Fiscal Transparency Bill’s Impact on Certificates of Obligation

H.B. 14 by Representative Jim Pitts (known as the “fiscal transparency” bill) would impose numerous financial reporting requirements on local governments and dramatically restrict cities’ ability to issue certificates of obligation (COs). More specifically, the bill would change the number of voters needed to petition to force an election on the issuance of a CO from five percent of the qualified voters in the city to five percent of the total number of voters who voted in the most recent gubernatorial general election in the city. To see how this would translate for Texas cities, the League surveyed a range of cities on the number of registered voters in the city compared to the number of voters who voted in the 2010 gubernatorial election.

The findings show that usually less than half of a city’s population is registered to vote, but the number of voters who participated in the 2010 gubernatorial election was less than half of the registered voters. For example, a city with a population of 10,000 generally has roughly 5,000 registered voters. Fewer than 2,500 of those voters, however, typically voted in the gubernatorial election. If H.B. 14 passes in its current form, a petition of only 125 people (five percent of those voters) in such a city would be needed to force an election on the issuance of a CO.

If only 125 people in a city of 10,000 can force an election on a CO, nearly anybody could gather the adequate amount of signatures needed within an hour simply by standing outside the local grocery store.  This would drastically limit the ability of a city to issue certificates of obligation.  Cities turn to COs in lieu of bonds because of their flexibility for small projects or because an emergency requires immediate action.

In addition, many cities use COs instead of revenue bonds to build utility infrastructure projects because cities can save millions of taxpayer dollars in interest payments by issuing a CO, even though the debt service will ultimately be paid by utility revenues alone and not property taxes.  H.B. 14 would almost certainly reduce the number of COs issued by cities, which would lead to increased election costs and significantly higher interest payments on debt issuances that must be funded by local taxpayers.

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Texas Municipal League.

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