By Dr. Vance Ginn & Kiara Pillay
The Legislative Budget Board (LBB) recently presented updated information about state and local debt in Texas for fiscal year 2015. These data show that state and local outstanding debt is $259.5 billion with $41 billion in state debt and $6.1 billion in revenue conduit (“issued by state entities on behalf of third parties and is not a legal liability of the state”) (see Chart 1), and $212.4 billion in local debt (see Chart 2).
While this is valuable information, “debt outstanding” refers to just the amount of upaid principal on a debt that will continue to generate interest until paid off.” A more accurate representation of Texas’ full obligation, or what their tax dollars could ultimately pay, is “debt service outstanding” which is defined as “the amount that is required to cover the repayment of principal and interest on a debt,” according to the Texas Bond Review Board(pg. 119).
When you consider debt service outstanding, the data by the Texas Bond Review Board paint a much more costly picture.
Instead of the $47.1 billion, or roughly $1,700 per Texan, reported in debt outstanding for the state and revenue conduit, the amount of state debt service outstanding is $77 billion, or about $2,800 per person. This means that the true debt that Texans are on the hook for is 63 percent higher than the reported debt outstanding.
While it’s true that Texas ranks relatively well as having one of the lowest levels (45th) of state debt per capita nationwide, that’s not to say that something shouldn’t be done about state debt. Senate Finance Chair Jane Nelson made a valuable recommendation at a recent committee meeting to prioritize state debt to consider which order debts should be paid off if given the opportunity.
The 100-pound gorilla in the room is not state debt but rather local debt.
The principal owed on local debt ranks as second highest next to California and local debt per person ranks second highest to New York among the top ten most populous states. Adding to this red ink is local debt service outstanding that has reached an exorbitant amount of $338.4 billion, which is up $30 billion in just five years, bringing local debt per person up to around $12,250 per Texan.
Combining state and local debt service outstanding, the total is $415.4 billion, or more than $15,000 owed by every man, woman, and child in the Lone Star State. That substantial amount must be resolved in some fashion before we are all burdened with even higher taxes and fees, resulting in fewer opportunities to prosper.
To combat a greater financial burden, Texans must urge the government to do better regarding debt transparency. One way would be for lawmakers at the state and local level to publish more details about their debt amount, particularly the debt service outstanding and what that means for taxpayers. This idea has been advocated by the Foundation through what’s called ballot box transparency, as noted in the Forbes piece above.
Specifically, this would include providing more information about a local bond proposal on a local ballot such as (1) how their tax bills will be affected, (2) how much the bond will cost in principal and interest, and (3) local debt service outstanding per capita.
By increasing debt transparency and prioritizing which should be paid first, Texans can have a better sense of whether state and local lawmakers are being good stewards of their tax dollars.
Ph.D. Economist at the Texas Public Policy Foundation. Blog posts are publications by the author.