Local Governance

National Debt Is Important, but Local Debt Is, Too

Commentary

This commentary originally appeared in the Tyler Morning Telegraph on February 11, 2014.

Cities, counties, school districts, and special districts in Texas are drowning in debt.

According to newly-released data from the Texas Bond Review Board (BRB), Texas’ local governments had outstanding debts totaling more than $200 billion in fiscal year 2013. That marks an increase of more than $25 billion over the past five years.

On a per person basis, the amount of local debt that exists is equally concerning. In 2013, Texas’ local debt per capita — ranked as the 2nd highest among the top 10 most populous states in a September 2012 Texas Comptroller report — totaled more than $7,500 per Texan. That figure has also seen significant growth in recent years, when only ten years ago local debt per capita was just over $4,300 per person.

Now for the bad news — Texas taxpayers are actually on the hook for much more than the figures above would suggest. That’s because those figures only refer to the principal amount owed, and don’t account for the interest owed.

To fully service Texas’ local debt, as of fiscal year 2012, taxpayers will need to cough up an estimated $323 billion or roughly $12,500 per Texan. While the fiscal year 2013 estimate has not been reported, total debt service outstanding has also seen a marked increase since 2009, increasing roughly $25 billion over the period.

It’s not an exaggeration to say that Texas’ local governments have gotten themselves into a deep, dark hole and they continue to dig.

Without major changes to the status quo, Texans can be sure that local property taxes will remain necessarily high to help service the debt and that the Lone Star State, which has found enormous success with its state-led limited government approach, could be headed down the same profligate path of places like Detroit and Stockton .

So the key question is: How can we begin reversing course?

First, the Legislature should require a minimum level of local debt transparency at the ballot box so that voters can make informed decisions about the direction of their community. Providing basic financial information — such as the cost of a proposition; the amount of existing debt; and the tax increase or decrease that might result from the proposal’s passage — at the voting booth is a no-brainer.

Second, any governing body that has the power to tax and borrow should be required to create and maintain a website that features its budget, financial statements, and a check register. It’s surprising, and somewhat disheartening, that in today’s day-and-age there are still local governments who operate without some or all of this, but it’s a relatively straightforward fix in the next legislative session.

Next, Texans should demand an end to the use of exotic public financing instruments that enable local governments, and particularly school districts, to get around existing debt limits. One particularly devious device that merits a ban, or at least severe curtailment, are capital appreciation bonds (CABs).

CABs permit local governments to borrow now and defer principal and interest payments until the bond matures, which is oftentimes decades later. According to the Legislative Budget Board, this buy-now, pay-later approach can result in “crippling repayment obligations,” with as much as $10 being owed for every $1 borrowed. Clearly, this kind of borrowing, of which Texas leads the nation, is exacerbating an already difficult debt situation.

Finally, Texans in “home-rule” cities should begin looking at ways to amend their city’s charter to include new or stronger debt limitations. Seeing as one-third of all local debt is incurred by cities, this is a direct and effective way for certain local taxpayers to address the issue of local debt head-on.

In concert, these reforms can help educate and empower Texans on the massive local government debt challenges and reverse course before it’s too late.

 

James Quintero is Director of the Center for Local Governance with the Texas Public Policy Foundation. Vance Ginn, Ph.D., is policy analyst for the Center for Fiscal Policy at the Texas Public Policy Foundation.

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One response

  1. Senator_Blutarsky | Reply

    Elected “officials” LOVE to spend OPM – other peoples money. They love to promote foolish bonds, foolish projects and assorted boondoggles which accomplish little except for – PUBLIC responsibility for debt and losses, and PRIVATE recompense of profits and benefits.

    Local toadies, including county judges and commissioners, city councils and policy makers , SCHOOL BOARDS, are usually “cozy” with assorted vendors, “engineering”-construction firms, lobbyists and the like for pet projects which render very low value for the public dollar and the poor taxpayers, whose neck is on the line.

    “The government consists of a Gang of men exactly like you and me. They have, taking one with the another , no special talent for the business of government. They have only a talent for getting and holding office, the principal device to that end is to search out groups who pant and pine for something they can’t get and to promise to give it to them. 9 times of 10 the promise is worthless, the 10th time it is made good
    by Looting A to satisfy B. In other words government is a Broker of Pillage, and every election is an advance sale of stolen goods.”
    – H.L. Mencken 1956

    And you wonder why I have long been a champion of TERM LIMITS – for any and every elected or appointed office ?

    I also warned our gentle readers here of the storm clouds in the bond market right here in this blog, particularly when the city boondoggle project of rerouting truck traffic away from downtown traffic circle to make it more :” foot traffic friendly” – an insipid scheme by inefficient, lazy GREEDY property owners of downtown area office and retail space to increase “foot traffic” , so they can increase rents, rather than spend their own $$$ to improve the rundown physical state of their properties.

    And on the TAXPAYERS dime, of course – publicize the debt, privatize the profit – the same scam our Austin hucksters & Trotskyites – King & Estes , pushed on the public for toll roads and now, water.

    But maybe some extremely corrupt politico will get their name on some building or highway – like the vile pair of Jim Wright & Ric Williamson as local shameful examples.

    The 5 decade long ” banana republic” at the federal level is mimicked in Austin, and right down to the local toadies who live on your street.

    ” Stewardship ” is dead.

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