Texas Public Finance Authority Pre-Legislative
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Texas Public Finance Authority Pre-Legislative Session Funding Capitol Projects April 30, 2024 Texas Public Finance Authority Lee Deviney, Executive Director lee.devineytpfa.texas.gov 512-463-5544 www.tpfa.texas.gov Purpose of this
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01
Texas Public Finance Authority Pre-Legislative Session Funding Capitol Projects April 30, 2024
Texas Public Finance Authority
Lee Deviney, Executive Director
lee.deviney@tpfa.texas.gov
512-463-5544
www.tpfa.texas.gov<br>
Texas Public Finance Authority
Lee Deviney, Executive Director
lee.deviney@tpfa.texas.gov
512-463-5544
www.tpfa.texas.gov<br>
02
Purpose of this Training Legislative Session Preparation
Identify Resources for State Agency Capital Planning
Induce Follow Up Questions Specific to Client Agency Needs 2<br>
Identify Resources for State Agency Capital Planning
Induce Follow Up Questions Specific to Client Agency Needs 2<br>
03
Additional Training Resources TPFA Case Study Training is available online at:
https://www.tpfa.state.tx.us/trainingvideo.aspx
Bond Review Board Debt Primer
https://www.brb.texas.gov/state-publications/
Bonds 101 Texas Public Finance Seminar (January 2025)
TPFA Finance Team
(512)463-5544 or BondTeam@TPFA.Texas.Gov 3<br>
https://www.tpfa.state.tx.us/trainingvideo.aspx
Bond Review Board Debt Primer
https://www.brb.texas.gov/state-publications/
Bonds 101 Texas Public Finance Seminar (January 2025)
TPFA Finance Team
(512)463-5544 or BondTeam@TPFA.Texas.Gov 3<br>
04
I. Capital Projects 4<br>
05
Capital Projects Capital Projects have a useful life beyond the current appropriation period
Buildings
Roads
Parks
Infrastructure
Equipment 5<br>
Buildings
Roads
Parks
Infrastructure
Equipment 5<br>
06
Capital Budget Definitions and Restrictions Legislative Appropriations Request Instructions issued by LBB and OOG
General Appropriations Act
Article IX, Sec. 14.03. Transfers – Capital Budget
Agency Specific Capital Budget Riders
Other Statutory Authorizations and GAA Riders 6<br>
General Appropriations Act
Article IX, Sec. 14.03. Transfers – Capital Budget
Agency Specific Capital Budget Riders
Other Statutory Authorizations and GAA Riders 6<br>
07
Sample Capital Projects State Health Laboratory
Highways and Toll Roads
State History Museum
Higher Education Facilities
(Dormitories, Libraries and Laboratories)
Capitol Complex Facilities
Vehicle Fleets, IT Hardware and Other Equipment 7<br>
Highways and Toll Roads
State History Museum
Higher Education Facilities
(Dormitories, Libraries and Laboratories)
Capitol Complex Facilities
Vehicle Fleets, IT Hardware and Other Equipment 7<br>
08
Funding Capital Projects Capital Projects may be funded by:
Cash (current appropriations)
Debt (bond or other debt financing)
Lease Purchase
Public Private Partnerships 8<br>
Cash (current appropriations)
Debt (bond or other debt financing)
Lease Purchase
Public Private Partnerships 8<br>
09
Authorization and Appropriation Capital Projects are authorized by the Legislature in General Law or in the General Appropriations Act. Certain bond funded projects may also be authorized by Constitutional Amendment. 9<br>
10
Authorization and Appropriation State Agencies pursuing a capital project under new or existing authorization must have:
1) an appropriation to fund or finance the project,
2) Capital Budget authority, and
3) an appropriation for debt service is also required for debt financed projects. 10<br>
1) an appropriation to fund or finance the project,
2) Capital Budget authority, and
3) an appropriation for debt service is also required for debt financed projects. 10<br>
11
Planning a Capital Project Bond Review Board and Texas Higher Education Coordinating Board Capital Expenditure Plan
Required by GAA, Art. IX, Sec. 11.03
(Mid-April to July 1, 2024)
Legislative Appropriations Request
Capital Budget Schedules
Type of Financing (cash or debt financing)
Method of Financing (fund source) 11<br>
Required by GAA, Art. IX, Sec. 11.03
(Mid-April to July 1, 2024)
Legislative Appropriations Request
Capital Budget Schedules
Type of Financing (cash or debt financing)
Method of Financing (fund source) 11<br>
12
Capital Projects and Legislative Appropriations Request Capital Projects may be authorized by a bill that amends general law or in the GAA.
