TITLE 34. PUBLIC FINANCE

PART 9. TEXAS BOND REVIEW BOARD

CHAPTER 181. BOND REVIEW BOARD

SUBCHAPTER A. BOND REVIEW RULES

34 TAC §§181.1 - 181.5, 181.9, 181.10

The Texas Bond Review Board (BRB) adopts amendments to Texas Administrative Code (TAC) Title 34, Part 9, Chapter 181, Subchapter A §181.1, Definitions; §181.2, Notice of Intention to Issue; §181.3, Application for Board Approval of State Securities Issuance; §181.4, Meetings; §181.5, Submission of Final Report; §181.9, State Exemptions; and §181.10, State Debt Issuer Reports. The amendments to §§181.1 - 181.3 are adopted with changes to the proposed text as published in the August 9, 2019, issue of the Texas Register (44 TexReg 4170) and will be republished. The amendments to §§181.4, 181.5, 181.9, and 181.10 are adopted without changes to the text as proposed in the August 9, 2019, issue of the Texas Register (44 TexReg 4170) and will not be republished.

Reasoned Justification for the Adoption of the Amendments

The BRB adopts updates and clarifications to its administrative code rules in TAC Chapter 181, including revisions to the timeline for non-exempt state debt applications at regularly scheduled and additional Board meetings. Adopting these changes will increase the effectiveness of the BRB in apportioning its workload among staff. The Purpose of the amendments is to:

1) Specify that the BRB approval is valid for one year, unless expressly stated otherwise in the approval;

2) Require an earlier due date for non-exempt state debt applications to be considered at regularly scheduled Board meetings;

3) Increase the number of hard copies of non-exempt state debt applications received at the bond finance office;

4) Add a due date for non-exempt state debt applications to be considered at additional meetings of the Board (not regularly scheduled meetings);

5) Clarify that the BRB has broad discretion as to what it requires on applications and reports submitted to the bond finance office to be considered complete;

6) Eliminate confusing language related to the time needed for BRB staff's review of exempt transactions;

7) Define the term "business day" used in these rules; and

8) Require that a copy of the issuer's board resolution authorizing state security submitted as part of the BRB application be adopted within one year of the application date.

Summary of Changes made in the Proposed Rules after Comments

After reviewing comments received during the public comment period, the BRB:

(1) revised §181.1(5), the definition of "Business Day", by changing the term "Bond Review Board office" to "bond finance office" to be consistent throughout the rules;

(2) revised §181.2(e)(2)(H) to add the word "and" to a listing; and

(3) revised §181.3(d)(5) to clarify that BRB requires on its application for any state securities, other than lease-purchase agreements, the "most recent draft copy of the preliminary official statement, if such a statement is required for the issuance of the securities".

Public Comment and BRB Responses

The public comment period on the proposed amendments opened on August 9, 2019, and extended through midnight on Saturday, September 7, 2019.

The BRB held a public meeting to consider comments on the proposed rule changes on Tuesday, September 10, 2019, at 10:00 a.m. in the Capitol Extension Room E2.026 at 1100 Congress Ave., Austin, Texas 78701.

During the public comment period, the BRB received written comments from the Texas Tech University System (TTUS), Hilltop Securities, Inc. (HS), the Texas Department of Transportation (TXDOT), the Texas Department of Housing and Community Affairs (TDHCA), and the Texas State Affordable Housing Corporation (TSAHC). Specific comments are addressed below.

TTUS Comments

Comment

TTUS sought clarification that it must still notify the BRB in writing of projects to be financed with the proceeds of commercial paper notes as required by the BRB when the TTUS commercial paper program was approved and established. TTUS did not suggest any change to the proposed rule language.

Response

The BRB declines to make any changes based on this comment. When the BRB approved the TTUS commercial paper program on January 22, 1998, it was agreed with the BRB that the TTUS Board would be notified of new commercial paper issuances with a copy of this notification sent to the BRB. The adopted amendments to TAC 181 do not change any requirements previously imposed on certain issuers of commercial paper.

Hilltop Securities, Inc. Comments

Comment

HS was uncertain as to the purpose of adding the following sentence to §181.2(e) relating to notice of intention to issue: "Submitting an exempt issuer state debt notice of intent under this subsection does not guarantee the Board will take action." HS suggested that the BRB consider including language expressing that exempt issuers do not have authority to proceed in the face of BRB silence after submission of an exempt issuer state debt notice of intent.

Response

The BRB declines to make any changes in response to this comment. The addition of this sentence into the BRB rules is meant to make it clear that submitting an exempt application to the BRB does not guarantee the BRB will take action on the item. Under the exempt application process, within 6 business days of receiving staff's analysis of the transaction, the BRB has the option to "call in" the transaction to be formally discussed/reviewed at a future open meeting of the Board. If the transaction is called in for formal review, the BRB reserves the right to not take action on the item at that time leaving the issuer's application pending for a future date.

