What's at Stake in the Texas Legislative Session in 2025

Our panel of experts will provide an overview of the most pertinent legislative and regulatory developments impacting the Texas' muni industry.

Transcription:

Jordan Sawyer (00:09):

Thank you so much. Yeah. As you said, panel here is what's at stake in the Texas legislation legislative session in 2025. We have our panelist here. Just a quick introduction. We have Vernon Lewis. He's the Director and Deputy Controller for the City of Houston Treasury Department. He's in charge of overseeing over $14 billion in debt portfolio, a $6 billion investment portfolio in the entire depository system. Mr. Lewis' experienced in finance and accounting sector with an emphasis on debt and investment. And he also serves at the youngest member of the board of directors of the Association of the Durham College of Business and also for the US and Canada Association of Public Treasurers. And then we also have Clay, Clay Holland. He's a Partner at Hunton down in Houston. He's experienced serving in bond council underwriters, council bank counsel, as well as before entering into the private sector. He worked for the assistant Attorney general's office here in Austin. So we also had Amanda Brownson at TASBO. She was unfortunately unable to make it this morning, so some of our school district information will be shifted a little bit. So just quickly, Vernon, can you just tell the group here a little bit about what you do at the comptroller's office and how you interact with some of the professionals here?

Vernon Lewis (01:21):

Sure. Well, good morning everyone. I know it's a little bright and early, so I'm going to repeat it one more time. Good morning everyone. I know I was with some of you all last night, so I need you guys to wake up if I'm up here talking to all of you right now. So good morning. My name is Vernon Middleton Lewis. I serve as a Deputy City Controller and Director of the Treasury Department for the City of Houston. And so as Jordan alluded to the city controller's office, essentially three principals. One is regarding audits, the other one is deals with certification of funds, and the last one is dead issuance for those in the room. What is that? But the controller's office essentially has five divisions. That's all part of it. And we operate the workhorse for the City of Houston. The operations, as I mentioned as it relates to certification of funds, pays city vendors for all the vendors that works in the city of Houston to do all the capital projects and infrastructure needs that we have.

(02:14):

The city controller office is responsible to pay them. In addition to that, we have the financial reporting. So the financial reporting office deals with the ER as the controller LU yesterday. We have successfully has the PAC for which now 300 pages to down 20 pages. So thank God for that. I know I am sick reading 300 pages, but that's essentially what the Finance Reporting office do now to the meat of the whole controller's office is treasury. Treasury has three head horse. We have an investment, which is about $6 billion that we manage internally without any financial advisory. And we also have the debt, which is $14 billion that we manage in the depository service for the city of Houston, which is the banking system. So all divisions and departments in the city of Houston, essentially within that scope that I mentioned, are all housed in the controller's office, who is the controller who essentially is the financial watchdog, the CFO for the city, making sure waste, fraud and abuse and taxpayer dollars are spent efficiently and effectively.

Jordan Sawyer (03:17):

Perfect. Thank you so much. And Clay, we were going to talk to you about what it's like to be a lawyer, but that doesn't seem very exciting. So instead we're going to say, thinking back in your time at the AGs office, can you just give us a thought of how the AG is interacting and with this part of the legislative session and how it's impacting review of current projects or ongoing projects?

Clayton T. Holland (03:39):

Sure. I think the good news is that the legislative proposals won't directly or immediately impact their review of ongoing projects or transactions like the rest of us. They're busily keeping track of proposals, trying to determine the impact on their process and the legal authority for transactions throughout the state. But unlike litigation or as we saw recently with some housing finance corporation transactions, official formal ag opinion requests, which those two can prevent or restrict the ability of the ag to approve current transactions. That is not the case for legislative proposals and we'll need to wait until we see what gets passed and the effective date of those past bills. The default effective date is September 1st, but that can change, excuse me, if both houses approved by two thirds majorities. So we'll see what happens. And I'm sure they're tracking the process. I mean, I think it's a good kind of the underlying question reveals that the public finance division is housed while their role is performing a legal review to determine the authority for transactions. They are housed in a political department with oversight from the executive administration. And so we do see as bond related issues become more politicized. And I think we see that they have been, certainly, we might see positions being revisited or relevant law being kind of construed in different manners. But again, that's not immediate and not direct. So we'll see.

Jordan Sawyer (05:32):

So we all have a few more months and nothing to do in the middle of that. Right.

Clayton T. Holland (05:34):

Yeah.