The Legislature may wish to fund capital projects through the issuance of general obligation (GO) bonds. In addition to statutory authorization and appropriation, General Obligation bond financing requires voter approval of an amendment to the state constitution. 12<br>
The Legislature may wish to fund capital projects through the issuance of general obligation (GO) bonds. In addition to statutory authorization and appropriation, General Obligation bond financing requires voter approval of an amendment to the state constitution. 12<br>
13
Capital Projects and Legislative Appropriations Request In all cases appropriations for a capital project will be required and are typically addressed in the Legislative Appropriations Request. 13<br>
14
Project description
What do you need the money for?
Timing of funding
How much money will the agency need?
When is it needed?
Special information
Examples: Use of facility by entities other than state or local governments; management contracts; repayment sources other than General Revenue
Key agency roles
Governing Board, Finance/Budget and Accounting, Project Manager, and General Counsel Pre-planning for new bond authority 14<br>
What do you need the money for?
Timing of funding
How much money will the agency need?
When is it needed?
Special information
Examples: Use of facility by entities other than state or local governments; management contracts; repayment sources other than General Revenue
Key agency roles
Governing Board, Finance/Budget and Accounting, Project Manager, and General Counsel Pre-planning for new bond authority 14<br>
15
II. Governmental Debt Financing 15<br>
16
16 Governmental Debt Debt Issuance is a discretionary financing tool that may be used to:
Conserve current revenue
Match capital project costs to useful life of the asset
Manage cash flow<br>
Conserve current revenue
Match capital project costs to useful life of the asset
Manage cash flow<br>
17
Funding Capital Projects with Debt The method of financing for a capital project is a legislative prerogative.
In times of budget surplus, appropriating available cash for “one-time” expenditures may be attractive to policy makers.
Alternatively, debt financing may help balance budgets and keep projects on the desired schedule during tighter budgets.
Self-supporting projects may require debt financing to spread the cost over future revenue streams. 17<br>
In times of budget surplus, appropriating available cash for “one-time” expenditures may be attractive to policy makers.
Alternatively, debt financing may help balance budgets and keep projects on the desired schedule during tighter budgets.
Self-supporting projects may require debt financing to spread the cost over future revenue streams. 17<br>
18
Debt Issuance is a Discretionary Budget Management Tool Because:
Capital projects may be needed today but deliver benefits over a longer time period,
Beneficiaries grow with population growth, and
Revenues available for capital costs grow in future periods.
Debt is issued to:
Conserve current revenue/manage liquidity,
Match capital project costs to the realization of project benefits (useful life),
Match project costs with future project revenues, and/or
Allocate the project cost over all beneficiaries during the useful life of the project. 18<br>
Capital projects may be needed today but deliver benefits over a longer time period,
Beneficiaries grow with population growth, and
Revenues available for capital costs grow in future periods.
