Texas Public Finance Authority Pre-Legislative Session Training Overview
Training overview for the Texas Public Finance Authority's pre-legislative session focusing on funding capital projects, identifying resources for state agency planning, and understanding capital budget definitions and restrictions. The session covers various topics such as sample capital projects, funding options, authorization procedures, and key contacts for further information.
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Texas Public Finance Authority Pre-Legislative Session Funding Capitol Projects April 30, 2024 Texas Public Finance Authority Lee Deviney, Executive Director lee.deviney@tpfa.texas.gov 512-463-5544 www.tpfa.texas.gov
Purpose of this Training Legislative Session Preparation Identify Resources for State Agency Capital Planning Induce Follow Up Questions Specific to Client Agency Needs 2
Additional Training Resources TPFA Case Study Training is available online at: https://www.tpfa.state.tx.us/trainingvideo.aspx Bond Review Board Debt Primer https://www.brb.texas.gov/state-publications/ Bonds 101 Texas Public Finance Seminar (January 2025) TPFA Finance Team (512)463-5544 or BondTeam@TPFA.Texas.Gov 3
Capital Projects Capital Projects have a useful life beyond the current appropriation period oBuildings oRoads oParks oInfrastructure oEquipment 5
Capital Budget Definitions and Restrictions Legislative Appropriations Request Instructions issued by LBB and OOG General Appropriations Act oArticle IX, Sec. 14.03. Transfers Capital Budget oAgency Specific Capital Budget Riders oOther Statutory Authorizations and GAA Riders 6
Sample Capital Projects State Health Laboratory Highways and Toll Roads State History Museum Higher Education Facilities o (Dormitories, Libraries and Laboratories) Capitol Complex Facilities Vehicle Fleets, IT Hardware and Other Equipment 7
Funding Capital Projects Capital Projects may be funded by: Cash (current appropriations) Debt (bond or other debt financing) Lease Purchase Public Private Partnerships 8
Authorization and Appropriation Capital Projects are authorized by the Legislature in General Law or in the General Appropriations Act. Certain bond funded projects may also be authorized by Constitutional Amendment. 9
Authorization and Appropriation State Agencies pursuing a capital project under new or existing authorization must have: 1) an appropriation to fund or finance the project, 2) Capital Budget authority, and 3) an appropriation for debt service is also required for debt financed projects. 10
Planning a Capital Project Bond Review Board and Texas Higher Education Coordinating Board Capital Expenditure Plan o Required by GAA, Art. IX, Sec. 11.03 o (Mid-April to July 1, 2024) Legislative Appropriations Request o Capital Budget Schedules o Type of Financing (cash or debt financing) o Method of Financing (fund source) 11
Capital Projects and Legislative Appropriations Request Capital Projects may be authorized by a bill that amends general law or in the GAA. The Legislature may wish to fund capital projects through the issuance of general obligation (GO) bonds. In addition to statutory authorization and appropriation, General Obligation bond financing requires voter approval of an amendment to the state constitution. 12
Capital Projects and Legislative Appropriations Request In all cases appropriations for a capital project will be required and are typically addressed in the Legislative Appropriations Request. 13
Pre-planning for new bond authority Project description What do you need the money for? Timing of funding How much money will the agency need? When is it needed? Special information Examples: Use of facility by entities other than state or local governments; management contracts; repayment sources other than General Revenue Key agency roles Governing Board, Finance/Budget and Accounting, Project Manager, and General Counsel 14
Debt Issuance is a discretionary financing tool that may be used to: Conserve current revenue Match capital project costs to useful life of the asset Manage cash flow 16
Funding Capital Projects with Debt The method of financing for a capital project is a legislative prerogative. In times of budget surplus, appropriating available cash for one-time expenditures may be attractive to policy makers. Alternatively, debt financing may help balance budgets and keep projects on the desired schedule during tighter budgets. Self-supporting projects may require debt financing to spread the cost over future revenue streams. 17
Debt Issuance is a Discretionary Budget Management Tool Because: Capital projects may be needed today but deliver benefits over a longer time period, Beneficiaries grow with population growth, and Revenues available for capital costs grow in future periods. o o o Debt is issued to: Conserve current revenue/manage liquidity, Match capital project costs to the realization of project benefits (useful life), Match project costs with future project revenues, and/or Allocate the project cost over all beneficiaries during the useful life of the project. o o o o 18
