DALLAS -- Texas may modify its oversubscribed private-activity bond allocation system to devote more to issues approved by state voters and create a new set-aside for multifamily housing projects, state officials said.
A new report, prepared by the Texas Bond Review Board, cites recommendations made by issuers, bond lawyers, and investment bankers. It focuses on six mostly technical adjustments -- not major policy changes -- in how the state uses its $852.9 million allocation.
While no one has called for changing the lottery system used to decide which issuers get allocations, some have suggested changing the formula to decide how much volume cap is available for each kind of project.
Under the new proposals, the volume cap would be divided this way: state-voted issues, 17.5%; small-issue IDBs, 7.5%; single-family programs, 28%; the so-called other category, 42%; and multifamily housing projects would become a fifth area with a 5% allocation.
The new category for multifamily housing would be created by shifting 5% of the total allocation -- about $43 million -- from mortgage revenue bond programs. That would leave those programs with 28% of the total cap.
The move would ease the pressure on the "other" category of the allocation formula, which uses 42% of the total allocation and now includes multifamily projects. The demand in that category is nearly triple the allocation.
"Proponents of each of these brought them to us," said Tom Pollard, executive director of the board, which will oversee the allocation system beginning in January.
The ideas were outlined in a report to the top five elected officials of the state, who compose the Bond Review Board, and are expected to prompt specific legislation.
State Sen. John Montford, D-Lubbock, chairman of the Senate Finance Committee, is expected to sponsor the proposals, which could be introduced late this week in a special session called to draft a budget before the start of the 1992 fiscal year on Sept 1.
"I think we'll adopt them," said Wardleen Belvin, special assistant to Lieut. Gov. Bob Bullock. "The only concern we had initially was that some of the state needs were not being met" by the allocation system.
Others say the proposals are likely to become law because legislators are focusing on improving the efficiency of state government.
"Anything that gives more flexibility at this time will be considered," said Ron Lindsey, special assistant to Texas House Speaker Gib Lewis, D-Fort Worth. "To the extent we can make it more efficient, then I think someone will pick it up and run with it."
The reason for the change is that applications for multifamily housing allocations are clogging the volume cap process.
The Bond Review Board reports that this year applicatios totaled $451 million, though most were withdrawn or canceled by the issuer. As a result, only $16 million for multifamily housing had been closed by June 13.
There is also a proposal to increase the category for state-voted issues from 15% to 17.5%, while reducing the allocation for small-issue industrial government bonds from 10% to 7.5%. Also, any unused portion of the IDB allocation remaining on June 1 would be made available for state-voted issues.
Mr. Pollard said that even though state-backed issues would see an overall increase, it is still not equal to the 25% share given Texas issues before the current system was adopted in 1989, when the state's volume cap was much larger.
As for shifting allocation from IDBs, those small issues have "used about half their allocation this year," Mr. Pollard said. "This would take half of that [remaining] half and move it to state-voted."
There are four other technical changes advocated by bond lawyers who testified earlier this month at a public hearing.
One proposal calls for the so-called 60-day rule -- the time limit to use an allocation or lose it -- to be extended to 90 days.
Also proposed is an amendment that would eliminate a requirement that a state fee be paid within five days of closing. Currently, any issuer who does not do so can have his allocation revoked, causing bonds to become taxable after they have been sold.
While that has never happened, bond lawyers advocated a change to prevent any surprises for the bond market. The proposal would amend the rules to require that the fee be paid when the bond issue is closed.
Another proposal is to change the reallocation process that some have criticized as discriminating against larger issuers.
Under current law, if an allocation of $10 million is unused, it is redistributed to the next available issuer with needs of that size -- rather than to the next issuer assigned a share of the volume cap under the lottery system.
A proposed amendment would change the system to allow canceled allocations to be pooled to meet the needs of a larger issuer who is next in line for a reservation.
Finally, if Congress does not extend MRBs or IDBs, the allocations would be proportionately redistributed to the other general areas of the allocation system. At present, such surpluses would go to the broad "other" category.
The Tax Reform Act of 1986 imposed a volume limit on issuance of private-activity bonds. The limit was $75 per capita, or $250 million, whichever was greater until 1988, when it dropped to $50 per capita, or $150 million, whichever is greater.