Texas lawmakers are proposing a host of ideas to make it tougher for local governments to borrow money — the natural next step in a yearslong effort to take greater control of spending at the municipal level.
If successful, bond elections like the ones San Antonio has used to finance hundreds of major projects in recent years will require two-thirds support from voters instead of a simple majority.
They would also have to appear on a November ballot, instead of May, as the city has done in recent years.
Gov. Greg Abbott set the wheels in motion for such changes in this year’s State of the State address, which are now laid out in House Bill 2736. Unlike some other revenue-limiting measures the state has approved in recent years, it would apply to all political subdivisions, including cities and counties of all sizes, as well as school districts.
“This is a very important taxpayer protection that ensures that a small minority of voters are not responsible for massive tax increases,” said James Quintero, policy director for the right-leaning Texas Public Policy Foundation’s Taxpayer Protection Project, which is supporting the bill.
A bond program allows a municipal government to issue debt to finance large projects, using just a portion of their property tax revenues to repay the loan over time. Often, cities are leveraging their future growth, since tax revenues rise as more people move into the community and home values increase.
In a city like San Antonio, where the average resident’s income is relatively low compared to other cities, city leaders say bond programs have been a helpful tool to finance community priorities while keeping the individual tax burden relatively low.
The city’s 2022 bond program, for example, is expected to finance 183 projects totaling $1.2 billion, while keeping the debt service portion of residents’ tax bills the same as they were before.
“For the better part of modern history, San Antonio has been on the lower end of the socioeconomic spectrum,” Mayor Ron Nirenberg said in an interview this week. “Because of that, there are fewer dollars in the public sector for which we can invest in all these important public improvements, compared to a city like Austin or Dallas.”
If approved, HB 2736 would take effect in September — ahead of a potential November bond election the city has been considering to fund streets, sidewalk and utilities related to Project Marvel.
A different bill aimed at the same changes, House Bill 5490, sets an effective date at the beginning of 2026.
Bexar County has also discussed the possibility of asking voters to increase its venue tax in the November election to help pay for elements of Project Marvel.
Under the new pending legislation, all voter-approved tax increases would be subject to the two-thirds approval threshold once the law takes effect.
Closing off revenue streams
The proposed changes to bond elections come after state lawmakers capped the amount of property tax revenue large cities and counties could collect in 2019 at 3.5% of growth from the previous year, not including taxes on new development, aimed at curbing ballooning municipal budgets.
If a municipality wants to exceed that cap to raise property taxes, it must seek permission from voters — an election that would also require two-thirds support and a November timeframe.
San Antonio hasn’t held an election to raise property taxes since the 2019 law went into effect, but it has leaned hard on borrowed money to fund a growing list of community priorities.
“We have gotten creative, not entirely because of the state’s [revenue] constraints, but because we want to make sure we’re being prudent with tax dollars,” Nirenberg said. “Our bond ratings are strong. We don’t overextend ourselves, and our debt per capita is low.”
In 2021, voters approved changing the City Charter to allow bond money to be used for a broader scope of projects — something other Texas cities have also done.
The following year, the city’s record-high bond included money for not only traditional city needs like streets, sidewalks, drainage and parks, but also new projects, like affordable housing.
The bond even took over funding some popular projects like greenway trail development, which was previously paid for by sales tax revenue, allowing the city to reallocate the sales tax revenue to fund a major workforce development program, Ready to Work, as well as VIA Metropolitan Transit, with voters’ approval.
It’s unclear whether elections to reallocate sales tax would also be subject to the new rule, Quintero said. If so, it could impact San Antonio’s sales tax for Pre-K 4 SA, which would need to be reauthorized by voters in the coming years.
To HB 2736’s conservative supporters, forcing municipalities to refocus their limited resources on traditional spending priorities is precisely the point.
“In states and localities where a strict property tax limitation has been put in place, one of the unintended consequences is that it [causes] the jurisdiction to shift their revenue,” Quintero said. “Things that it may have ordinarily been able to pay for with general operating monies now shift those requirements onto the bond side.”
As the legislature tries to make long-lasting cuts to property taxes this year, Quintero expects lawmakers to not only rein in bond elections, but also give serious consideration to new debt limits, budget transparency measures and efficiency audit requirements.
“All of these things together are probably going to make it harder in future years for local governments to raise taxes in the fashion that they have,” he said.
City bond elections remain popular
On the whole, San Antonio’s recent bond elections have been extraordinarily popular with the small segment of voters who participated.
San Antonio typically operates on a five-year bond cycle, seeking permission from voters to borrow money for dozens of projects across the city all at one time. The projects are then constructed over the course of years, and some of the 2017 bond projects are still in the works today.
The last bond election took place on May 7, 2022, an off-year for city elections. Roughly 65,000 voters participated, in a city of about 1.5 million residents.
Of the six proposals San Antonio put before voters in the May 2022 bond, two of them — Proposition A: Streets and sidewalks, and Proposition B: Drainage — would have received the necessary support under the state’s proposed higher threshold.
Affordable housing drew the lowest margin of support, 59.8%.
“The ones that are more difficult are the ones that I think are most critical… the ones aimed at shoring up the inequities in our communities,” Nirenberg said, pointing to the affordable housing bond as an example. “They’re new and we have yet to really demonstrate the effectiveness and importance of it to the wider community. I think over time we will, but it’s going to be harder.”
Critics of San Antonio’s recent bonds contend that tying all of the projects together is a bad process, and that the huge list of projects isn’t specific enough for voters to truly understand what they’re supporting when they vote for it.
Municipalities can also promote bond elections with professional public relations campaigns that raise money from contractors and developers who will eventually compete to be hired for the projects.
“You’ve got kind of this cartel that’s formed around the bond issuance process, consisting of engineers, architects, bond lawyers, insurance firms, a lot of people with a vested interest in seeing [municipalities] go forward with large debt measures,” Quintero said.
Closing off revenue for public schools
Changes to the bond election process will also apply to school districts, where bond elections have already been less popular in recent years.
Even at the existing 50% support threshold, last November 20 of 35 school district bond propositions put forward by 19 school districts across Texas failed.
At the same time, increases to public school funding were held up by the legislature, leading many districts to slash programs, close campuses and lay off staff to account for deficit budgets.
Facing that lack of state funding, last year fast-growing East Central Independent School District, asked voters to approve a large slate of bond proposals and a tax increase to help pay for upgrades to aged sports facilities and new school facilities, teacher pay raises and campus security.
The proposals all failed to garner enough support from voters, ranging from 43.5% to 47%, and the district is putting a smaller ask on the ballot this May in hopes of getting it up over 50%.