Debt Instruments A debt instrument is a contract for a loan between a lender and a borrower specifying: Term or maturity for debt security is the due date for the loan (e.g., years, months, days) Interest rate on the bond (e.g., 5%); Debt service or repayment schedule (e.g., monthly, semi-annually or annually); Revenue source pledged to repay the loan These are budget and revenue considerations. 20
Types of Debt Instruments Bonds:Long Term (5+ years) Fixed or Variable Interest Rate Notes:Short Term (<5 years) Fixed or Variable Interest Rate Commercial Paper:Days (max. maturity of 270 days) Variable Interest Rate 21 21
Sample Debt Authorizations 1. Constitutional Authorization Article III, Section 50-g (2007) authorized the issuance of $1 Billion of General Obligation Bonds for maintenance, improvement, repair and construction for various state agencies. 2. Statutory Authorization Texas Government Code, Chapter 1232 makes specific authorizations for debt financed capital projects such as office buildings and military facilities. 22
Sample Debt Authorizations 3. Lease Revenue Bond Authorization in the General Appropriations Act Appropriations Rider authorizations include: o Texas Facilities Commission Capitol Complex o Texas Department of Transportation campus consolidation o Texas Department of Motor Vehicle Headquarters project 23
What are GO Bonds? Constitutional Pledge: Legally secured by a constitutional pledge of the first monies coming into the State Treasury that are not constitutionally dedicated for another purpose Voter Approval: Must initially be approved by a 2/3 vote of both houses of the legislature and by a majority of the voters; after this approval, debt may be issued in installments as determined by the issuing agency or institution Used to finance general government functions: prisons, veterans housing and land programs, parks, roads, grants and loans Cancer Prevention and Research Institute (CPRIT) project grants Certain economic development loan programs Highways and Water Development projects 24
What are Revenue Bonds? Secured by a specific revenue source Do not require voter approval Not backed by the full faith and credit of the issuer (State of Texas) 25
Required Revenue Debt Appropriations Project Appropriation o Appropriation made to the agency to build or acquire the project Debt Service Appropriation o Appropriation made to TPFA to pay Principal and Interest on General Obligation debt Lease Payment Appropriation o Appropriation made to a state agency that will make lease payments to TPFA when the project is financed with Revenue Bonds 26
When Debt is Authorized and Appropriated for Funding a Capital Project It has been the practice of the Legislature to assign the Texas Public Finance Authority with the responsibility and authority to finance most state agency capital projects* * excluding state highway construction, water development loan programs, housing programs and veterans land loans 27
TPFA Resources for Agencies and Policymakers TPFA will assist with developing the required statutory, appropriations and/or constitutional provisions when debt (bond) financing is a funding choice or option. 28
Texas Public Finance Authority Issuing Agency Gov t Code Ch. 1232 Central state issuer for state agencies, certain universities, and other special purpose entities Issues debt as authorized by the legislature Administers the Master Lease Purchase Program for equipment and other capital projects 30
TPFA Debt Issuance History Managing $4.158 billion of bonds as of 2/29/2024 Manage Issued $27.07 billion issued to date Ongoing debt management has provided savings of over $277.2 million to general revenue supported debt Savings 31
TPFA General Obligation Financing CPRIT Project Grants Economic Development Loan Programs Legacy Constitutional Authorizations for Construction, Repair and Renovation Projects 32
TPFA Revenue Financing Programs Lease Revenue Bonds (Building Construction, Repairs and Rehabilitation) University Revenue Financing Systems (Instructional facilities and dormitories) Master Lease Purchase Program (Equipment and certain construction projects) 33
TPFA Lease Revenue Bonds 1. TPFA issues bonds. 2. TPFA provides bond proceeds to client agency to construct or acquire the facility. 3. TPFA takes title to the facility. 4. TPFA leases the facility to the client state agency. 5. Legislature appropriates lease payments to the client state agency each biennium (no legal obligation to do so). 6. Client agency makes lease payments to TPFA. 7. TPFA uses lease payments to pay debt service on the bonds. 34
TPFA Lease Revenue Bonds Debt Service Investors TPFA BOND Lease Payments LEASE Client Agency Appropriates Funds for Lease Payments Legislature 35
Lease Agreement (Revenue Bonds) TPFA leases the financed facility to the Agency. Agency obligated to: o Make rent payments (for debt service and property insurance) o Operate, maintain, use the Project for intended, specified governmental purposes o Comply with tax covenants 36