Jordan Sawyer (05:36):

Well, perfect. So just kind of an overview of our conversation here for the crowd here, we're planning, first off, wanted to mention we are planning to take questions at the end. I believe there'll be mights either set up or we'll have mights available for the questions. We're really going to focus broadly on four topics here, specifically on debt limitations on non voted debt on elections. And then we have a little bit of miscellaneous at the end and we may throw a couple of school things in, but I think we'll save most of the schools for a later conversation. And really, like I said, we're focusing most of our conversation on themes rather than specific bill numbers. I told our helper here that I was going to just start reading off random numbers and they said that that was not a good idea. So I've had to shift my entire conversation to just come up with actual words instead. But so getting into the conversation, one of the first ones I know that is on a lot of people's mind, we'll use a number here is HB 19 and just limitations on dead issues. So is there any big things y'all are seeing on just limitations on issuing debts that's coming out of HB 19?

Clayton T. Holland (06:39):

Yeah, HB 19 is interesting. It's kind of oftentimes we're scattered trying to manage lots of different bills doing different things. HB 19, the benefit and the drawback is they've compiled many of those ideas into one item of legislation with kind of a higher priority. So inevitably some version of it will likely make it through, but it does provide a helpful focus point for the industry to provide feedback. But I mean it has 20 sections, all of which address different aspects of debt issuances ranging from cash deficiencies to eliminating may bond election dates. So consolidating all debt elections to the November uniform election date. Currently language includes a cap on debt that's tied to the average of the property tax collections, property tax collections over the prior years. So there's lots in there, and I know everyone's working diligently to provide feedback. The bill was scheduled to move forward quicker than it has. So there's been a slowdown, I think as people have been providing feedback. And thankfully the legislative staff has been open to receiving input and working through some proposals to address tweak, revise some of those languages. But I think we're going to see some new limitations.

Vernon Lewis (08:21):

So for the city of Houston House Bill 19, be honest with you, it sucks. I'm going to be honest with you, I'm going to be as frank as I can be. If you turn the keynote for the city controller, I'm part two here. So yeah, it sucks.

(08:35):

So the house bill 19 is not a prohibition, but it's definitely a restriction on valorian taxes that we can collect. The city of Houston, like other major metropolitan areas, has two sources of revenue, sales, profit tax. We understand what happened to covid when cell tax plummeted. So we're trying to get out of that hump as of today. Now we're talking about a bill that essentially is going to say, Hey, we're going to limit what you use your property taxes on capital debt issuance, meaning that a debt service that we pay off for the revenue will be limited. So that means we're going to have to create a shorter amortization schedule. We're going to also have to be prioritizing our capital project and needs. And most importantly, you all would not have work in the city of Houston. And so this is not something where the city of Houston, and I can speak for the controller as well, that we wanted to support. We understand that the need of it, we understand that technically the m and o or maintenance and operations need to be used for those Avalara taxes. That's completely fine in all nature. However, in order to create public safety infrastructure projects such as the terminal for the hobby or the terminal for the bush and the continental or municipal course expansion, those are essential services that we need in the city of Houston to create the ever-growing need for all the residents and taxpayer that we currently serve.

Jordan Sawyer (09:57):

And really, especially with kind this three-year period, I mean, how does that, from a controller looking backwards, looking forward, how is that impacting your ability to project what you need?

Vernon Lewis (10:07):

Sure. I mean, it is no stranger that the city of Houston has a financial budget deficit 300 million plus. And so this does reduce flexibility and have budget constraint of what we can utilize for any sort of project needs. And so right currently now we're in a proposed budget where we're trying to figure out how to mitigate this huge deficit. Now consuming if this bill does pass, our deficit is kind of looming, so it's going to be somewhere we're going to be restricted to do anything. We already have a property tax rate cap for the city of Houston, 4.5% inflation pros, property growth, and then addition to that a state cap. So we're already limited to where it is. So you introduce House bill 19 in addition to what we can utilize our revenue for. Yeah, that's not a good thing at all.

Jordan Sawyer (10:58):

No, we appreciate that. And Clay, I don't know if there's anything else you want to add just on the debt limitations HP 19?

Clayton T. Holland (11:05):

Sure. I mean there's so much there. I don't know if we were going to cover it separately, but just we'll take the elimination of cos currently they're basically scrapped for all but emergency purposes. But I think there's some willingness to negotiate there that there's a recognition that maybe there is room for financing essential services so that maybe the definitions of authorized public works under the ACT may be paired back, but hopefully there may be opportunities for cities to address those essential services without the extra expense of an election or delays involved with those extra procedures.

Jordan Sawyer (11:57):

Yeah, no, and like I said, that's another big piece of it is the co purposes. I mean, like I said, there's limitations in HB 19. There's also other general bans outside of emergencies and HB 1453. I know one of the other pieces that had come up with on the non-voter debt and the general debt is I think there's also a blackout period has been expanded. Do you want to talk about that a little bit?

