Proposed Rules Title 34

TITLE 34. PUBLIC FINANCE

SUBCHAPTER A. BOND REVIEW RULES

The Texas Bond Review Board (BRB) proposes a new rule to Texas Administrative Code (TAC) Title 34, Part 9, Chapter 181, Subchapter A, adding §181.11. Report on State Lending and Credit Support Programs.

Background and Justification:

The BRB proposes a new rule within Texas Administrative Code, Title 34, Part 9, Chapter 181 based on the passage of House Bill (HB) 1038 by the 88th Legislature (2023 Regular Session). HB 1038 amends Chapter 1231 of the Texas Government Code by adding Section 1231.064 related to a biennial report on state lending and credit support programs.

This proposed new rule facilitates the gathering of relevant information from state agencies or political subdivisions regarding lending and credit support programs within the state to enable the BRB to prepare a biennial report due by December 31 of each even-numbered year as mandated by Section 1231.064 of the Texas Government Code.

New rule §181.11, as proposed, requires as follows: For each state lending and credit support program, a state agency or political subdivision shall provide a description of the program, the total amount of state money lent through or debt supported by the program, a citation to the law authorizing each program, a reasonable estimate of the cost of default associated with each program computed in accordance with private-sector accounting standards for credit or other losses, and policies and procedures in place for each program to mitigate the risk of future default in the programs.

Fiscal Impact on State and Local Government:

Robert Latsha, Executive Director for the BRB, has determined that for the first five-year period the proposed new rule is in effect, there should only be minimal administrative costs for the state or local government to provide the financial information required to comply with the rule because this financial information should be and likely is already available.

Public Benefit:

Mr. Latsha also has determined that for each year of the first five years the proposed new rule is in effect, the public benefit of the new rule will be to increase transparency on state lending and credit support programs. Texas has a strong reputation for fiscal transparency. This new rule furthers that reputation by ensuring that the BRB receives sufficient information for BRB to track and accurately report, for each lending program and for each credit support program, the total amount of state money (taxpayer dollars) lent through and debt supported by that program.

Impact on Local Employment or Economy:

There is no effect on local economy for the first five years that the proposed new rule is in effect because the rule merely facilitates the gathering of relevant information from state agencies or political subdivisions in order for the BRB to provide the report required by HB 1038. Therefore, no economic impact statement, local employment impact statement, or regulatory flexibility analysis is required under Texas Government Code §§ 2001.022 or 2001.024(a)(6).

Government Growth Impact Statement:

The BRB provides this Government Growth Impact Statement, pursuant to Texas Government Code §2001.0221, for the proposed new rule.

For each year of the first five years the proposed new rule is in effect, Mr. Latsha has determined:

1) The proposed new rule does not create or eliminate a government program.

2) Implementation of the proposed new rule does not require the creation of new employee positions or the elimination of existing employee positions.

3) Implementation of the proposed new rule does not require an increase or decrease in future legislative appropriations to the BRB.

4) The proposed new rule does not require an increase or decrease in fees paid to the BRB.

5) The proposed new rule creates a new regulation in order to obtain the necessary information required by the BRB to provide a new biennial report required by HB 1038.

6) The proposed new rule does not expand, limit, or repeal an existing BRB rule.

7) The proposed new rule does not increase or decrease the number of individuals subject to the rule's applicability.

8) The proposed new rule does not positively or adversely affect the state's economy.

Fiscal Impact on Small and Microbusinesses and Rural Communities:

The proposed new rule will have no adverse economic effect on micro-businesses, small businesses, or rural communities because the new rule only increases transparency regarding state lending and credit support programs. The proposed new rule does not affect operations of any small or micro-business, and the proposed new rule should not have an adverse impact on rural communities because the rule only requires more detailed reporting of information that each rural community that participates in the programs should and likely does already possess. The proposed new rule does not affect any local economy within the state.