TPFA Lease Revenue Projects State Capitol Complex Redevelopment University Capital Construction and Dormitories State Park Repair and Rehabilitation Texas State History Museum Armory Construction/Improvements Admiral Nimitz Museum State Health Laboratory TxDOT Campus Consolidation Tx Dept of Motor Vehicles HQ 37
TPFA Client Agencies 1. Cancer Prevention and Research Institute of Texas 19.Texas School for the Deaf 2. Texas Agriculture Finance Authority 20.Texas Southern University 3. Texas Commission on Environmental Quality 21.Texas State Preservation Board 4. Texas Department of Agriculture 22.Texas Windstorm Insurance Association 5. Texas Department of Criminal Justice 23.Texas Workforce Commission 6. Texas Department of Insurance 7. Texas Department of Motor Vehicles Optional Use of TPFA as an Issuer Texas State Technical College System General Academic Teaching Institutions as defined by Section 61.003 of the Texas Education Code 8. Texas Department of Public Safety 9. Texas Department of State Health Services 10.Texas Department of Transportation (Governor s Office Colonia Roadway Grant Program) 11.Texas Facilities Commission 12.Texas Health and Human Services Commission 13.Texas Historical Commission 14.Texas Juvenile Justice Department 15.Texas Military Department 16.Texas Military Preparedness Commission 17.Texas Parks and Wildlife Department 18.Texas School for the Blind and Visually Impaired
Texas Public Finance Authority Resource through which agencies and universities can access debt financed capital projects o As explicitly authorized by the legislature o At the discretion of the individual agency TPFA has issued and/or is currently managing debt for many client agencies TPFA also issues special purpose debt through: o Charter School Finance Corporation o Texas Natural Gas Securitization Finance Corporation
Master Lease Purchase Program TPFA issues MLPP revenue debt to finance a purchase of personal property, equipment, or buildings. o Examples of equipment projects: airplanes, vehicles (cars, trucks, buses, vans), computer equipment, and energy retrofit projects. o MLPP may also be preferred for construction and renovation projects (Ex. HHSC statewide projects) that have long expenditure schedules where issuing debt incrementally will provide cost savings. 41
Master Lease Purchase Program The Master Lease Purchase Program ("MLPP") is a lease revenue financing program established in 1992, primarily to finance capital equipment acquisitions by state agencies. (Texas Gov t. Code, 1232.103) MLPP also may be used to finance other types of projects that have been specifically authorized by the Legislature and approved by the TPFA Board. The financing vehicle for the MLPP program is a tax-exempt revenue commercial paper program. (Commercial paper is a short- term variable rate debt instrument)
Who May Use MLPP? State Agencies and Universities A state agency" is any board, commission, department, office, agency, institution of higher education, or other governmental entity in the executive, judicial, or legislative branch of state government.
MLPP - What May Be Financed? Equipment - fixed asset, other than land or a building, used by a state agency to conduct state business. The term includes computer equipment. Computer equipment - Telecommunications device or system, automated information system, hardware and software. Energy Savings Performance Contracts, as defined by Texas Govt. Code Sec. 2166.406 (for state agencies) and Texas Education Code Sec. 51.927 (for institutions of higher education). Other projects, such as real estate or construction, may be financed through MLPP if the specific project has been authorized by the Legislature and approved for MLPP financing by the TPFA Board.
Eligibility Project Cost $10,000 minimum Individual Item Cost $100 minimum Useful life 3 years minimum
How to Access MLPP? Contact TPFA TPFA has a separate and comprehensive presentationImplementing a Master Lease and MLPP Program Mechanics
V. Legislative Authorization and Appropriations Process
Legislative Process Legislative Process Planning/LAR Project Funding Agency Identifies Project(s) Capital Expenditure Plan Submit Request for Financing to TPFA Legislature authorizes debt TPFA develops debt financing plan and obtains Bond Review Board approval Prepare Cost and Timeline Estimates Legislature appropriates debt proceeds Legislature appropriates funds biennially to pay debt service LAR: Request funding cash, or debt proceeds and debt Service TPFA issues debt and transfers proceeds to agency 48
Legislative Authorization The Legislature must authorize the specific project for which bonds are to be issued. Approvals Appropriations Specific project in statute or appropriations bill To spend bond proceeds Amounts sufficient to pay debt service Use of bond proceeds 49
Requesting Bond Authority Agency, LBB, or Legislative member provides TPFA with Draft of proposed authorizing language o Amount to be requested o Description of the project o Estimated Expenditure schedule o TPFA will prepare debt service estimates, assist with bill drafting process, and identification financing options. of available 50