Clayton T. Holland (12:21):

Yeah. Currently the co bill in current law has a blackout period after a failed election that you can't issue cos for the same purpose for three years. The proposal has been to extend that to five years and then add the same limitation on non voted text notes. Of course, five years in local government is a long time government boards and councils usually have turnover after two years. And so extending that to five years is a big hit on the ability of local governments to address potentially essential needs. So we'll see if that timing does get extended and stay tuned. I guess how would that impact you guys, Vernon?

Vernon Lewis (13:14):

Yeah, so the city of Houston, we use COs for demolition for dangerous buildings. We don't utilize it for any sort of new capital projects for the city financing, right? Or CP takeout. However, if you're, I'm not going to speak up to my colleague from HISD, but they had a bail bond election for their infrastructure project for the school districts. Well they got to wait five years to issue a CO.

(13:38):

And so that is kind of a hindering it at this point because not only the city of Houston, but all the neighboring communities such as HISD or any sort of TURs, we all have budget constraints unfortunately. And so having this bill in place does create some sort of limitations of what we can utilize and put budget constraint and reduce flexibility to what we can do. And so knock on wood, hopefully we never have a failed bundle elections here in the city of Houston, but those are one of those avenues where we really need these investment securities or instruments therefore for COs

(14:12):

Are needed. I mean if you take a hindsight and understand how massive Houston, Dallas, San Antonio and Austin is, and I see my colleague here in Fort Ward, we need every sort of investment vehicle in order to create the infrastructure and need for every taxpayer that lives in our city. So every limitation that's coming out from a federal level and from a state level does create an impact financially, emotionally, mentally. And so for cos we don't use cos for different things. And I'm just reflecting on my conversation that I had about a year ago with small municipalities where they utilize cos for every sort of new construction. And it's a little touching because these cities do not have letter of credits. They don't know what those are. They don't have long-term bond financing. And so for a quick fix is going to the voters for a bond election or a co. And if you are a little city with a population of 200,000 and you realize, hey look, we didn't advertise this very well, unfortunately we missed the opportunity for voters to vote on this BUN election. Let's turn around and do a CO. I can't do that. So there's limitations.

Jordan Sawyer (15:42):

And especially on that point is understanding the city of Houston doesn't use it that way, but from a position of, Hey look, if we have a bond election and it fails, it means here's all the things we can't do. Is there some considerations that go into, man, what do we put in a bond election now?

Vernon Lewis (15:59):

Yeah, I mean look, obviously communication is always the key point. Where are we going to be able to utilize transparency? I mean obviously there's a senate bill, I think it's called 470 that outlines transparent and a breakdown financially what we're going to utilize for bond elections or bond debt in general. Now the ideal with that is that there's a plus and a minus. I'm a taxpayer and I love transparency. I want to know what everything that government is putting in for any sort of project in my neighborhood. However, there does create some sort of scrutiny relations to delaying the project, to creating town halls, paying for communication because a lot of individuals who are not in this room that's outside in the resident areas don't understand at all about financing as it relates to bond issuance and what capital project needs for the community. So it's going to delay a lot of service. And for us, I mean it's a need, obviously we're all building transparency here in government, but at the end of the day we kind weigh the pros and cons.

Jordan Sawyer (16:58):

Yeah, it's being forced to ask that question every time now.

Vernon Lewis (17:01):

Exactly.

Jordan Sawyer (17:02):

And kind of jumping down a little bit, and we'll come back up to just a lot in the CO area, but on the election side, I know one of the things that was mentioned is the elimination of the May election date as a potential. What do you think that does? And then Clay, I don't know if you have just what are the impacts of that if it does happen?

Clayton T. Holland (17:20):

Yeah, bigger picture, there are lots of limitations. Proposals aiming at changing how when and whether voters can approve bond measures, the may date is one of them. I think there are lots of potential impacts. A lot of the rhetoric and discussions around a lot of these election limitations and changes is increasing voter involvement, voter transparency, education in the name of ensuring fiscal responsibility, but somewhat ironic then perhaps to then take away the opportunity for local governments to participate and express their voice in one of two current election dates. It's remarkable how it's changed from bond elections used to be held on any date and then paired down to four and then now two, which itself is pretty restrictive. But going to November, I mean I think voter fatigue is a real thing, kind of ballot fatigue. You push everything to November, you get very long ballots, you get kind of lost in the rest of political climate.