One-for-One Rule Analysis:

The proposed new rule is not subject to Texas Government Code § 2001.0045, concerning increasing costs to regulated persons, and is exempt from that statute because pursuant to the exception contained in section 2001.0045(c)(9), the rule is necessary to implement section 1231.064 of the Government Code, as added by House Bill 1038. Subsection (c) of section 1231.064 provides that a state agency or political subdivision of this state shall provide to the board in the manner provided by board rule any information necessary for the board to prepare the report required by section 1231.064.

Takings-Impact Assessment:

The proposed new rule does not restrict or limit an owner's right to his or her property that would otherwise exist in the absence of government action, and therefore, the rule does not constitute a taking under Texas Government Code §2007.043.

Environmental Rule Analysis:

BRB has determined that this proposal is not brought with specific intent to protect the environment or reduce risks to human health from environmental exposure. Thus, the proposed rule is not a "major environmental rule," as defined by Government Code §2001.0225. As a result, the preparation of an environmental impact analysis is not required.

Public Comment:

Comments on the proposed rule may be submitted in writing to Robert Latsha, Texas Bond Review Board, P.O. Box 13292, Austin, Texas 78711-3292. Comments may also be submitted electronically to rob.latsha@brb.texas.gov or faxed to (512) 475-4802. The deadline for providing comments is thirty days after publication in the Texas Register.

Statutory Authority:

The new rule is proposed under Texas Government Code §1231.064(c) authorizing the BRB to adopt rules relating to a biennial report on state lending and credit support programs.

No other statute, articles, or codes are affected by the proposed new rule.

§181.11.Report on State Lending and Credit Support Programs.

(a) A state agency or political subdivision of this state must file a report on state lending and credit support programs in electronic format, and in a manner directed by the Board, with the bond finance office. Reports shall be submitted in electronic format no later than September 15 of each even-numbered year for the prior two fiscal year periods ending August 31.

(b) For each lending program, the report shall include but is not limited to:

(1) Program name;

(2) Detailed description of the program;

(3) Number of loans outstanding separated by program;

(4) Policies and guidelines for all lending programs including policies and procedures in place for each program to mitigate the risk of future default in the program;

(5) Citation to the law authorizing the program;

(6) Total amount of state money lent through the lending program;

(7) Total amount of debt supported by the lending program;

(8) Total dollar amount of outstanding loans separated by program;

(9) Reasonable estimate of the costs of default associated with the program, computed in accordance with private-sector accounting standards for credit or other losses. The estimate shall include all assumptions, factors, formulas, and analysis used to calculate the cost of default;

(10) Current default rate of program;

(11) Highest default rate experienced in program;

(12) Total amount of principal and interest payments received from borrowers;

(13) Total amount of principal and interest payments in default;

(14) Assets, if any, pledged as collateral to secure existing loans;

(15)For each of the items described in paragraphs (6) through (14) of this subsection provide total amount broken down by each entity in the lending structure, if the public or private entity receiving funds also lends the money to another public entity or private entity. Provide the total amounts for each entity; and

(16) Any additional information required by the Board.

(1) Program name;

(2) Detailed description of the program;

(3) Policies and guidelines for all credit support programs including policies and procedures in place for each program to mitigate the risk of future default in the programs;

(4) Citation to the law authorizing the program;

(5) Total amount of state money lent through or debt supported by the program, as applicable;

(6) Total amount of credit support for interest or principal payments;

(7) Reasonable estimate of the costs of default associated with the program, computed in accordance with private-sector accounting standards for credit or other losses. The estimate shall include all assumptions, factors, formulas, and analysis used to calculate the cost of default;

(8) Current default rate of program;

(9) Highest default rate experienced in program;

(10) For each of the items described in paragraphs (5) through (9) of this subsection provide total amounts broken down for each public or private entity; and

(11) Any additional information required by the Board.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on August 2, 2023.

TRD-202302726

Rob Latsha

Executive Director

Texas Bond Review Board

Earliest possible date of adoption: September 17, 2023

For further information, please call: (512) 475-4805

CHAPTER 190. ALLOCATION OF STATE'S LIMIT ON CERTAIN PRIVATE ACTIVITY BONDS

SUBCHAPTER A. PROGRAM RULES

34 TAC §§190.1 - 190.6, 190.8

The Texas Bond Review Board (BRB) proposes amendments to Texas Administrative Code, Title 34, Part 9, Chapter 190, Subchapter A, §190.1 General Provisions; §190.2 Allocation and Reservation System; §190.3 Filing Requirements for Applications for Reservation; §190.4 Filing Requirements for Applications for Carryforward; §190.5 Consideration of Qualified Applications by the Board; §190.6 Expiration Provisions; and §190.8 Notices, Filings, and Submissions.

