DALLAS--Texas officials say it will probably be 1993 before they launch a $750 million pool financing program for local schools that had been expected this summer.
And the kind of program the Texas Bond Review Board will ultimately offer depends on three unpredictable factors: the state Legislature, the Internal Revenue Service; and Congress.
"We have our bond counsel and financial adviser looking at the specifics of how this program would work given whatever federal constraints we have to face," said Tom Pollard, executive director of the review board, which will operate the program.
Asked when the program might be ready, Mr. Pollard said, "I don't have a date." But others acknowledged that it will likely be next year before the pool program is started.
The chief reason, they said, is Texas lawmakers' expected attempt to use the $750 million bond program as part of the latest try at solving the school funding crisis in Texas.
The Texas Supreme Court has given legislators until June 1993 to devise a constitutional school finance law after striking down their latest draft in January. Legislative aides say that a program involving state-level funding of local facilities may be part of the new law.
"In all the proposals we're looking at, we're trying to factor in a facilities component," said Wardaleen Belvin, special assistant to Lieut. Gov. Bob Bullock, who heads the Texas Senate. "This program will be part of some legislation."
But there are other obstacles to finalizing the program. One of the most critical issues is convincing the IRS to allow the pool program to be backed by the Texas Permanent School Fund, a multibillion dollar trust that guarantees local school debt.
The agency has already ruled that the constitutionally created fund is exempt from arbitrage regulations and can be used to guarantee payment of local school bonds. The backing of the fund results in all-but automatic triple-A ratings.
The fund currently guarantees an estimated $2.6 billion of local school debt. However, without the ability to back the pool financing, which would be state-issued bonds for local use, the fund's rating would be low enough to make it less attractive to most Texas schools.
In recent months, tax lawyers at Johnson & Gibbs in Dallas have been informally discussing guaranteeing the pool with the fund's backing and expect to formally request a letter of ruling by late this month.
"We should expect to have an initial response from the service within a month after we file," said Richard Kornblith, a bond lawyer at Johnson & Gibbs. "A formal ruling might not be issued for up to six months."
Texas officials believe a previous IRS ruling already allows the fund to guarantee the $750 million pool program, but want a clarification before proceeding.
"The IRS has been receptive, but noncommittal," said Jim Thomassen, assistant Texas attorney general and chief of the state's public finance section. "They haven't really tipped their hand."
State officials are also hopeful Congress will approve a proposal that could broaden the use of the pool to small issuers who lose their bank-qualified privilege under current laws.
Earlier this year, officials from Texas and other states lobbied for an amendment allowing issuers to use their bank-qualified privilege in a pool program. The legal change would benefit pool programs across the nation.
However, congressional staffers dealt the proposal a setback when they estimated it could cost the Treasury more than $100 million over five years.
Ms. Belvin said the state hopes to show Congress that its proposal is at least revenue-neutral and could be revenue-positive because it might reduce the amount of bonds small issuers now must sell to pay cost of issuance.
The state's theory is based on the assumption that the economic savings of pool financing will cause bank-qualified issuers to sell fewer bonds than they would in an individual issue.
"If we can show that it is revenue-neutral, that will help in selling it to all the members on the committee," Ms. Belvin said, adding that Sen. Lloyd Bentsen "has told us it is still a possibility." The Texas Democrat is chairman of the Senate Finance Committee.
While the Bond Review Board could effectively market a pool program without bank-qualified issuers, it would not serve as broad a market in Texas as the state would like.
The bank-qualified privilege is a savings factor for small issuers, resulting in a yield differential of 15 to 20 basis points, officials said.
For instance, of the $2.05 billion in local school debt sold in Texas last year, 62% of the 226 issues and 17.2% of the volume, about $177.1 million, was bank-qualified, according to Securities Data Co./Bond Buyer.
"We have to determine if there is a level where participation is more beneficial for a certain size issuer," Mr. Pollard said.