(18:42):

A lot of the bond issues get pushed down. It increased costs with respect to borrowing. If everything gets pushed to a calendar where people with these pent up demands and needs are passing their elections and then very quickly trying to issue debt for their built up needs, you're going to flood the market with early year bond transactions that will drive up interest rates in addition, not just the financial side, but you get the contracting that goes along with the debt issuances, the contractors and their availability to do projects. I think you probably look at driving up both costs on the project side and on the financing side. Yeah,

Jordan Sawyer (19:33):

No, and Vernon if you have anything to add on that, just if City of Houston has a thought on from two elections to one election, if that has any impact on how you're processing, especially with a city who is focused primarily on using a voted election for debt.

Vernon Lewis (19:49):

Of course, as my friend Clay sitting right next to me allude to it does delay project costs obviously with this limitation. I mean all this in the state legislative in my opinion, is all limitations for municipalities large and small. And so it does hinder what we can do from a professional standpoint in a greater scale. And of course creating that burden for the taxpayer on a smaller scale.

Jordan Sawyer (20:14):

And going back kind of straddling the line of COs and elections, I know there was also a bill, I think also part of HB 19 is changing the CO petition from I think 5% to 2%. What kind of impact do you think that may have?

Clayton T. Holland (20:31):

I think that the bigger impact there is for smaller municipalities as that percentage leads to a smaller number of people who can force the election, it may have a bigger impact there. So of the one size fits all approach may not necessarily be the best approach as we address those kinds of limitations.

Vernon Lewis (20:53):

Yeah, I agree.

Jordan Sawyer (20:54):

Yeah, and like I said, 2% in the city of Houston is a very different number than 2% in a lot of the little cities. And then limiting the ability to have an election or forcing election, but then also limiting when you can have an election date, especially how those tie together of only being able to do an election in November. But now you're also saying we have to force more elections if the co petition come in. So it's an interesting compression of the whole debt cycle. So one other, the thing that I know we had talked about a little bit within the election side is this requirement for specific proposition language. I think there's HB 10 53 and then also part of HB 19. You want to speak a little bit on that?

Clayton T. Holland (21:36):

Yeah. There are several proposals that affect the ballot proposition language. I think that the bigger ones, school districts in the last legislative session were required to add this is a property tax increase language to ballots, and the proposal is to extend that to all bond elections. Again, the rhetoric around these proposals is kind of voter information and awareness and transparency. But I think the school districts very quickly found that the blanket statement in all caps is misleading in many ways. That there's the difference between increases of rates and increases of taxes and extending existing rates versus rates going away or decreasing just leads to a lot of confusion. And I think the idea is that that language can really potentially bias voters against necessary investments, even if the actual tax impact is quite minimal. So that language is up in the air.

(22:56):

I mean there's also proposals to increase the length of ballots by adding specific information about estimated tax rates and then the amount necessary to pay, not tax rates, I'm sorry, the interest rate on the bonds and the necessary,

Jordan Sawyer (23:14):

Which is really easy to come up with right now.

Clayton T. Holland (23:17):

Yeah, exactly. Exactly. And as has been pointed out, you look at the city of Houston's bond program and it's going to be a big dollar amount. It's not going to all be issued at one time. So how do you come up with these interest rates in a meaningful way that appear on a ballot well in advance of when bonds might be issued that include a dollar amount for principal and interest? And again, Jordan mentioned the interplay of a lot of these is interesting, and that's especially the case when you throw in all the election related changes, eliminating election dates, changing what you say on the ballot, eliminating the ability to address it in non voted ways.

(24:06):

So on the one hand, talking about reinforcing and respecting the will of the voters, but on the other hand, kind of poisoning the well in bond elections by throwing a lot of information at them at the time that they're making the decision. When a lot of that information is out there available. There've been changes in the last legislative sessions to increase what goes into the election order that has a lot of this estimated cost impact, including voter information documents that are published and distributed at polling locations. So the proposals will move all that into the ballot and make it a challenging situation.

Vernon Lewis (25:00):

And I want to address something real quick for Senate Bill four, who, has a home, anybody own a home? Do you all believe that having a homestead exemption increasing from a hundred thousand dollars to $140,000 is a good thing? Can I see the show of hands? Oh, y'all don't think it's a good thing. My mom thinks it's a good thing, but obviously by doing so, that does have a hindering on school districts for collecting Avalara taxes. In addition to that, also the city of Houston, again, as I mentioned to you earlier, we do have a revenue cap amount of property tax that we'd be able to get. So right now, our property taxes for the city of Houston is about 0.51. It was 0.585 years ago. So if you do them between five years ago and now that's about 69 basis point property tax rate, that is essentially the spread.

