DALLAS - After three years of delays for a planned $750 million bond bank, Texas officials say the program could play a critical role in helping the state finally write a fair school funding law before a 1993 court-imposed deadline.
State officials predict that lawmakers will remold the bond bank, first approved in 1989, as part of a school finance plan to be drafted in a mid-November special session expected to be called by Gov. Ann Richards.
They say lawmakers could, as part of that session, ask Texas voters to approve a constitutional amendment authorizing the sale of up to $750 million of state-backed, double-A rated general obligation debt for the bond bank, which is now designed as a revenue bond program.
Under the school finance proposal, the state's poorest districts would be eligible to have facilities financed up to 100% with state-paid bonds, while wealthier districts would issue their own bonds to pay for a portion of their facilities needs.
"Some of the school districts would be required to participate [financially] at some level," said Wardaleen Belvin, special assistant to Lieut. Gov. Bob Bullock. She said the revamped bond bank has been a part of every proposal discussed so far by legislative leaders.
Lawmakers face a June 1993 deadline to produce a school finance system that the Texas Supreme Court will find constitutional. Earlier plans have been struck down after the court determined they were not fair to all of the state's 1,057 districts.
A key Republican lawmaker said one reason the school finance problem lingers is because earlier solutions did not incorporate facilities funding.
"If we don't address facilities, even if we amend the constitution, we are still not out of the woods on this school funding litigation," said State Sen. Teel Bivins, R-Amarillo. "We have tried in the last couple of sessions to address the funding system without really addressing facilities and it hasn't worked."
The senator said his bipartisan proposal to revamp the bond bank comes from Dallas bond lawyer Ray Hutchison, senior partner in Hutchison Boyle Brooks & Fisher. The proposal was advanced last year by his wife, Texas Treasurer Kay Bailey Hutchison.
Earlier this year, Bivins met with bond lawyers and underwriters to discuss the proposal. He said that many expressed support while raising technical questions over how the program would work.
A former lawmaker, Ray Hutchison said the aim of the proposal would be to help the poorest of schools with a system that reduces state subsidy according to the wealth of each school. Under the system, the wealthiest districts would not be eligible for funding and would instead continue to issue bonds on their own.
"I don't have a problem if the state wants to subsidize poor districts," said one investment banker who has opposed the bond bank program.
Further, Bivins said the program would have a second component aimed at helping fast-growing districts, largely suburban areas, with facilities.
If successful, the bond bank program could salvage the fair-funding law, now that Republicans have said President Bush is expected to veto the urban aid tax bill. That bill includes provisions that would have made the current revenue bond program attractive to a broad range of Texas schools.
One provision would have allowed small issuers to keep their bank-qualified privilege when participating in pool financings. Approval of the so-called pass-through provision had been considered critical for the bond bank because as many as half the state's school districts issue such debt.
Under existing law, banks can deduct 80% of the cost of acquiring and carrying tax-exempt bonds sold by issuers that sell less than $10 million annually. That allowance translates into lower borrowing costs.
Sonja Suessenbach, director of the bond bank program, said that without the federal measure, state officials may offer a revenue bond program that would only benefit the smallest of districts.
"It could be those issuers who are very small; I'm talking about those who sell $1 million or less," she said. "There may be a few districts that are not bank-qualified that could benefit. It would be a much more limited program."
So far in 1992, there are only eight Texas school districts with reported bond sales of under $1 million. Those deals total $3.165 million, a fraction of the $2 billion in issues sold so far this year, according to Securities Data Co.
Without the pass-through provision, Suessenbach predicted the bond bank would sell a pool issue of as little as $20 million next year.
However, state officials say they would likely ask Congress again next year to reconsider the pass-through measure, saying it would broaden the bond bank program in future years.
Added Suessenbach, "I guess we're back to the drawing board."
