AUSTIN, Tex. -- Five years ago, debt was a four-letter word in Texas.

Even as the state has been more likely to turn to bonds than the budget since 1986, state officials have implemented a first-ever limit on debt equal to 5% of the budget. This was done to preserve the state's double-A rating and status as one of Wall Street's best bets.

"When you have seen the kind of rate of growth we've had [in debt] you know it's not all bad," said Texas Treasurer Kay Bailey Hutchison, an architect of the state's new debt policy. "When you are in economic hard times, you need to make sure you are being prudent."

Texas is hardly alone. In fact, state officials from across the nation today begin a first-ever conference on debt policy at a time when government at every level is pinched to pay for capital needs and other big ticket costs that ordinarily would have been paid from current revenues.

Until 1986, Texas enjoyed the reputation as largely a pay-as-you-go state. Since then, however, the state's outstanding debt has tripled to $7.75 billion, while the level of tax-supported debt has grown nearly fourfold from $396 million to $1.5 billion for the fiscal year ended Aug. 30.

Despite all that, Texas continues to rank high among states with low debt burdens. Moody's Investors Service says the state has $186 of debt per capita, ranking it 37th nationally. The agency says that states have a median debt of $345 per person.

However, states generally measure their debt limits as a percent of their budgets, not on a per capita basis. A Moody's spokesman noted, "Five percent is a number we hear a lot."

That low-debt history was noted in a recent favorable analysis from Dean Witter Reynolds, which wrote, "It is now almost an exaggeration to describe Texas fiscal policy as conservative. The state's [recent] bonding program represents a sharp deviation from past policies which funded many capital projects on a pay-as-you-go basis."

State officials agree that Texas has never been quick to issue bonds.

"The tradition has been almost the opposite," said Tom Pollard, executive director of the Texas Bond Review Board. "We used debt almost not at all, even for capital improvements."

But as the state has increasingly used debt, Mr. Pollard said debt monitors are necessary. "Because debt is a long-term resource, it needs to be done with a long-term view," he said. "What the budget writers and the legislature want is a strategic plan to use that."

Lawmakers this year approved a plan to involve the Bond Review Board in long-term capital planning for the first time. Along with the Legislative Budget Board, the debt oversight board will study capital plans for all state agencies and decide how to fund the needs.

If debt is to be used, Mr. Pollard said his staff's job will be to determine what kind of debt works best.

Further, the Texas Treasury for the first time will work with lawmakers to monitor the state's debt level. The focus will be on tax-supported debt that requires bond payments from the general fund.

Deputy Treasurer John Bell estimates that the state currently has used half its 5% debt limit with currently outstanding debt that requires general fund support. With the record issues approved last month, he says the state will have exhausted 3.62% of its estimated $5.6 billion limit.

Despite that suddent leap in authorized debt, none expect the state to be pinched by its new limit anytime soon. It will likely be the mid-1990s before the majority of the latest debt program is sold.

Meanwhile, Mr. Bell notes that the state will continue to retire about $70 million a year of the principal of the debt that he now includes in the debt-limit calculation.

Even if the state comes close to using its remaining credit limit, there is nothing to stop lawmakers from adjusting the self-imposed debt measure. Because the limit is not established by the state constitution, it can be changed with a majority vote of the Texas Legislature.

Some investment bankers that work for state agencies question whether the 5% may be too low in the long run as the population and the demand for services and infrastructure continue to grow in Texas.

"If the state says it's already two-thirds of the way to its debt limit, you have to wonder if it's too low," said a Dallas banker. "If the state's going to be faced with constantly changing its debt limit, what's the point in having one?"

But Mrs. Hutchison says debt limits may only be the beginning if she has her way. When the legislature meets again in 1993, she wants the legislature to change the way it approves debt measures.

Lawmakers now approve the use of bonds in a fragmented way in a number of committees. The treasurer proposes creating a legislative debt committee to approve all debt use in much the same way an appropriations committee handles spending bills.

"The idea is to put all the debt in one bill," she said.

Also, she says that as states begin to more closely monitor their own debt, they will have to watch the debt burden of other layers of government. In Texas, while the state has a low debt level, local governments have one of the nation's highest burdens.

"We are at the very top in local debt," mrs. Hutchison said. "I think we ought to be looking at the total burden because it's the same taxpayers who finance the debt."

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