DALLAS -- Texas Gov. Rick Perry Perry’s proposal to issue 100-year bonds for major infrastructure could get a hearing in a special legislative session now open to transportation issues.
Perry on Monday added transportation to the special session that is considering redistricting across the state.
"Texas' growing economy and population demand that we take action to address the growing pressure on the transportation network across the state," Perry said. "As we enjoy the benefits of a booming economy, we have to build and maintain the roads to ensure we sustain both our economic success and our quality of life."
In speeches to Republican leaders, Perry has said that “century bonds” could lock in interest rates as low as 4.1%.
In the waning days of the regular session, the legislature provided an additional $400 million for the Texas Department of Transportation, though TxDOT officials calculated that the extra funding would cover only 5% of existing needs.
Lawmakers could also consider tapping more of the economic stabilization fund – or rainy day fund – for transportation bonds, but conservatives who identify with the Tea Party have opposed any use of the account, which is made up of income on oil and gas revenues.
The rainy day fund would back $2 billion of water bonds under a bill signed into law by Perry Monday. That program still needs the approval of Texas voters in November.
While Texas issuers have avoided 100-year bonds, the long maturities have been used in other states, particularly for colleges and universities. Investors in recent years, particularly insurance companies, have been drawn to the bonds because of low yields for shorter-term maturies.
Ohio State University sold $500 million of taxable century bonds rated AA in 2011 priced to yield 4.85%, only 170 basis points above 30-year U.S. Treasuries, according to data.
In a recent op-ed in the San Antonio Express, Dick Evans, chairman and chief executive of Cullen/Frost Bankers Inc., urged lawmakers to consider using the century bonds for Texas infrastructure.
“Texas has the unique opportunity now to borrow at exceptionally low rates for the next 100 years,” Evans wrote. “Pension funds and other institutional investors are eagerly seeking high-quality investments with yield, and demand for long-term bonds issued by highly rated entities such as Texas is very high.”
“Locking in ultra-low interest rates for a century will save taxpayers tens of millions in interest costs that would be incurred when rates rise,” Evans noted. “Regardless of the interest rates, it makes sense to fund long-term projects related to highways and water with long-term debt. A century bond would offer policymakers and taxpayers long-term certainty on annual financing costs, allowing for sound and consistent budgeting.”
The special session was originally called to hold hearings on redistricting in the wake of a court order to reconsider a previous plan for violating provisions of the federal Voting Rights Act.
Legislative leaders have not expressed opinions on the century-bond idea, but Sen. Tommy Williams, R-Woodlands, chairman of the state Senate Finance Committee, expressed approval of Perry’s addition of the transportation issue.
“Transportation funding was the one bit of unfinished business coming out of the regular session that we really need to take care of,” Williams said in a prepared statement.