(25:58):

So if you have those homestead exemption from this already passed bill mandating in the city of Houston, then the limited projects go for capital needs. It's not there. And so it will come as sacrifice services if those who live in a resident area, city of Houston on trash pickups implementing garbage fees, maybe a little bit of hairy trash not coming every other week, maybe only once a month at Parkwood Drive, no pun intended there. But all I have to say is that these are bills that creates limitations here and for all municipalities in the greater state of Texas. And so we need to have a very good advocacy of what the financial impact that it would cause. If you take in consideration what has taken place from a national standpoint in Washington dc, you're getting hit from the top and you're getting hit from the bottom. It needs to be somewhere where we can understand as a group, because as an issuer, we can voice this concern every time. But for us, even though these are projects that we want to have in our community for the lawyers in the room and for the bankers in the room, these are essentially occupations where you won't be knocking on Dwayne Lewis door anymore because there's no point in having conversation. We can't do anything.

(27:25):

And so, although you guys are pretty much capped on conversational pieces of what needs to take place, but it needs to be a collaboration effort for the individual that's sitting up top and those who's sitting in the audience.

Jordan Sawyer (27:39):

Yeah, no, and that's, appreciate that we're really all over the place, like you said, but it is all interconnected with kind of an overarching reduction in the power of municipalities. I know some of the other ones that have come up specifically within, excuse me, on the debt issuance side, there's also legislation requiring a super majority to issue bonds. I don't know if you want to speak to that clay, just how that would play out.

Clayton T. Holland (28:10):

Sure. I mean, I think there are over 10 or 12 of these bills that have been proposed requiring various types of super majorities, either at the voter level or at the council level for votes authorizing the issuance of bonds or tax increases. A super majority requirement would be very challenging for almost every jurisdiction. There's not a big percentage of transac elections that pass by large super majorities, so it'd be very painful. I think the good news is that in many cases, the majority requirement is kind of built into the constitutional language. So there are some challenges there to get super majority voter requirements across the finish line without going through amending the constitution. That's the case, for instance, for school districts. So I think the compromise position may be imposing the super majority requirements at the board or council level whenever they are either adopting tax rates or issuing debt.

Jordan Sawyer (29:43):

And Vernon, I don't know if you have anything to add there. I have a feeling you have something to add there.

Vernon Lewis (29:48):

Well, I'll let you take it for it. Jordan, go ahead. What you got?

Jordan Sawyer (29:51):

Yeah, I think, like you said, the super majority, the idea of changing percentages, especially on something with the constitutional backing, it'll be interesting to see how that ends up playing out. I mean, the hard part of this whole panel is in the middle of a legislative session is at the end of the day, who knows what will play out. I'm getting updates on my iPad as we talk right now about bills and things that are changing. Nothing major to talk about yet, but at this point it is an ongoing conversation. So we're going in, I think, to the last few minutes here on some of the miscellaneous broader items. I know one of the things we wanted to talk specifically about is in the database of bonds, in the investment pools section, I think that the SP 4 0 4 you had mentioned.

Vernon Lewis (30:35):

Yeah, so s SP 4 0 4, if you have not followed that bill, essentially limits and move away from our money market account investment pools. So what the bill does is that it now will be mandated if it does pass for all local governments municipality to invest in a local pool text pool. So if you're with Texas class or you with Techstar, unfortunately, you have to disinvest and move your entire funds into that pool for making sure that they're responsible management in their investment. Now for the city of Houston, our money market account is only for liquidity purposes. We withdraw and deposit for cashflow needs to help with the operation for the city. And so outside of that scope of frame, there's nothing else for my side of the business in city of Houston that we have any indications on this bill. But unfortunately for other cities who utilize investment pools for other initiative, this is attack on a lot of things, whether or not it's MDIs or DI. Right. And so this is something that is a grand scheme where we do need to pay attention to.

Jordan Sawyer (31:37):

Yep. No, I appreciate that. I know one of the other ones that had come up is HB 1 0 3 is requiring the comptroller to create a database of the bonds, taxes and bonds related projects. Any kind of idea how that gets implemented?

Vernon Lewis (31:53):

I mean, not right now, actually.

Jordan Sawyer (31:57):

I don't play if you have anything or No, I don't get out of that. We'll see.

Clayton T. Holland (32:02):

Unfortunately, another database

Jordan Sawyer (32:03):

That seems to be the answer on how some of these things will work out is not really a plan there. I know there's also been other changes kind of within the school side. Like you said, there's the homestead exemption. I know also h HP 19 also has a 20% lemon compression attach rate. I dunno if you want to speak to that. I know we don't have Amanda who has some of the expertise here, but I think that's probably an important one to a lot of people. Oh yeah, I think Clay Got it. Oh, clay, go ahead.