Background and Justification:

The BRB proposes updates and clarifications to its rules in Texas Administrative Code (TAC) Chapter 190 based on the passage of House Bill 1766 by the 88th Legislature (2023 Regular Session). HB 1766 updates sections of Chapter 1372 of the Texas Government Code to stretch the limited "state-ceiling-resource" of the Private Activity Bond (PAB) program and incorporates a new first-priority classification for qualified residential rental projects.

An overview of the proposed rule amendments is as follows:

1) Proposed rule amendment to §190.3(e)(11) extends the limited "state ceiling" by restricting the amount of allocation designated at closing to a residential rental project if the program is oversubscribed for a program year (the amount of residential rental requests submitted for the lottery exceeds the total available amount for SC4 and SC5) as required by HB 1766,

2) Proposed rule amendment to §190.2(d), and §190.3(e)(10) incorporate a new first priority classification and shifts the subsequent existing priority classifications down by one increment as required by HB 1766,

3) Proposed rule amendment to §190.1(c)(34), and §190.3(e)(4) provide uniformity among the timeframe requirements for all bond resolutions to make them valid for a period of 18 months,

4) Proposed rule amendment to §190.5(h), and §190.8(e) correct or eliminate any outdated language in order to conform to current practice, and

5) Proposed rule amendment to §190.2(d), §190.3(b)(13)-(16), §190.3(e)(7), §190.3(e)(9), §190.4(e)(5), §190.6(a), and §190.8(d) correct capitalization, punctuation, typographical, and other miscellaneous grammatical errors.

Fiscal Impact on State and Local Government:

Robert Latsha, Executive Director for the BRB, has determined that for the first five-year period the amendments are in effect there will be no fiscal implications relating to costs or revenues of the state or local governments as a result of enforcing or administering the amendments of these rules. The anticipated economic cost to persons who are required to comply with the amendments, as proposed, is minimal to none.

Public Benefit:

Mr. Latsha also has determined that for each year of the first five years the rule amendments are in effect, the anticipated public benefit will be extending the limited "state-ceiling-resource" by restricting the amount of allocation designated at closing to a residential rental project if the program is oversubscribed for a program year as required by HB 1766 and incorporating a new first-priority classification pursuant to HB 1766.

Impact on Local Employment or Economy:

There is no effect on local economy for the first five years that the proposed amendments are in effect because the rule changes relating to allocations designated at closing and changes relating to the new first-priority classification are administrative in nature and the remaining changes merely clarify the language they replace. Therefore, no economic impact statement, local employment impact statement, or regulatory flexibility analysis is required under Texas Government Code §§ 2001.022 or 2001.024(a)(6).

Government Growth Impact Statement:

The BRB provides this Government Growth Impact Statement, pursuant to Texas Government Code §2001.0221, for the proposed rule amendments. For each year of the first five years the proposed amendments are in effect, Mr. Latsha has determined:

1) The proposed rule amendments do not create or eliminate a government program; instead, the proposed amendments streamline and modernize the current PAB program to reflect the current administration of the program; and they implement required amendments pursuant to HB 1766.

2) Implementation of the proposed rule amendments does not require the creation of new employee positions or the elimination of existing employee positions.

3) Implementation of the proposed rule amendments does not require an increase or decrease in future legislative appropriations to the BRB.

4) The proposed rule amendments do not require an increase or decrease in fees paid to the BRB.

5) The proposed rule amendments do not create a new regulation.

6) The proposed rule amendments do not limit or repeal an existing BRB rule but expand or modify existing rules to comply with HB 1766.

7) The proposed rule amendments do not increase or decrease the number of individuals subject to the rule's applicability.

8) The proposed repeal does not positively or adversely affect the state's economy.

