Earlier this month, the Texas Public Policy Foundation (TPPF) uncovered the amount of debt held by local governments in Texas for Fiscal Year 2019 totals $365 billion — an $11 billion increase from the previous year.
The Texan reached out to various stakeholders following the release of this information to get their take on what implications this has for the state and for policymakers moving forward.
Rep. Kyle Biedermann (R-Fredericksburg) called the amount of debt “an outrage.” Biedermann emphasized, “Spending is the problem. [The governments] keep spending so they go into more debt and to pay it off they have to spend more in taxes on the debt.”
He also criticized the state for its lack of fiscal restraint, saying, “We have to realize, the State of Texas isn’t doing a good job of fixing its spending either.” Biedermann then referred to the Texas House’s failure to pass a spending limit bill this past session.
SB 1891, authored by Sen. Kelly Hancock (R-North Richland Hills), died in the appropriations committee after passing the Texas Senate.
Bennett Sandlin with the Texas Municipal League (TML) told The Texan, “Just looking at the increase in local debt says nothing about the overall burden of local debt issuances or the taxpayers’ ability to pay.”
Sandlin then pointed to the Bond Review Board’s (BRB) most recent Local Debt Report which found total debt as a percentage of personal income (as opposed to per capita share of the debt and various other metrics) over the last 10 years has decreased 0.8 percent from 18.0 percent in 2009 to 17.2 percent in 2018 — but the chart Sandlin cites also shows an increase of 1.6 percent from 2014 after it troughed at 15.6 percent that year.
For cities in 2018, 56 percent of their debt comes in the form of revenue — which Sandlin says falls mostly on “utility customers as a charge for use of city utilities, not taxpayers per se.”
Sandlin also noted that according to the BRB, over the last five years total city debt has increased 12.38 percent compared to the state’s 28.21 percent.
Rep. Mayes Middleton (R-Wallisville) pointed to the debt figure as a catalyst for rising property taxes across the state.
“Your rent to the government is going up because of this level of debt,” Middleton said, echoing the sentiments of Biedermann.
Middleton remarked on a few things the legislature did to address bond issuances this past session — specifically regarding school districts, which amount to the lion’s share of the debt total.
One such reform is preventing the combination of bond items — specifically preventing, for example, a high school renovation and a stadium renovation from being a part of the same bond vote. Another one requires the ballot language for ISD bonds to explicitly state it’s a tax increase.
“That’s just truth in taxation right there,” Middleton stated, further adding, “It is a lie to say we can pass a bond without a tax increase because that means they could have lowered the tax rate but for the bond.”
The Wallisville Republican then mentioned he’d like to see that taken further, adding the full principal and interest of the bond also printed on the ballot; the cost over the full life of the bond to the average homeowner; the total principal and interest debt of the political subdivision asking for the bond printed on the ballot; and prohibiting a failed bond request from being placed on the ballot until five years later.
He also voiced his desire to get rid of certificates of obligation, as they are not subject to voter approval. Middleton’s biggest hobbyhorse is transparency in taxpayer funding, and he believes that would help alleviate the outstanding debt situation for local entities.
State Rep. Garnet Coleman (D-Houston), chairman of the House County Affairs Committee, echoed TML’s statement, saying, “When the state government makes cuts and places artificial tax caps on local governments, they are forced into using bonds to pay for vital infrastructure. There has to be a balance between spending, revenue, and debt, and the findings show that balance has been disrupted.”
“If we want to be serious about minimizing local debt, the state needs to be a better partner with our local governments. Additionally, the use of bonds to pay for needed infrastructure is a completely legitimate action for our local governments and that burden is not on a single government entity, but rather each local government is responsible for only their own debt,” Coleman concluded.
Rep. Matt Shaheen (R-Plano) called the debt finding “a concern.”
“You don’t want local governments to have too much of a burden that their financial position can’t support,” he added.
The local government debt situation, Shaheen pointed out, is not new.
In 2016, an analysis by Vance Ginn and James Quintero (both then at the Texas Public Policy Foundation) published in Forbes, reported Texas was second in the nation in debt per capita.
Some local governments have grown frustrated with the state for what they see is a lack of financial help from the Capitol. On that point, Shaheen stated it’s a “fair criticism” to say Texas has been more heavily reliant on property taxes to fund our schools.
He then mentioned, “Robin Hood is a terrible mechanism to fund our schools and [the legislature] took steps to address that this past session — we put over $3 billion towards reducing Robin Hood payments.”
Robin Hood is also known as recapture — the process by which money is shifted from richer school districts and given to poorer ones.
Shaheen reiterated the emphasis Middleton placed on transparency in local government finance.
As Texas booms in economic prosperity and in population, the state’s biggest issues continue to be centered on finance.
While the catalysts for the $365 billion in local government debt may be disputed by various policymakers and stakeholders, the number is simply too big to be ignored.
And it will likely remain a focus for state lawmakers, local governments, and taxpayers heading into the next legislative session.
Brad Johnson is an Ohio native who graduated from the University of Cincinnati in 2017. He is an avid sports fan who most enjoys watching his favorite teams continue their title drought throughout his cognizant lifetime. In his free time, you may find Brad watching and quoting Monty Python productions.