Clayton T. Holland (32:34):

And I appreciate which provision in HB 19.

Jordan Sawyer (32:37):

This is the, yeah, the 20% compression tax rates,

Clayton T. Holland (32:43):

Compression tax rates. Vernon spoke to it earlier. The challenge of compressing rates is you shove off stuff, capital expenditures that are necessary and you push 'em into this changing bond election environment. It gets a challenge to get large projects done and that this is especially impactful on smaller jurisdictions or fast growth jurisdictions who need to address growth. And those additional compression caps just make it hard to meet their needs.

Jordan Sawyer (33:27):

And I know I worked with a lot of growing cities and the idea of what their property taxes worth three years ago versus what they are today is not even related anymore. And that's made it difficult to say, how are you going to compress this on a place that the city no longer is? So that'll be an interesting piece.

Clayton T. Holland (33:46):

Yeah, I think as written a lot of that, it'll push off the ability of issuers to issue debt, especially think of special districts who are growing from nothing. They won't be able to issue debt for a decade or more to address the infrastructure.

Jordan Sawyer (34:08):

No, I think we have just a couple more to, I know we want to open it up for questions here. I know there's also SB eight 70 eights is changing three 80 powers. I don't know. The city of Houston used three 80.

Vernon Lewis (34:22):

We do, unfortunately, we do limitation scope on relation to the three s. I'm not a hundred percent familiar with that

Clayton T. Holland (34:33):

At

Vernon Lewis (34:33):

This point. Maybe Clay, you can.

Clayton T. Holland (34:35):

Yeah, the main limitations in proposed have been limitedly the ability to grant tax abatements as part of the incentive package.

Jordan Sawyer (34:44):

And I know I work with a lot of cities working with developers, and that's a tool that's in the city's tool belt that's definitely being changed. I know that's something they're focusing on. I know also on the development finance space, SB 1509 has been one that a lot of people have been watching just completely limiting the city's ability to work in their extraterritorial jurisdiction. Certainly there's been a lot of changes to the ETJ over time and what cities can do there. So that's another one I know that we've been focusing a lot on. I want to kind of open up to, is there any ones we haven't talked about before? We kind of talk through questions if there's anything we want to go through.

Vernon Lewis (35:19):

Well, I know the controller, if you all watch keynote address yesterday, which was hard to miss. I'm waiting to see what Bombard is going to write about that. But he made a really good point on tax exempt munis. He talked about the percentage impact in the market from 15 to 20, depending on market condition or 20 to 25 depending on how you look at it from a scale from the city of Houston or from municipality as large as the city of Houston. I want to put some numbers behind that. So we have a bunch of financial folks in the room. So just imagine if you are doing a new money piece for $500 million, let's use that as a very, a general obligation bond for 500 million. And there the tax exempt piece, which is about 3% and a taxable piece, which is about 5%. And you think of the life of the term of the bond for 20 years.

(36:08):

Now you do the multiplication and you take the annual interest cost times the life of the bond. We're talking about 150 to $200 million additional calls, additional calls on the life of the debt service of the bond. Look how impact that is. And for the city of Houston who already facing a $300 million deficit, how are we going to pay for something like that or cities who are facing a larger deficit in the city of Houston. So if you eliminate the tax exempt status, obviously investors who really depend on the effect of yield on that, they go somewhere else, it disturbs the entire market. So the city of Houston has to essentially pay us down the borrowing costs to the taxpayers in order to raise it to meet the needs for all these capital projects. Again, as I alluded to you earlier, it's coming from the top, it's coming from the bottom, maybe come from the left, may come from the right.

(37:07):

And so at the end of the day, whatever these new measurements to figure out is coming for all these legislative government bodies, it's a hinder, right? And we need to understand as municipalities, the voice, the financial implications of what it's really going to cause to Miss Susie who's living in her community for about 70 years and what that's going to be impactful wise for her. Bottom line, we understand the tariffs. I mean, I just looked this morning, China hit United States with 125%. So by Monday it's probably be 200% both hands at this point, but that's going to drive inflation eroding the purchase power. So we are already going to see it impacting Ms. Susie in her neighborhood. And you take away the tax exempt, Sue, you may not understand what tax exempts are. She may not understand what taxables are. But what she's going to understand is that now everything is more expensive and she's going to come to the body of government and say, why. And so for us, we need to show financially how this is a limitation in Burton for not just large cities as Houston, but small cities like Plano or in Naoc Texas,

Jordan Sawyer (38:14):

And going completely off script here, but I have a feeling you'll be okay with it. How does the city of Houston respond? How does a municipality respond and when the resident comes and say, why are all of these seats more expensive?

