DALLAS — A freshman Texas lawmaker is trying to limit the use of capital appreciation bonds and seeking greater disclosure about outstanding debt on bond ballots.
Rep. Matt Shaheen, R-Plano, has introduced House Bill 1750, which bans the use of capital appreciation bonds, whose interest accrues until the bonds reach final maturity.
CABs are used primarily in fast-growing school districts such as those in Collin County that Shaheen represents. The case for CABs is often presented as a way to finance schools at lower cost when the tax base is forming. By the time the bonds mature, the tax base will have been built out and able to support the debt service.
However, Shaheen said, CABs can result in disaster if local governments fail to properly budget for the?eventual end payment.
"These financial instruments are a ticking time bomb of?debt," Shaheen said in prepared statement.
Under a Texas law passed in 1991, school districts must show that they can repay bonds with a tax rate of no more than 50 cents per $100 of assessed property value at the time of issuance. Capital appreciation bonds do not count against an issuer's debt limit until the year payment is due. Thus, CABs allow districts to obtain the financing when the infrastructure is most needed.
Two bills aimed at limiting the use of capital appreciation bonds failed to win passage in the 2013 session of the Legislature.
Shaheen also introduced House Bill 1182, requiring local governments to disclose the amount of outstanding debt held by the jurisdiction on?every proposed bond measure.
"It makes sense to know how much you owe before borrowing more," Shaheen said. "Texans make the same choices every day in their own personal finances—local governments should be no different."
The bill also requires local governments?to add the disclosure to a sample ballot posted on the internet before voters head to the polls.
