Introduction
A proposition bond (also known as a constitutional amendment bond) is a voter-approved bond that a commission or department can issue for project financing. The State of Texas borrows money from investors and guarantees to repay the bonds with interest with the highest priority.
The approval process for issuing a set of proposition bonds requires legislation passed by the Texas State Legislature to place the proposal before the citizens who vote to add the amendment to the constitution. Revenue in use today stems from two recently approved constitutional amendments:
- Proposition 14 (78th Regular Session): This constitutional amendment, frequently referred to as Prop 14, authorizes a state transportation agency to issue notes or borrow money on a short-term basis for transportation-related projects. These bonds or other public securities are secured by the state highway fund. In 2003, Prop 14 authorized the Texas Department of Transportation (TxDOT) to issue $3 billion in bonds. A minimum of $600 million was to be spent on safety improvement projects. The 80th Texas Legislature increased the bonding capacity to $6 billion with a maximum annual issuance of $1.5 billion. A minimum of $1.2 billion must be dedicated to safety projects.
- Proposition 12 (80th Regular Session): This constitutional amendment, frequently referred to as Prop 12, allows the Texas Transportation Commission to issue a maximum of $5 billion in general obligation bonds. Funds from these bonds may be used for reducing highway congestion, improving transportation between metropolitan areas, and restoring bridges around the state.
The money from these bonds has already been assigned to projects, and a new amendment would be necessary for more bonds.
How Will This Help?
- Delays project costs. With the currently low interest rates, the state can borrow money now and pay off debt in the future at low cost.
- Avoids new taxation. Proposition bonds fund necessary projects without increasing or creating new taxes.
Implementation Examples
Case Study: Dallas Horseshoe Project
In 2012, TxDOT began a project to replace bridges that crossed the Trinity River on IH 30 and IH 35E, as well as to upgrade the connecting roads south of downtown Dallas. According to TxDOT, this project, known as the Dallas Horseshoe Project, improves safety and increases capacity on two important freeway connectors to downtown Dallas. Through the use of alternative financing methods, such as Proposition 12 bonds, and through the use of integrated design and construction methods, TxDOT was able to reduce the project schedule by several years. Current estimates call for the project to be completed by 2016. The largest Proposition 12 project with more than $800 million in bonds.
Waco, TX IH 35
Received more than $200 million in Proposition 12 bond funds for new highway lanes.
El Paso, TX Loop 375
Was able to expand its number of roadway lanes with $70 million from Proposition 14 funds.
Issues
- Increases debt. These bonds have to be repaid with interest in the future, so future revenues will have to be higher to cover the costs.
- Legislative action would be required if bonds are modeled after Proposition 12. Additionally, increases to the Rainy Day Fund would be required if bonds are modeled after Proposition 14.
- Agencies should be prepared to respond to legislative and public inquiries regarding such proposals.
For More Information
State of Texas. Texas Transportation Code Ann. Sec. 222.004; Texas Constitution Article III, Sec. 49-p.
Texas Department of Transportation. Proposition 12 (General Obligation Bond Projects). http://www.txdot.gov/inside-txdot/projects/prop12.html.
Texas Department of Transportation. Proposition 14 Projects.
Texas Department of Transportation. Highway Improvement General Obligation (HIGO) Bonds. http://www.txdot.gov/business/investors/higo-bond.html.
Texas Department of Transportation. 2015 Educational Series: TxDOT Funding. http://ftp.dot.state.tx.us/pub/txdot-info/sla/education_series/txdot-funding.pdf.
Legislative Budget Board. Texas Highway Funding: Legislative Primer. http://www.lbb.state.tx.us/Documents/Publications/Primer/238_TexasHighwayFunding_LegislativePrimer_ThirdEdition2013.pdf.