Vernon Lewis (38:26):

So it was up to our jobs to have someone like myself or city council who are all district council members to understand the numbers. It makes no impact if the language that I'm trying to speak is not resident down to the taxpayers. So our council members need to be educated and understand what is the financial impact just for the city so they can understand to educate the residents. We already have council members who already brought up the tax exempt status to me. And so my office is trying to model and thank you Dave, for trying to help me with that process on the relations to the impact financially for the city of Houston. And so it's something where council members can take that and go back to the community and let them know this is what's happening. So the congressional individuals and senators who are there in Washington DC can fight and understand the full ramifications of it.

Jordan Sawyer (39:20):

And is there a role that the professionals here in this room can help play at that? Is it just keeping y'all on top of what's happening? Is it being able to help there?

Vernon Lewis (39:30):

I got to get very careful. I don't want my email to be flooded. Yes. I mean, look, if you have new ideas outside of the traditional market updates, you can send over that help figuring out. So it is all the voice. It's a narrative pitch. So if you can say, look, this is what's coming out in the Texas ledge, this is what's coming out in the federal government. These are the things that you as issuers need to pay attention to. That is helpful. We look at that in a grand scope folks obviously things that the city always talk about, the budget, the budget to budget. But in reality, we need to understand other things as well outside of the budget because everything is correlated and everything is impactful.

Jordan Sawyer (40:10):

Yeah, I appreciate that. And Clay, I don't know, just from the clients you've been working with, is there anything that you think is top of mind or something that you want to talk about?

Clayton T. Holland (40:17):

Yeah, since Amanda wasn't here to talk about the school districts, I know one thing everyone is a bit concerned about is the limitation that does appear in HB 19 regarding or potential limitation on cash deficiencies and cash management, tax rate management, changing the definition of the debt service calculation for purposes of the tax rate to the minimum amount necessary to pay debt obligations. There are just many questions there about what the actual impact of that will be, and in particular how it applies to variable rate programs and commercial paper where there's not a fixed amount. So at the very least, there's some clarification that needs to happen there and that may have a broader impact on the ability to use excess generated funds to pay down and to fees bonds on an annual basis, which is an important kind of budgetary tool for many districts.

Vernon Lewis (41:25):

Yeah,

Jordan Sawyer (41:26):

No, I'm glad you brought that one up because I know that was one that Amanda wanted to talk about. So I'm appreciate you brought that up. So I think at this point we'd love to open it up. I don't know, it looks like we have a mic coming around, so I think, do we want to raise her hands or do a standup or there we go. She's got a mic coming for you.

Audience Member 1 (41:47):

We good. So Vernon brings up a good point about us needing to band together, excuse me on this thing because there's a lot of changes these people are trying to do, and it's going to affect everybody in a room in a big way, including issuers, residents, and people that do what we do for a living. And you talk about the difference between taxable and tax exempt. I can tell you right now, if they push us to one vote in November, you're trying to dump 50 billion Texas bonds on the market in the first four months of the year, it's going to look like this week for Texas. It's going to trade cheaper. It's always going to trade cheaper. Everybody knows there's a ton of it coming. We fight it every six months with PSF bonds now where it goes from an 18 spread to MMD in 10 years to 50, okay, let's dump 50 billion, 60 billion on the market. And I'm telling you it's going to go a hundred plus. So it's in our best interest. You might as well go taxable if you're going to do that, you with me. But we need to work together as a group and we all need to push. That's just my opinion. Don't really have a question, but it's something we all should be concerned about.

Jordan Sawyer (42:59):

Yeah, I appreciate that.

Vernon Lewis (43:01):

No, thank you very much. Again, look, this is a collaborative effort, not from the issuer and the banker, but for the lawyer standpoint as well. We need to all kind of understand what the financial impact is for the bottom line of the taxpayers. And so by sending over these modules or any sort of new and innovative things that can help us as the city to pass on, the message is always a plus. And I'm serious about that. I mean, we can all go back to our own corners, fly out of here and go back to meeting with clients and meeting with issuers and having this and having that. But the idea is that talk is just talk. But we need to actually come together and figure out what is actually the beneficial to the city and all cities. And thank you so very much.

Audience Member 2 (43:48):

Hey, good morning. I was curious if you guys had any information or strategies or recommendations for issuers or people in this room that might resonate with lawmakers and persuading them back to municipal control?