Debt is issued to:
Conserve current revenue/manage liquidity,
Match capital project costs to the realization of project benefits (useful life),
Match project costs with future project revenues, and/or
Allocate the project cost over all beneficiaries during the useful life of the project. 18<br>
19
III. Debt Instruments 19<br>
20
20 Debt Instruments A debt instrument is a contract for a loan between a lender and a borrower specifying:
Term or maturity for debt security is the due date for the loan (e.g., years, months, days)
Interest rate on the bond (e.g., 5%);
Debt service or repayment schedule (e.g., monthly, semi-annually or annually);
Revenue source pledged to repay the loan
These are budget and revenue considerations.<br>
Term or maturity for debt security is the due date for the loan (e.g., years, months, days)
Interest rate on the bond (e.g., 5%);
Debt service or repayment schedule (e.g., monthly, semi-annually or annually);
Revenue source pledged to repay the loan
These are budget and revenue considerations.<br>
21
21 21 Types of Debt Instruments Bonds: Long Term (5+ years) Fixed or Variable Interest Rate
Notes: Short Term (<5 years) Fixed or Variable Interest Rate
Commercial Paper: Days (max. maturity of 270 days) Variable Interest Rate<br>
Notes: Short Term (<5 years) Fixed or Variable Interest Rate
Commercial Paper: Days (max. maturity of 270 days) Variable Interest Rate<br>
22
Sample Debt Authorizations Constitutional Authorization
Article III, Section 50-g (2007) authorized the issuance of $1 Billion of General Obligation Bonds for maintenance, improvement, repair and construction for various state agencies.
Statutory Authorization
Texas Government Code, Chapter 1232 makes specific authorizations for debt financed capital projects such as office buildings and military facilities. 22<br>
Article III, Section 50-g (2007) authorized the issuance of $1 Billion of General Obligation Bonds for maintenance, improvement, repair and construction for various state agencies.
Statutory Authorization
Texas Government Code, Chapter 1232 makes specific authorizations for debt financed capital projects such as office buildings and military facilities. 22<br>
23
Sample Debt Authorizations Lease Revenue Bond Authorization in the General Appropriations Act
Appropriations Rider authorizations include:
Texas Facilities Commission Capitol Complex
Texas Department of Transportation campus consolidation
Texas Department of Motor Vehicle Headquarters project 23<br>
Appropriations Rider authorizations include:
Texas Facilities Commission Capitol Complex
Texas Department of Transportation campus consolidation
Texas Department of Motor Vehicle Headquarters project 23<br>
24
Constitutional Pledge: Legally secured by a constitutional pledge of the first monies coming into the State Treasury that are not constitutionally dedicated for another purpose
Voter Approval: Must initially be approved by a 2/3 vote of both houses of the legislature and by a majority of the voters; after this approval, debt may be issued in installments as determined by the issuing agency or institution
Used to finance general government functions: prisons, veterans’ housing and land programs, parks, roads, grants and loans
Cancer Prevention and Research Institute (CPRIT)– project grants
Certain economic development loan programs
Highways and Water Development projects What are GO Bonds? 24<br>
Voter Approval: Must initially be approved by a 2/3 vote of both houses of the legislature and by a majority of the voters; after this approval, debt may be issued in installments as determined by the issuing agency or institution
Used to finance general government functions: prisons, veterans’ housing and land programs, parks, roads, grants and loans
Cancer Prevention and Research Institute (CPRIT)– project grants
Certain economic development loan programs
Highways and Water Development projects What are GO Bonds? 24<br>
25
25 What are Revenue Bonds? Secured by a specific revenue source
Do not require voter approval
Not backed by the full faith and credit of the issuer (State of Texas)<br>
Do not require voter approval
Not backed by the full faith and credit of the issuer (State of Texas)<br>
26
Required Revenue Debt Appropriations Project Appropriation
Appropriation made to the agency to build or acquire the project
Debt Service Appropriation
Appropriation made to TPFA to pay Principal and Interest on General Obligation debt
Lease Payment Appropriation
Appropriation made to a state agency that will make lease payments to TPFA when the project is financed with Revenue Bonds 26<br>
Appropriation made to the agency to build or acquire the project
Debt Service Appropriation
Appropriation made to TPFA to pay Principal and Interest on General Obligation debt