Comment

Regarding §181.3(d)(5), HS commented that it would be helpful to clarify that the requirement to include a preliminary official statement (POS) in the application can be satisfied by including the most recent or a substantially final draft of the POS. Historically, issuers have been reluctant to post a POS prior to BRB approval.

Response

BRB agrees that the rule should be further clarified. Section 181.3(d)(5) is amended to replace "copy of preliminary official statement" as initially proposed with "most recent draft copy of the preliminary official statement, if such a statement is required for the issuance of the securities".

Comment

Regarding the requirements of the BRB application, HS commented that the removal of the condition in §181.3(d)(11) to include a board memorandum for the proposed transaction prepared for issuer's governing board - if prepared - will require preparation of a memorandum for the issuer's governing body in the future. HS sought clarification on this point but did not suggest a specific language change to this subsection.

Response

The BRB declines to make any change in response to this comment. A detailed description of the projects to be financed with bonds, commercial paper or other obligations including the board memorandum prepared for the issuer's board is currently an item required on the BRB application. Staff has always required a description of the projects to be financed as part of the application and would need this detail submitted as part of the BRB application in the future.

Comment

HS commented that it would be helpful to clarify, in §181.4(h), that the limitation on the validity of a BRB approval ("Board approval for the issuance of bonds or other obligations shall be valid for one year from the date of approval, unless expressly stated otherwise in the approval.") does not apply to the issuance of commercial paper notes issued pursuant to a commercial paper program approved by the BRB more than one year after the date of the BRB's approval of the commercial paper program. HS did not suggest a specific language change to this subsection.

Response

The BRB declines to make any changes in response to this comment. Any future approval letter authorizing the issuance of commercial paper notes will include specific language related to the commercial paper notes as authorized by the Board based on the detail submitted in the BRB application at the time of the state debt issuer's request for approval.

TXDOT Comments

Comment

TXDOT commented on the proposed change to §181.3(d)(5) which removes the condition that a preliminary official statement (POS) be submitted as part of the application, if available. TXDOT perceives the amendment to result in the requirement that an application for any state securities, other than lease-purchase agreements, must include a copy of the POS. TXDOT issues state securities that do not require the issuance of a POS and therefore requests that the rule be changed to require a copy of the POS, if such a statement is required for the issuance of securities. TXDOT requested that the text be changed to require a copy of the preliminary official statement "if such a statement is required for the issuance of securities."

Response

BRB agrees that the rule should be further clarified. Section 181.3(d)(5) will be amended to state "most recent draft copy of the preliminary official statement, if such a statement is required for the issuance of the securities" as recommended by HS.

Comment

TXDOT commented on the proposed amendment to §181.1(5), the definition of "Business Day." TXDOT suggests changing the term "Bond Review Board office" to "bond finance office" to be consistent throughout the rules. In addition, TXDOT suggests that the definition of "Business Day" be changed to mean "Any day except a Saturday, Sunday, or legal holiday listed in the Texas Government Code §662.021".

Response

BRB agrees with the suggestion to change the term in §181.1(5) from "Bond Review Board office" as initially proposed to "bond finance office" to be consistent throughout the rules. Accordingly, BRB will revise this part of the rule. Regarding the term "Business Day," the bond finance office may choose to be closed, based on certain circumstances, on days not listed in Texas Government Code §662.021. Therefore, the BRB declines to make any changes and will define "Business Day" as a day when the bond finance office is open for business, as originally proposed.

To accommodate the term "Business Day," BRB staff will make available a new rotating calendar on the agency's website which will indicate which days the bond finance office will be open for business. This calendar will also include application due dates and BRB meeting dates to help facilitate a state debt issuer's timeline.

TDHCA Comments

Comment

TDHCA commented on the proposed change to §181.3(b) which requires a non-exempt application to be considered at a regular meeting of the BRB be filed with the bond finance office no later than ten business days prior to the regularly scheduled planning session. TDHCA requests the proposed language revert to current year language or that the application submission be modified from ten business days to seven business days. TDHCA stated the proposed changes would jeopardize TDHCA's ability to finalize its analysis and could require it to submit an underwriting report and other application materials before the transaction has been presented before its statutorily required Executive Award and Review Advisory Committee (EARAC) for a recommendation to the TDHCA governing board.

Response

The BRB declines to make any changes in response to this comment. In the past, TDHCA has submitted a non-exempt application to BRB staff initially without a TDHCA underwriting report, EARAC approval or TDHCA Board approval. TDHCA will need to adjust its timelines so that all compliance documentation and approvals required as part of the BRB application are received timely enough to comply with the BRB rules so that BRB staff can perform its analysis and submit a complete summary to the Board.

