Local Governments Must Be Broken of their Addiction to Debt
by JAMES QUINTERO
Mar 04, 2020 | 1829 views | 0 0 comments | 5 5 recommendations | email to a friend | print

Local governments are addicted to debt.



Over the past decade, cities, counties, school districts, and special districts have been on a borrowing binge—and last year was no exception. New data shows that local government debt grew to more than $365 billion in fiscal year 2019, an increase of almost $11 billion over the previous year. That’s enough debt to send a $12,500 bill to every man, woman, and child in Texas. 



Driving the problem is school district debt. Collectively, school districts owe almost $138 billion, or more than one-third of everything borrowed at the local level. To illustrate how much debt that is, consider that you could spend $25,000 on each of Texas’ 5.4 million schoolchildren and you’d still be billions in the hole.



Of course, school districts aren’t the only ones gorging on debt. City governments have a $133.5 billion tab. Special districts—which includes entities like community colleges, hospital districts, water districts, and others—owe a combined $92.8 billion. And counties have $21 billion in red ink. 



The numbers don’t lie. Local governments really like debt, and that comes with consequences. 



More debt usually means paying more taxes. Bigger tax bills aren’t something that everyone can afford, either. For some people—especially the poor and the elderly—that could mean making tough choices, cutting the family budget, or even losing their home and being forced to move elsewhere. 



Mounting debt may also impair the provision of services. That’s because as a government’s debt grows, so too does its debt service requirement. Making good on those obligations can mean there’s less money available for critical programs. 



Last but not least, too much debt can invite negative attention from credit rating agencies. In the event of a ratings downgrade, the cost of future borrowing will almost assuredly go up as investors look to hedge their bets. 



Of course, it’s not enough to simply identify the problem. One must also have solutions. So here are a few ideas to help wean local governments off the taxpayer credit card. 



First, Texas should have minimum voter turnout requirements for all bond elections. We shouldn’t allow a tiny fraction of voters to decide billion dollar bonds decided during an off-peak election. New debt (and the taxes that come along with it) should only be approved if a sufficient number of voters show up to cast their ballot. 



Second, lawmakers should require that all bond elections be held on the uniform election date in November. Consolidating bond elections in the fall means that the maximum number of voters will have a chance to have their say. 



Third, it’s time to sharply curtail the use of certificates of obligation, which allow cities and counties to borrow without voter approval. This tool is being misused in many cases and it is costing taxpayers greatly (see Bexar County’s Plethoraproject or Travis County’s new courthouse, for example). Ideally, we’d eliminate it outright. Short of that, lawmakers should make the approval process for COs more transparent, reform the petition process to make it easier for voters to weigh-in, and more tightly define what may and may not be funded with the proceeds. 



Lastly, school district debt needs an overhaul. Right now, too many ISDs are using debt to pay for day-to-day expenses or to build palatial facilities—some of which have nothing to do with learning. Texas needs its public schools to do better. New laws are needed to enforce strict fiscal discipline. One place to start: ban schools from owning or operating water parks, hotels, and golf courses. 



The local elected class might not like some of these changes, but if we’re going to keep Texas, Texas, then cities, counties, and school districts must be broken of their addiction to debt. We cannot fail. 



James Quintero leads the Think Local Liberty project at the Texas Public Policy Foundation. He may be reached at jquintero@texaspolicy.com



Comments
(0)
Comments-icon Post a Comment
No Comments Yet