Lease Payment Appropriation
Appropriation made to a state agency that will make lease payments to TPFA when the project is financed with Revenue Bonds 26<br>
27
When Debt is Authorized and Appropriated for Funding a Capital Project It has been the practice of the Legislature to assign the Texas Public Finance Authority with the responsibility and authority to finance most state agency capital projects*
* excluding state highway construction, water development loan programs, housing programs and veterans land loans 27<br>
* excluding state highway construction, water development loan programs, housing programs and veterans land loans 27<br>
28
TPFA Resources for Agencies and Policymakers TPFA will assist with developing the required statutory, appropriations and/or constitutional provisions when debt (bond) financing is a funding choice or option. 28<br>
29
IV. Financing Capital Projects through TPFA 29<br>
30
30 Texas Public Finance Authority Issuing Agency – Gov’t Code Ch. 1232 Central state issuer for state agencies, certain universities, and other special purpose entities
Issues debt as authorized by the legislature
Administers the Master Lease Purchase Program for equipment and other capital projects<br>
Issues debt as authorized by the legislature
Administers the Master Lease Purchase Program for equipment and other capital projects<br>
31
TPFA Debt Issuance History 31<br>
32
CPRIT Project Grants
Economic Development Loan Programs
Legacy Constitutional Authorizations for Construction, Repair and Renovation Projects TPFA General Obligation Financing 32<br>
Economic Development Loan Programs
Legacy Constitutional Authorizations for Construction, Repair and Renovation Projects TPFA General Obligation Financing 32<br>
33
Lease Revenue Bonds
(Building Construction, Repairs and Rehabilitation)
University Revenue Financing Systems
(Instructional facilities and dormitories)
Master Lease Purchase Program
(Equipment and certain construction projects) TPFA Revenue Financing Programs 33<br>
(Building Construction, Repairs and Rehabilitation)
University Revenue Financing Systems
(Instructional facilities and dormitories)
Master Lease Purchase Program
(Equipment and certain construction projects) TPFA Revenue Financing Programs 33<br>
34
TPFA Lease Revenue Bonds 34 TPFA issues bonds.
TPFA provides bond proceeds to client agency to construct or acquire the facility.
TPFA takes title to the facility.
TPFA leases the facility to the client state agency.
Legislature appropriates lease payments to the client state agency each biennium (no legal obligation to do so).
Client agency makes lease payments to TPFA.
TPFA uses lease payments to pay debt service on the bonds.<br>
TPFA provides bond proceeds to client agency to construct or acquire the facility.
TPFA takes title to the facility.
TPFA leases the facility to the client state agency.
Legislature appropriates lease payments to the client state agency each biennium (no legal obligation to do so).
Client agency makes lease payments to TPFA.
TPFA uses lease payments to pay debt service on the bonds.<br>
35
TPFA Lease Revenue Bonds TPFA Investors Client
Agency Legislature Debt Service Lease Payments Appropriates Funds
for Lease Payments LEASE BOND 35<br>
Agency Legislature Debt Service Lease Payments Appropriates Funds
for Lease Payments LEASE BOND 35<br>
36
Lease Agreement (Revenue Bonds) 36 TPFA leases the financed facility to the Agency.
Agency obligated to:
Make rent payments (for debt service and property insurance)
Operate, maintain, use the Project for intended, specified governmental purposes
Comply with tax covenants<br>
Agency obligated to:
Make rent payments (for debt service and property insurance)
Operate, maintain, use the Project for intended, specified governmental purposes
Comply with tax covenants<br>
37
State Capitol Complex Redevelopment
University Capital Construction and Dormitories
State Park Repair and Rehabilitation
Texas State History Museum
Armory Construction/Improvements
Admiral Nimitz Museum
State Health Laboratory
TxDOT Campus Consolidation
Tx Dept of Motor Vehicles HQ TPFA Lease Revenue Projects 37<br>
University Capital Construction and Dormitories
State Park Repair and Rehabilitation
Texas State History Museum
Armory Construction/Improvements
Admiral Nimitz Museum
State Health Laboratory
TxDOT Campus Consolidation
Tx Dept of Motor Vehicles HQ TPFA Lease Revenue Projects 37<br>
38
TPFA Client Agencies Cancer Prevention and Research Institute of Texas
Texas Agriculture Finance Authority
Texas Commission on Environmental Quality
Texas Department of Agriculture
Texas Department of Criminal Justice
Texas Department of Insurance
Texas Department of Motor Vehicles
Texas Department of Public Safety
