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Emergency Management 2


Recommendation

Texas should issue bonds to build or increase the security of critical transportation infrastructure required for military purposes, and to improve existing security at airports, coastal ports, other points of entry, major petrochemical facilities and other public infrastructure.


Summary

The Texas Constitution, Article 3, Sec. 49 (a)(2) authorizes the state to create debt “to repel invasion, suppress insurrection, or defend the State in war.”

The President said in his speech to Congress on September 13, 2001 that the United States was at war with terrorism. The State of Texas is now required to defend itself from the threat of terrorist attack at airports, coastal ports, other points of entry and at major petrochemical and nuclear facilities across the state. Moreover, critical water, transportation and other public infrastructure will need improved security to enable military movements and protect citizens. The state, therefore, should issue bonds to help local governments and the state’s military provide such security where federal assistance is lacking, inadequate or inappropriate.


Legislative Changes Required

Authorization to issue an unlimited amount of general obligation bonds to create debt “to repel invasion, suppress insurrection, or defend the State in war” already exists in the Texas Constitution in Article 3, Sec. 49 (a)(2). Scholars of the Texas Constitution wrote in 1977 that “No occasion has arisen requiring use of this limited power to incur unlimited debt and there is, therefore, no authoritative interpretation of this aspect of Section 49.”[1]

While no absolute dollar limit exists on the bonds that may be issued under this section, voters in 1997 did approve a constitutional limit on all state debt, now Article 3, Sec. 49-j. The annual debt service in any fiscal year on state debt payable from the general revenue fund may not exceed 5 percent of an amount based on the preceding three years’ average annual general revenues.[2]

Enabling legislation would be required to address the amount of bonds to be issued. That amount should be based on a critical needs assessment performed by either the Governor’s Task Force on Homeland Security, the Texas Department of Public Safety’s Division of Emergency Management, the Infrastructure Task Force as recommended by the Comptroller, or all three. Bonds should be issued by the Texas Public Finance Authority and administration of the loan program should reside with the governor as chief executive of the state.

Although most of the bonds would be purchased by institutional investors, the legislation should consider allowing a portion of the bonds to be issued in small denominations to allow all Texans to purchase them at the state’s financial institutions or through payroll deduction plans offered by Texas employers.

The legislation should specify that bond proceeds may be loaned to political subdivisions-such as the Port of Houston, local airport authorities or the Texas National Guard, in addition to cities and counties-to pay for improved security measures that are not eligible for federal funding. Loan repayment would provide some revenue to the state to offset bond costs.


Fiscal Impact

The estimated cost to the General Revenue Fund to implement this proposal cannot be determined at this time without specific legislation.

If, for example, the state issued $1 billion in 20-year bonds at 5.21 percent interest and made semi-annual debt service payments, the necessary annual debt service would be about $81 million. This amount would be offset in large part as the loans were repaid.

The Texas Bond Review Board determined that the current state debt level was 2.03 percent as of the end of fiscal 2000, well below the 5 percent constitutional cap. The Legislature approved, prior to the terrorist attacks, $3.525 billion in bond proposals that were submitted and approved by the voters in November 2001. Of these proposals, $1 billion are backed by general revenue and included in the constitutional debt calculation. Assuming the full value of all bonds approved in the November 2001 elections is issued, debt will rise to 2.43 percent, still less than half the constitutional cap.[3] The Board estimates the state will have to issue another $6.6 billion in general revenue-backed bonds to reach the cap.[4]


[1] Texas Advisory Commission on Intergovernmental Relations, The Constitution of the State of Texas: An Annotated and Comparative Analysis, by George D. Braden, David A. Anderson, R. Stephen Bickerstaff, Darrell Blakeway, Seth S. Searcy III, Thornton C. Sinclair and Richard A. Yahr (Austin, Texas, 1977), p. 204.

[2] TEX. CONST. art. 3, §49-j.

[3] Interview with Jim Buie, executive director, and Elva Rodriquez, Texas Bond Review Board, Austin, Texas, October 1, 2001; and interview with Elva Rodriquez, Texas Bond Review Board, Austin, Texas, October 9, 2001.

[4] Interview with Elva Rodriquez, Texas Bond Review Board, Austin, Texas, October 10, 2001.