projects that voters turned down in a bond election during the preceding three years.

Representatives of both the Texas Municipal League (TML) and the Texas Association of Counties (TAC) say they don’t expect any far-reaching effects from that portion of the bill. In fact, says TAC’s County Relations Officer Lonnie Hunt, instances where COs have been used to fund failed county bond projects in Texas are “rare.”

TML Executive Director Bennett Sandlin echoed that sentiment. Sandlin even called it “urban legend” that cities use COs to purposely avoid seeking voter approval for bond projects. Most mayors actually prefer having to ask for voter approval, he said, and would “rather have the cover of a bond election” than to have taxpayers accuse them of trying to run an “end-around” by skirting taxpayer input.

Sandlin said that most cases in which city officials will use certificates of obligation are “in times of public calamity,” when the city must address an immediate problem but can’t wait until the next available bond election date. COs also are often used when federal mandates have to be addressed immediately and COs are the quickest way to get the money to fund a project. But neither is an attempt by local officials to bypass citizen input.

Opposition to the legislation voiced by one Texas county official might also be shared by others in either rural areas where population is sparse or in larger counties where the needs of one area of a county are decided by voters throughout the entire county. Nueces County Commissioner Oscar Ortiz says his opposition to the bill stems from the fact that he doesn’t think county officials should have to go to the voters to approve every county project on the drawing board. Some voters are reluctant to back projects that don’t affect them directly, he noted.

“Sometimes you have infrastructure needs that are in the outlying areas that some of the people within the City of Corpus Christi are not going to be in favor of,” he said in a recent interview with a Corpus Christi TV station, making a case for continuing to allow certificates of obligation to be used to fund failed bond projects.

Sandlin and Hunt said local officials make decisions they will have to live with every day, facing their constituents at every turn – in the grocery store, at church, at a local restaurant. Going forward with a project that voters have already turned down would not make sense, especially when it comes to increasing tax burdens.

“Taking on debt is a big deal,” said Sandlin. So is transparency and avoiding putting bigger tax burdens on the backs of taxpayers.

And, local governments are doing a pretty good job of being good stewards of tax dollars and keeping the tax burden low. “Everyone is concerned about government debt, but I think it’s important to keep things in perspective,” said Hunt.  “The fact is, on a per capita basis, county debt is less than one-third of the state’s debt.  According to figures from the Texas Bond Review Board, the per capita debt of Texas counties in 2014 was $524.14, while the per capita debt of the State was $1,644.36.”

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J Lyn Carl

J. Lyn Carl is a Contributing Writer at Strategic Partnerships, Inc. and a former editor of the firm’s two weekly newsletters, Texas Government Insider and Government Contracting Pipeline. She is an award-winning journalist with more than 20 years of experience working as a reporter, editor and photographer at several Texas newspapers.