Texas Department of State Health Services
Texas Department of Transportation (Governor’s Office – Colonia Roadway Grant Program)
Texas Facilities Commission
Texas Health and Human Services Commission
Texas Historical Commission
Texas Juvenile Justice Department
Texas Military Department
Texas Military Preparedness Commission
Texas Parks and Wildlife Department
Texas School for the Blind and Visually Impaired
Texas School for the Deaf
Texas Southern University
Texas State Preservation Board
Texas Windstorm Insurance Association
Texas Workforce Commission
Optional Use of TPFA as an Issuer
Texas State Technical College System
General Academic Teaching Institutions as defined by Section 61.003 of the Texas Education Code<br>
Texas Agriculture Finance Authority
Texas Commission on Environmental Quality
Texas Department of Agriculture
Texas Department of Criminal Justice
Texas Department of Insurance
Texas Department of Motor Vehicles
Texas Department of Public Safety
Texas Department of State Health Services
Texas Department of Transportation (Governor’s Office – Colonia Roadway Grant Program)
Texas Facilities Commission
Texas Health and Human Services Commission
Texas Historical Commission
Texas Juvenile Justice Department
Texas Military Department
Texas Military Preparedness Commission
Texas Parks and Wildlife Department
Texas School for the Blind and Visually Impaired
Texas School for the Deaf
Texas Southern University
Texas State Preservation Board
Texas Windstorm Insurance Association
Texas Workforce Commission
Optional Use of TPFA as an Issuer
Texas State Technical College System
General Academic Teaching Institutions as defined by Section 61.003 of the Texas Education Code<br>
39
Texas Public Finance Authority Resource through which agencies and universities can access debt financed capital projects
As explicitly authorized by the legislature
At the discretion of the individual agency
TPFA has issued and/or is currently managing debt for many “client” agencies
TPFA also issues special purpose debt through:
Charter School Finance Corporation
Texas Natural Gas Securitization Finance Corporation<br>
As explicitly authorized by the legislature
At the discretion of the individual agency
TPFA has issued and/or is currently managing debt for many “client” agencies
TPFA also issues special purpose debt through:
Charter School Finance Corporation
Texas Natural Gas Securitization Finance Corporation<br>
40
IV. Master Lease Purchase Program 40<br>
41
Master Lease Purchase Program TPFA issues “MLPP” revenue debt to finance a purchase of personal property, equipment, or buildings.
Examples of equipment projects: airplanes, vehicles (cars, trucks, buses, vans), computer equipment, and energy retrofit projects.
MLPP may also be preferred for construction and renovation projects (Ex. HHSC statewide projects) that have long expenditure schedules where issuing debt incrementally will provide cost savings. 41<br>
Examples of equipment projects: airplanes, vehicles (cars, trucks, buses, vans), computer equipment, and energy retrofit projects.
MLPP may also be preferred for construction and renovation projects (Ex. HHSC statewide projects) that have long expenditure schedules where issuing debt incrementally will provide cost savings. 41<br>
42
Master Lease Purchase Program The Master Lease Purchase Program ("MLPP") is a lease revenue financing program established in 1992, primarily to finance capital equipment acquisitions by state agencies. (Texas Gov’t. Code, §1232.103)
MLPP also may be used to finance other types of projects that have been specifically authorized by the Legislature and approved by the TPFA Board.
The financing vehicle for the MLPP program is a tax-exempt revenue commercial paper program. (Commercial paper is a short-term variable rate debt instrument)<br>
MLPP also may be used to finance other types of projects that have been specifically authorized by the Legislature and approved by the TPFA Board.
The financing vehicle for the MLPP program is a tax-exempt revenue commercial paper program. (Commercial paper is a short-term variable rate debt instrument)<br>
43
Who May Use MLPP? State Agencies and Universities
A “state agency" is any board, commission, department, office, agency, institution of higher education, or other governmental entity in the executive, judicial, or legislative branch of state government.<br>
A “state agency" is any board, commission, department, office, agency, institution of higher education, or other governmental entity in the executive, judicial, or legislative branch of state government.<br>
44
MLPP - What May Be Financed? Equipment - fixed asset, other than land or a building, used by a state agency to conduct state business. The term includes computer equipment.
