Texas Debt Problems are Growing

Although the state of Texas has built a solid reputation for its business friendly policies, there is still some work to do on spending policies.

According a brief report that the Texas Public Policy Foundation released on September 24, 2020, Texas is starting to face a growing local debt problem. Per 2019 fiscal year figures, the amount of money owed by cities, counties, school districts, and special districts was roughly $240 billion. As the TPPF succinctly put it, “That’s enough government debt to send a $8,220 bill to every man, woman, and child in Texas or saddle a family of four with $32,880.”

These numbers look even more worrisome when interest is factored into the equation, as TPPF revealed, “Texas’s total local debt burden—or the amount required to fully repay all of the principal and interest owed—stood at more than $365.3 billion in fiscal year 2019.” Looking at the debt on a per capita basis, the average Texan would be on the hook for $12,513.

There are several culprits behind Texas’ current spending woes. The Bond Review Board reported that school district debt was at a total of $137.9 billion or $25,390 per pupil, while city governments had a total debt load of $113.5 billion. Combined, school district and city debt comprise nearly 70 percent of the overall total.

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The consequences of reckless spending are far-reaching. Failure to exercise fiscal restraint can leave behind onerous debt burdens that future generations will have to assume. In addition, this will lead to higher taxes, reduced economic growth, lagging business investments, and lower credit ratings.

TPPF offered the following suggestions for tackling Texas’ growing debt problem:

  • Expect Efficiency. During the last legislative session, state lawmakers passed a law requiring school districts seeking more tax money to first conduct an efficiency audit and publicly disclose the findings. In similar fashion, cities and counties should be required to periodically undergo a third-party efficiency audit of their budgets and operations. Any savings realized could be directed toward paying down debt or put aside for future capital improvement projects.
  • Require Bond Elections to Be Held in November. Bond elections should be held on the November uniform election date so as to solicit the maximum number of voters and ensure that a small minority of special interests is not unduly influencing bond elections’ outcome.
  • Establish Minimum Voter Turnout Requirements. Establish a minimum voter turnout threshold for the approval of new bond propositions and tax ratification elections. This too will help prevent the process from being dominated by a relatively small percentage of voters.
  • Reform the Use of Certificates of Obligation. Certificates of Obligation (COs) are “an instrument of public debt made available to the governing bodies of cities, counties, and certain special districts. COs can be issued ‘without voter approval (unless a referendum is petitioned) and are backed by tax revenue, fee revenues or a combination of the two.’” These instruments have been abused and need reform aimed at:
  • Achieving Greater Government Transparency. Require a lengthier notification period and make sure that the issuer has a website and that details related to the issuance are posted online in a timely manner.
  • Making it Easier for Voters to Appeal. Reform the petition process so that 5% of the total number of voters that voted in the most recent gubernatorial election can compel a public vote.
  • Using Tighter Restrictions. Because debt issuances are not approved by voters, the kind of capital improvement projects eligible to be funded with COs should be more tightly defined.
  • Audit Regularly. A political subdivision’s use of bond proceeds should be audited on a regular basis by a major accounting firm until the funds are exhausted or all projects completed. Audits should be performed at least once a year.

The Texas think also provided a brief overview of Texas’s debt numbers:

  • In fiscal 2019, local debt outstanding (principal only) was estimated at $240 billion, or approximately $8,220 owed per person.
  • In fiscal 2019, local debt service outstanding (including principal and interest) was estimated at $365.3 billion, or approximately $12,500 owed per person.
  • Among the top 10 most populous states, Texas’s local debt per capita ranks as the 2nd highest total, behind only New York.

It then offered a few concluding suggestions for the state to get its economic house in order:

  • Reform the current local debt structure to require efficiency audits.
  • Mandate that bond elections occur on the uniform election date in November.
  • Establish minimum voter turnout requirements.
  • Reform the use of certificates of obligation.
  • Audit regularly.

Liberty conservatives in Texas should not be complacent. As seen with gun policy, many Texas GOP officials prefer to remain complacent and not doing anything to address grassroots conservative demands. If Texas doesn’t wake up and nip this problem in the bud, it will become another generic blue state like California.  Liberty conservatives should lead the way and make local debt a big issue to run against.

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