Historically, BRB has accepted an incomplete application on the application due date and subsequently TDHCA has provided required information to the BRB as this info becomes available. All required information on the application must be submitted prior to BRB approval. The proposed rule change will allow staff more time to prepare a non-exempt application summary before the regularly scheduled planning session, and thus, will increase the effectiveness of the BRB in apportioning its workload among staff.

Comment

TDHCA commented on the proposed change to §181.3(d)(5) which removes the condition that a preliminary official statement (POS) be submitted as part of the application, if available. TDHCA issues state securities that do not require the issuance of a POS and therefore requests that the rule be changed to require a copy of the POS, if applicable to the transaction.

Response

BRB agrees that the rule should be further clarified. Section 181.3(d)(5) will be amended to state "most recent draft copy of the preliminary official statement, if such a statement is required for the issuance of the securities" as recommended by HS and TXDOT.

Comment

TDHCA supports the proposed change in §181.4(h) that would allow BRB approval to be valid for one year from the date of approval. This adds flexibility to the single family and multifamily transactions.

Response

This change makes it clear that BRB approval is only valid for one year from the date of approval. If TDHCA has not issued the bonds or other obligations within one year of receiving the Board's approval, TDHCA must resubmit an application to the bond finance office for reapproval by the Board.

TSAHC Comments

Comment

TSAHC commented on the proposed amendment to §181.1(5), the definition of "Business Day." TSAHC believes it is most helpful if applicants can know with certainty if the BRB is closed for business and is requesting an annual calendar of BRB holidays be published on the agency's website. Generally speaking, TSAHC questions why it is necessary to have "business day" included throughout the proposed rules as opposed to just "days" which, in its opinion, would provide better clarity and predictability to applicants, even if the BRB has to close due to an emergency.

Response

The BRB declines to make any changes and will define "Business Day" as a day when the bond finance office is open for business, as originally proposed.

To accommodate the term "Business Day," BRB staff will make available a new rotating calendar on the agency's website which will indicate which days the bond finance office will be open for business. This calendar will also include application due dates and BRB meeting dates to help facilitate a state debt issuer's timeline.

Comment

TSAHC commented on the proposed amendment to §181.2(a) now requiring an electronic non-exempt notice of intention to issue debt be submitted to the bond finance office no later than twelve business days prior to the regularly scheduled planning session instead of the last Wednesday of the month prior to the month requested for Board consideration. TSAHC questions if the exempt and non-exempt notice of intent procedures need to be different. TSAHC comments that the last Wednesday rule was easy for applicants to plan for and put on calendars and that this new date will not be as easy since the number of business days will change each month.

Response

The BRB declines to make any changes in response to this comment. Per the BRB rules, the exempt and non-exempt notice of intent procedures are different and will remain different after the proposed amendments take effect. To accommodate TSAHC's concern with its timeline and the varying number of business days between months, BRB staff will make available a new rotating calendar on the agency's website which will indicate which days the bond finance office will be open for business. This calendar will also include non-exempt notice of intent due dates, non-exempt application due dates and BRB meeting dates to help facilitate a state debt issuer's timeline.

Comment

TSAHC commented on the proposed amendment to §181.2(e) as it relates to the exempt issuer state debt notice of intent procedures. TSAHC would prefer there not be a difference between the exempt and non-exempt notice of intent process since the same information is ultimately provided.

TSAHC comments that the amendments to this rule give no guidance or specifics on what an exempt issuer can expect of the process. TSAHC requests additional detail on the timeline needed or follow what is required by state law. TSAHC states that if information required on the BRB application is incomplete, then the application can be delayed. TSAHC continues by stating that the BRB used to review only those documents required by state law, and if those documents were complete the application would be forwarded to the Board. TSAHC comments that it does not understand why the process has changed when the law for this section has not given additional authority for BRB to analyze, underwrite.

Response

The BRB declines to make any changes in response to this comment. The proposed amendments to §181.2(e) do not change the exempt issuer state debt notice of intent procedures. The exempt issuer review process was put into place years ago to help facilitate an issuer's need, based on their timeline, to receive BRB approval during a month when the BRB was not scheduled to meet.

The BRB has broad discretion as to what it requires on its application before the application is considered complete, and a concise list of required information is included in the application. Historically, the BRB has worked with the state debt issuers when it has amended the requirements of the BRB application by providing advance notice of any changes and has allowed a small grace period for the issuers to make necessary adjustments.

The proposed amendments are meant to eliminate confusion for the issuers. Customarily, processing of a submitted exempt application involves approximately one-week or more for the bond finance office to analyze and pose questions to the issuer, as is necessary, then the completed application is submitted to the Board for its six-day review pursuant to §181.9(d).