Fiscal Impact on Small and Microbusinesses and Rural Communities:

The proposed amendments will have no adverse economic effect on micro-businesses, small businesses, or rural communities because the amendments only affect the administration of the PAB program. The proposed amendments do not affect operations of any small or micro-business, and the proposed amendments should not have an impact on rural communities because the changes are administrative in nature or clarify existing language. The proposed amendments do not affect any local economy within the state.

One-for-One Rule Analysis:

The proposed rule amendments related to designated allocations at closing and amendments related to first-priority classification are exempt from §2001.0045 because, pursuant to the exception contained in §2001.0045(c)(9), the rule amendments are necessary to implement the requirements of HB 1766. As for the remaining rule amendments, they are not subject to Texas Government Code §2001.0045, concerning increasing costs to regulated persons because the proposed amendments merely streamline administration of the PAB program and, as described above in the public benefit and cost note, the proposed amendments do not impose a cost on regulated persons under Government Code §2001.024, including another state agency, a special district, or a local government.

Takings-Impact Assessment:

The proposed amendments do not restrict or limit an owner's right to his or her property that would otherwise exist in the absence of government action, and therefore, they do not constitute a taking under Texas Government Code §2007.043.

Environmental Rule Analysis:

BRB has determined that this proposal is not brought with specific intent to protect the environment or reduce risks to human health from environmental exposure. Thus, this proposal is not a "major environmental rule," as defined by Government Code §2001.0225. As a result, the preparation of an environmental impact analysis is not required.

Public Comment:

Comments on the proposal may be submitted in writing to Robert Latsha, Texas Bond Review Board, P.O. Box 13292, Austin, Texas 78711-3292. Comments may also be submitted electronically to rob.latsha@brb.texas.gov or faxed to (512) 475-4802. The deadline for providing comments is thirty days after publication in the TexasRegister.

Statutory Authority:

The amendments are proposed under Texas Government Code §1372.004, which authorizes the BRB to adopt rules relating to its administration of the PAB program. They are also proposed under Texas Government Code §1372.006, which authorizes the BRB to require fees, and Texas Government Code §1372.0321, which authorizes the BRB to prioritize reservations among issuers of qualified residential rental project issues. The statutory basis that authorizes BRB to designate an unencumbered state ceiling to an issuer is Texas Government Code §1372.073.

No other statute, articles, or codes are affected by the proposed rule amendments.

§190.1.General Provisions.

(a) - (b) (No change.)

(c) Definition of terms. The following words and terms, when used in this chapter, shall have the following meanings, unless the context clearly indicates otherwise.

(1) - (33) (No change.)

(34) Local population--The population in the local government unit or units on whose behalf a housing finance corporation is created. If two local government units overlap, each having created housing finance corporations with the power to issue bonds to provide home mortgage financing, prior to the submission of either the application for reservation or the application for carryforward by either housing finance corporation, there shall be excluded from the population of the larger local government unit that portion of the population of any smaller local government unit having a population of 50,000 or more which is within the larger local government unit, unless the smaller local government unit assigns its authority to issue qualified mortgage bonds, based upon its population, to the larger local government unit. A resolution assigning authority to issue qualified mortgage bonds must have been adopted within the 18 [~~twelve~~] months preceding the date of submission of the application to the board.

(35) - (59) (No change.)

(d) - (f) (No change.)

§190.2.Allocation and Reservation System.

(a) - (c) (No change.)

(d) The order of priority for reservations in the category described in Government Code §1372.022(a)(4) shall further be determined as provided in Government Code §1372.0321 and Government Code §1372.0231.

(1) The first category of priority shall include those applications for a reservation for projects that:

(A) during the four-year period preceding the date of the application, have:

(i) filed an application for a low-income housing tax credit with the Texas Department of Housing and Community Affairs; and

(ii) closed on a previous reservation of bonds in accordance with Government Code §1372.042, as determined based on the date of allocation of those bonds; and

(B) require a subsequent issuance of bonds to maintain compliance with the percentage requirement described in Government Code §1372.0321(e); and

(2) [~~(1)~~] The second [~~first~~] category of priority shall include those applications for a reservation for:

(A) projects:

(i) in which 50% of the units are reserved for families and individuals earning not more than 50% of the area median family income and in which the maximum allowable rents are restricted to 30% of 50% of area median family income, minus an allowance for utility costs authorized under the federal Low Income Housing Tax Credit Program; and

(ii) (No change.)

