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Rep. Doggett Applauds Remedy To Prevent Excessive Financing Costs on Texas School Construction Finance

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May 10, 2023

Washington, D.C. – Today, U.S. Representative Lloyd Doggett (D-Austin) released the following statement applauding the IRS-issued notice of intentto update the outdated federal limit on the amount of bonds that the Texas’ Permanent School Fund (PSF) can guarantee:

“My efforts to avoid the diversion of taxpayer dollars from new classrooms and renovated facilities into higher financing fees have finally succeeded. Now, cosponsored by most members of the Texas Congressional Delegation, my pending bipartisan legislation and appeals to the Administration have finally produced the solution we have long sought—effectively a permanent exemption for the PSF. This will allow the PSF to guarantee new bonds for construction. Every dollar that goes into fostering our children’s public education should be cost-effective for school districts and the taxpayers who approve these bonds. For the Austin Independent School District, this decision saves about $25 million over the next five years.”

Today’s proposed IRS regulation would provide a permanent solution to the issue that prevented the PSF from guaranteeing over $6.8 billion in school construction bonds last fall. Without this guarantee, Texas’ schools are estimated to spend an additional hundreds of millions of dollars this year on higher financing costs, valuable funding that otherwise could be spent supporting Texas’ schoolchildren directly. The Notice indicates that prior to the issuance of the forthcoming proposed regulation, the Notice can be relied upon for bonds sold on or after May 10th.

By guaranteeing the bonds school districts use to finance school construction, the PSF’s Bond Guarantee Program (BGP) lowers the cost of school construction for Texas school districts, thereby saving taxpayers an estimated $425 million per year. The BGP has been in place for nearly 40 years, helping school districts and taxpayers save money on borrowing costs for critical school infrastructure. While the current federal exemption is fixed to the PSF’s value at a moment in time well over a decade ago, Texas’ school population and the need for new and updated facilities have steadily grown since then.

Because the BGP serves the same goal as the federal tax preference for municipal debt – reducing financing costs for local governments – it has rightly received an exemption from federal anti-abuse arbitrage provisions. This exemption is important and has helped make sure the PSF functioned well and saved taxpayer money for years. However, the current exemption, which limits the dollar amount of bonds the fund can guarantee, was set in 2010.

Rep. Doggett has long advocated for a permanent fix and warned of the looming cutoff. In February, Doggett, joined by Rep. Jodey Arrington (R-Lubbock), introduced the bipartisan Keeping Texas School Construction Costs Downto address this recurring issue. Last year, the two members, joined by much of the Texas delegation, also lead an effort to the Administration urging for action prior to the limit being hit. Additionally, Rep. Doggett sounded the alarm to the Administration on separate occasions in 2022 and 2021 as well as to the Obama Administration in 2009 regarding a prior, similarly temporary exemption.