AUSTIN – Today State Representative Tony Dale filed House Bill 2099 to address the unrestricted use of Capital Appreciation Bonds (CABs) by school districts or other political subdivisions.
The main difference between CABs and traditional bonds is that they do not require installment payments for the duration of the bond, which results in higher interest, potentially 10 times the amount borrowed. For example, currently a school district could borrow $187M, make no payments for over 30 years, and be required to pay back nearly $1B in interest and principle. Outlined below are the ways that this bill will limit the use of CABs and increase transparency for taxpayers.
The Capital Appreciation Bond Promoting Accountability Measures Act places restrictions on the use of CABs by all local government entities. It limits the issuance of CABs for school districts to only to “high enrollment growth districts,” limits CABs to a maximum of 25% of the entity’s total debt load, and limits the use of CABs strictly for the purchase of land and new building construction. This legislation expressly prohibits the use of CABs for technology such as computers or for vehicle purchases. Any school district with more than 25% debt in CABs has ten years to become compliant or the state will no longer back future bond offerings with the Permanent School Fund.
Transparency for taxpayers is increased by requiring the publishing of information on the school district’s website on all existing bonds. All entities who have CABs in their debt portfolio must also publish the following for each loan: the principal cost; the purpose; the full amortization schedule; the total cost of the bond if it is not paid back early; bond counsel name; underwriter name; and financial institution.
This bill would require voter approval of potential CAB issuances on the November Uniform Election Day. The ballot language is required to include the principal amount of the CAB as well as the estimated total amortized cost of the CAB if not paid off early.
Representative Dale issued the following statement:
“Today I filed HB 2099 known as the Capital Appreciation Bond Providing Accountability Measures Act. The long-term health of our public school system is critical to the quality education of our youth and to the economic vitality of Texas. In addition to ensuring rigorous academic programs, we must not allow a growing debt bubble to threaten the ability of districts to accomplish their mission. My bill seeks to increase transparency and to limit the exposure of the Permanent School Fund to the potential dangers of capital appreciation bonds. It also puts in place accountability measures so that taxpayers are protected by way of clear disclosures and by limiting the category of school districts which may use these bonds. It also limits how much debt school districts may issue using this risky financial instrument.
A full text of the bill can be found here:
State Representative Tony Dale is a member of the House Homeland Security and Public Safety Committee, the House Energy Resources Committee and the Local and Consent Committee. He represents southwestern Williamson County, Cedar Park, Leander, Brushy Creek, and parts of Austin and Round Rock.
Contact: Amy Rister