(B) (No change.)

(i) in which 100% of the residential units in the project are reserved for families and individuals earning not more than 60% of or the area median family income and in which the maximum allowable rents are restricted to 30% of 60% of area median family income, minus an allowance for utility costs authorized under the federal Low Income Housing Tax Credit Program; and

(ii) (No change.)

(D) (No change.)

(3) [~~(2)~~] The third [~~second~~] category of priority shall include those applications for a reservation for a project in which at least 80% of the units are reserved for families and individuals earning not more than 60% of the area median family income and in which the maximum allowable rents are restricted to 30% of 60% of area median family income, minus an allowance for utility costs authorized under the federal Low Income Housing Tax Credit Program[~~, for at least 80% of the units~~].

(4) [~~(3)~~] The fourth [~~third~~] category of priority shall include those applications for any other qualified residential rental project.

(5) [~~(4)~~] Within each category of priority, reservations shall be granted in the order established by the lottery subject to Government Code §1372.0231.

(6) [~~(5)~~] Owners of Low Income Housing Tax Credits (LIHTC) and 501(c)(3) properties that issue through State agencies are prohibited from having policies, procedures and/or screening practices which have the effect of excluding applicants because they have Section 8 voucher or certificate. The verification of such an exclusionary practice on the part of the owner or manager by a state agency will be considered a violation and may result in the owner's inability to participate in future housing programs of the state.

(7) [~~(6)~~] When determining the priority level of an application established under Government Code §1372.0321, the applicant shall use the most current data available on October 1 of the year preceding the program year in which allocation is being sought, unless specifically otherwise provided in federal or state law or in this title. All American Community Survey (ACS) data must be five year estimates, and any reference to median income in this title shall be synonymous with median family income unless otherwise specified.

(e) - (p) (No change.)

§190.3.Filing Requirements for Applications for Reservation.

(a) (No change.)

(b) Application Filing. The issuer shall submit one electronic copy or one original application for reservation. Each application must be accompanied by the following:

(1) - (12) (No change.)

(13) for [~~For~~] a qualified residential rental project issue, an issuer shall provide a copy of an active executed earnest money contract between the borrower and the seller of the project. The earnest money contract for Tax-Exempt Bond Lottery Applications must be in effect at the time of submission of the application to the board and expire no earlier than December 1 of the year preceding the applicable program year. The earnest money contract must stipulate and provide for the borrower's option to extend the contract expiration date through March 1 of the program year, subject only to the seller's receipt of additional earnest money or extension fees, so that the borrower will have site control at the time a reservation is granted. If the borrower owns the property, evidence of ownership must be provided. For subsequent reservations granted throughout the remainder of the program year, the borrower must provide within the close of three business days following the notification of pending reservation:

(A) - (B) (No change.)

(14) the [~~The~~] borrower must be specified in the application for reservation of allocation. The borrower may be identified as a to-be-formed entity only if the application for reservation of allocation specifies a related entity or an entity that will be a component of the to-be-formed entity as borrower;

(15) for [~~For~~] qualified residential rental project issues where the borrower is an entity or to-be-formed entity that is designated or intends to seek abatement from ad valorem taxation, that intent to seek abatement must be specified on the application for reservation of allocation;

(16) each [~~Each~~] issuer of qualified student loan bonds authorized by §53B.47, Education Code, shall submit with the application for reservation the information as required in Government Code 1372.0281.

(e) Closing documents. Not later than the fifth business day after the day on which the bonds are closed the issuer shall file with the board:

(1) - (3) (No change.)

(4) a certified copy of the bond resolution authorizing the issuance of bonds, and setting forth the specific principal amount of the bond issue and, unless the resolution authorizes the issuer to seek an allocation in multiple program years, adopted within 18 months [~~one year~~] of the application date;

(5) - (6) (No change.)