Clayton T. Holland (44:06):

Yeah, it's a challenge to know what resonates. I mean, I think the important thing is that in particular, issuers, they engage with their representatives and let them know it's impact on them. I think that that is meaningful. A lot of this decision making happens at a higher level behind closed doors, it generates, and then all of a sudden we have this bill, and where did this come from? And it doesn't make any sense, or it's not workable as it's drafted. It requires engagement from people to lead to further discussions. So to the extent you individuals, residents can talk to their own legislators, have them talk to bill sponsors and things, and you can actually influence the outcome here.

Jordan Sawyer (45:04):

And Vernon, I'm curious, just from the city side, is there a way of letting citizens, letting everybody know what's coming? I don't know if there's anything engaging, like you said. I know from what we've seen, it's trying to make sure our clients understand what's coming so they can have those conversations so they can both be aware and like you said, most importantly, have the conversations with representatives. Is there anything from a city side or an issuer side that you're able to see that would be helpful?

Vernon Lewis (45:31):

Yeah, look, so the city of Houston, as I mentioned, has a budget constraint. So we're got our hands tied behind our back hopping on one leg. So we need adversaries in the community to help bring the message to us. And so the thing here is what the city of Houston, we understand the financial impact. We see it, we get it from you. All right? And so the thing is, for us, for any sort of the taxpayer, those in the community, they need to be able to have town halls to talk about these types of subjects. Those subjects where it may not be comfortable and we need not to be afraid to mention it. And so we have our comptroller going on to better things and maybe our attorney general going on to better things. But the idea is to make sure that we all can have a message and a voice to bring back to the bottom line, which is the ones we work for. Just the residents of every municipality is our taxpayers who fund us. Because at the end of the day, it's a whole cycle effect. You guys have a job because I have a job. I have a job because they give me a job. So it's a relationship all around and we need to really understand what this relationship really is because if it's taken from one source, then we all go down.

Clayton T. Holland (46:45):

Yeah, I appreciate that.

(46:47):

I think that the default position oftentimes at the state level is that the provisions that allow local governments to borrow and spend as they do are somehow loopholes that need to be closed and not kind of features of the legislative structure that finances local governments. So I think to the extent people can be educated on how the system is set up, what those provisions do, and the fact that we're not trying to undermine their previous efforts, but are facing real challenges and increased construction costs, that's gotten very high inflation. So it may in fact be the case. I think it is the case that in the face of prior legislative restrictions, there are fewer bond issues in the state. But I think they also happen to be increasing in paramount just because there are increased costs and increased needs. So making those facts real to representatives, I think is valuable. Sure.

Jordan Sawyer (47:58):

The loophole comment there is, I think it resonates well. It's not all these are loopholes in ways around things. There really are features of it. I think we have time for one more question. Yeah,

Audience Member 3 (48:08):

Hi. Thank you for your time. I've got kind of a few part question here. So what do you think the relative, so HB 19 seems like it's a grab bag of various targeting state and local issuance. What do you think the odds are of most likely to pass versus a bit unlikely you're not as worried? And then part two of the question would be is this legislation that's come up every year that the industry is successfully fought off? And I guess the third part is even if we're successful this year and we kill all the legislation, is this something that's just going to keep coming up in future years? Thank you.

Vernon Lewis (48:47):

Want to take that Clay?

Clayton T. Holland (48:51):

I mean, I think HB 19, this is different this year, as I mentioned. Just because it is consolidated into a high priority bill, it leads to some challenges in responding to it because the tendency might be to focus on HB 19 when really there's still all these other bills that kind of do each of these things piecemeal. And so it's be important to kind of keep an eye on everything, unfortunately. But HB 19 presumably will pass in some iteration. There might be. I think we've seen that there has been their openness to input and revision and as it proceeds, who knows what that will look like. But I think there'll be some easing on some of the restrictions and we'll have to live with what remains. But I think we are going to see some changes. They are to the extent anything gets left on the floor, so to speak, and it's going to come back around again next legislative session inevitably, because there's always that push.

Jordan Sawyer (50:03):

Yeah, it sounds like, yeah, there's always kind of every two years, it's always going to be a little bit more of this, which is not a great way to end a panel of great news. We'll just get to do it all over again. Great way to be a panelist is we just keep coming back. Any last words you want to say? I think the encouragement, as you said, to continue to bind together. You seem like you had something that you, some great words here.

Vernon Lewis (50:31):

Thank you that Jordan, I just want to leave with just one comment and more than a comment, I want to end what a homework assignment. If you all in this room and I'm speaking to the lawyers, I'm speaking to, the bankers can find some sort of initiative, innovative thinking to help financially the city of Houston within the course of this calendar year from 2025. All ears. Thank you.

Jordan Sawyer (50:59):

We have your mail out already. Yeah. Alright. Thank you all so much.