Computer equipment - Telecommunications device or system, automated information system, hardware and software.
Energy Savings Performance Contracts, as defined by Texas Govt. Code Sec. 2166.406 (for state agencies) and Texas Education Code Sec. 51.927 (for institutions of higher education).
Other projects, such as real estate or construction, may be financed through MLPP if the specific project has been authorized by the Legislature and approved for MLPP financing by the TPFA Board.<br>
Computer equipment - Telecommunications device or system, automated information system, hardware and software.
Energy Savings Performance Contracts, as defined by Texas Govt. Code Sec. 2166.406 (for state agencies) and Texas Education Code Sec. 51.927 (for institutions of higher education).
Other projects, such as real estate or construction, may be financed through MLPP if the specific project has been authorized by the Legislature and approved for MLPP financing by the TPFA Board.<br>
45
Eligibility Project Cost
$10,000 minimum
Individual Item Cost
$100 minimum
Useful life
3 years minimum<br>
$10,000 minimum
Individual Item Cost
$100 minimum
Useful life
3 years minimum<br>
46
How to Access MLPP? Contact TPFA
TPFA has a separate and comprehensive presentation Implementing a Master Lease and MLPP Program Mechanics<br>
TPFA has a separate and comprehensive presentation Implementing a Master Lease and MLPP Program Mechanics<br>
47
V. Legislative Authorization and Appropriations Process<br>
48
Legislative Process 48<br>
49
49 Legislative Authorization The Legislature must authorize the specific project for which bonds are to be issued.<br>
50
50 Requesting Bond Authority Agency, LBB, or Legislative member provides TPFA with
Draft of proposed authorizing language
Amount to be requested
Description of the project
Estimated Expenditure schedule
TPFA will prepare debt service estimates, assist with bill drafting process, and identification of available financing options.<br>
Draft of proposed authorizing language
Amount to be requested
Description of the project
Estimated Expenditure schedule
TPFA will prepare debt service estimates, assist with bill drafting process, and identification of available financing options.<br>
51
The Legislature must authorize the specific project for
which debt is to be issued and either the estimated cost
of the project or the maximum amount of debt that can
be issued for a project or program.
Approve the project*
Approve the use of bond financing*
Appropriate bond proceeds
Appropriate debt service
*In Statute or Appropriations Bill Four Components of Legislative Authorization 51<br>
which debt is to be issued and either the estimated cost
of the project or the maximum amount of debt that can
be issued for a project or program.
Approve the project*
Approve the use of bond financing*
Appropriate bond proceeds
Appropriate debt service
*In Statute or Appropriations Bill Four Components of Legislative Authorization 51<br>
52
VI. Projects approved for Debt Financing 52<br>
53
Legislature authorizes the project or program and the issuance of debt
Agency governing body adopts a resolution authorizing request for financing
Agency submits request for financing to TPFA
TPFA Board approves request, determines type of debt instrument and sale process
TPFA structures the debt issue
Bond Review Board approves issuance of debt
Financing Documents (Bond sale/closing) TPFA Debt Issuance Process 53<br>
Agency governing body adopts a resolution authorizing request for financing
Agency submits request for financing to TPFA
TPFA Board approves request, determines type of debt instrument and sale process
TPFA structures the debt issue
Bond Review Board approves issuance of debt
Financing Documents (Bond sale/closing) TPFA Debt Issuance Process 53<br>
54
54 Post Legislative Project Approval The issuance process from beginning to end generally takes 120-150 days but can be longer depending on the scope and complexity of the project, revenue source, or other factors.<br>
55
VI. Conclusion 55<br>
56
Key Takeaways Capital Planning is key, the earlier the better.
Capital projects can be funded with cash or debt.
With financing, goals and projects can be accomplished sooner.
Match project costs with future project revenues and use.
Work with TPFA before and after requesting and receiving debt authority. 56<br>
Capital projects can be funded with cash or debt.
With financing, goals and projects can be accomplished sooner.
Match project costs with future project revenues and use.
Work with TPFA before and after requesting and receiving debt authority. 56<br>
57
Question? 57<br>