(7) other documents relating to the issuance of bonds, including a statement of the bonds':

(A) principal amount;

(B) interest rate or the formula by which the interest is calculated;

(D) purchaser or purchasers; [ ~~and~~]

(8) (No change.)

(9) for [~~For~~] mortgage credit certificates the issuer shall file item in paragraph (1) of this subsection and the following:

(A) a certified copy of the issuer's resolution electing to convert state ceiling to mortgage credit certificates;

(B) issuer's mortgage credit certificate election; and

(10) for [~~For~~] a residential rental project described in §190.2(d)(1), [or ] (2) or (3) of this title, evidence from the Texas Department of Housing and Community affairs that an award of Low Income Housing Tax Credits has been approved for the project;[.]

(11) if for a program year Government Code §1372.037(b) applies, the certification issued by the Attorney General pursuant to Government Code §1202.003(b-1).

(f) - (g) (No change.)

§190.4.Filing Requirements for Applications for Carryforward.

(a) - (d) (No change.)

(e) Closing documents. Not later than the fifth business day after the day on which the bonds are closed the issuer shall file with the board:

(1) - (4) (No change.)

(5) other documents relating to the issuance of bonds, including a statement of the bonds':

(A) principal amount;

(B) interest rate or the formula by which the interest is calculated;

(D) purchaser or purchasers; [~~and~~]

(6) (No change.)

(f) - (g) (No change.)

§190.5.Consideration of Qualified Applications by the Board.

(a) - (g) (No change.)

(h) If any change in a qualified application or in any of the items accompanying the application should occur prior to the date state ceiling becomes available to an issuer, the issuer or authorized representative shall promptly notify the board of any such change. [Upon state ceiling becoming available, an issuer or authorized representative, within three business days upon receipt of notice from the board that a portion of the state ceiling will be available to the issuer, must confirm and certify that the information contained in the qualified application and all items accompanying the application are and remain accurate and in full force and effect, except as may be specifically set forth in any amendment to the qualified application (which does not result in the application failing to constitute a qualified application), which amendment will constitute such certification. ] Prior to receiving a reservation, only an issuer, or authorized representative of the issuer, may amend the application to change the amount of the state ceiling requested, but the board may not accept an amendment to increase the amount of the state ceiling requested unless at the time of the amendment seeking an increase in the amount of state ceiling there are no other qualified applications pending, subsequent in order to said application, for which state ceiling is not available. [~~A reservation date will not be given by the board until the receipt of such certification.~~]

(i) (No change.)

§190.6.Expiration Provisions.

(a) A certificate of reservation for an application within the categories described by Government Code §1372.022(a)(1) and (2) shall expire at the close of business on the 210th calendar day after the date on which the reservation is given. A certificate of reservation for an application within the category [~~categories~~ ] described by Government Code §1372.022(a)(4), or an application for a qualified residential rental project contained in category Government Code §1372.022(a)(5), shall expire at the close of business on the 180th calendar day after the date on which the reservation is given. A certificate of reservation for an application within the categories described by Government Code §1372.022(a)(3) and (5), excluding applications for qualified residential rental projects contained in category Government Code §1372.022(a)(5), shall expire at the close of business on the 150th calendar day after the date on which the reservation is given. A certificate of reservation for an application for a qualified nonprofit corporation issuer of qualified student loan bonds shall expire at the close of business on the 210th calendar day after the date on which the reservation is given.

(b) - (c) (No change.)

§190.8.Notices, Filings, and Submissions.

(a) - (c) (No change.)

(d) Fees should be sent by either:

(1) check through overnight delivery and addressed as follows: Comptroller of Public Accounts Item Processing - Lockbox Section 208 [~~200~~] E. 10th St. Austin, Texas 78701; or

(2) (No change.)

(e) Fees must be received:

(1) (No change.)

(2) no later than 1 business day [~~24 hours~~] after the corresponding filing, but in no case may a fee be received after the corresponding filing deadline in order to meet the requirements of that deadline unless provided for in Chapter 1372, Government Code.