Comment

TSAHC commented on the proposed amendment to §181.2(e)(1) requiring an exempt issuer state debt notice of intent be submitted to the bond finance office no later than ten business days prior to the regularly scheduled planning session to be considered at the next regularly scheduled planning session, if required by the Board pursuant to §181.9(d) of this title. TSAHC commented that if a "holiday" or other event occurs where the ED declares the bond finance office to be closed for a day, unless applicants are granted advanced notice, then it is unlikely they will be able to meet this requirement.

Response

The BRB declines to make any changes in response to this comment. To accommodate TSAHC's concern with its timeline and the varying number of business days between months, BRB staff will make available a new rotating calendar on the agency's website which will indicate which days the bond finance office will be open for business. This calendar will also include non-exempt notice of intent due dates, non-exempt application due dates and BRB meeting dates to help facilitate a state debt issuer's timeline.

Comment

TSAHC commented on the proposed amendment to §181.2(e)(2) which now specifies that the list of items required as part of the exempt application, as applicable, is not an exhaustive list. TSAHC prefers and believes it would be helpful if the BRB's application procedures and rules state all materials needed to assess an application. TSAHC made the same type of comment as it relates to §181.5(a)(3) for the BRB state debt final report procedures and §181.10(b) for the BRB semi-annual issuer report procedures. TSAHC commented that these lists included in the BRB rules need to include all items required by the BRB. TSAHC commented that without clearly stating the reporting requirements, it is very difficult for issuers to know what information will be necessary or required.

Additionally, TSAHC commented on the proposed changes to §181.2(e)(2)(I) and §181.3(d)(12) both requiring the issuer board resolutions authorizing the issuance of bonds or other obligations be adopted no earlier than one year prior to the date the state debt application is submitted to the bond finance office. TSAHC questions why the issuer's board would have to approve the bond transaction prior to the BRB. TSAHC comments that the BRB has, in the past, approved a transaction subject to approval by the issuer's board.

Response

The BRB declines to make any changes in response to this comment. The list of items included in the above-mentioned sections of the rules is not meant to be exhaustive. A clearly stated list of required information is stated on the BRB applications as well as the BRB state debt final report form both available for the issuer to access on the agency's website. A clearly stated specific list of required information for the semi-annual state debt issuer report is specifically emailed to all state debt issuers every six months as part of the BRB request for information.

Historically, BRB has accepted an incomplete application on the application due date and subsequently TSAHC has provided required information to the BRB as this info becomes available including the approved TSAHC bond resolution. All required information on the application must be submitted prior to BRB approval. This includes evidence that the issuer's board resolution has been approved. With the proposed amendments to §181.2(e)(2)(I) and §181.3(d)(12), BRB is requiring the issuer's board resolutions be adopted within one year of the BRB application date.

Comment

TSAHC commented on the proposed change to §181.3(d)(5) which removes the condition that a preliminary official statement (POS) be submitted as part of the application, if available. TSAHC issues state securities that do not require the issuance of a POS and therefore requests that the rule be changed to require a copy of the POS, if applicable to the transaction.

Response

BRB agrees that the rule should be further clarified. Section 181.3(d)(5) will be amended to state "most recent draft copy of the preliminary official statement, if such a statement is required for the issuance of the securities" as recommended by HS, TXDOT and TDHCA.

Statutory Authority

The amendments are adopted under Texas Government Code §1231.022(1) authorizing the BRB to adopt rules relating to applications for review, the review process, and reporting requirements. The BRB interprets this authority as allowing the agency to create and amend rules to facilitate the issuer application and review process.

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

§181.1.Definitions.

The following words and terms, when used in this chapter, shall have the following meanings, unless the context clearly indicates otherwise:

(1) Board--The Bond Review Board, created under Chapter 1078, Acts of the 70th Legislature, Regular Session, 1987 codified as Chapter 1231, Government Code.

(2) Interest rate management agreement--An agreement that provides for an interest rate transaction, including a swap, basis, forward, option, cap, collar, floor, lock, or hedge transaction, for a transaction similar to those types of transactions, or for a combination of any of those types of transactions. The term includes:

(A) a master agreement that provides standard terms for transactions;

(B) an agreement to transfer collateral as security for transactions; and

(C) a confirmation of transactions.

(3) State security--

(A) an obligation, including a bond, issued by:

(i) a state agency;

(ii) an entity expressly created by statute and having statewide jurisdiction; or

(iii) any other entity issuing a bond or other obligation on behalf of the state or on behalf of any entity listed in clause (i) or (ii) of this subparagraph;

(B) an installment sale or lease-purchase obligation issued by or on behalf of an entity listed in subparagraph (A)(i), (ii), or (iii) of this paragraph that has a stated term of longer than five years or has an initial principal amount of greater than $250,000; or

(C) an obligation, including a bond, that is issued under Chapter 53, Education Code, at the request of or for the benefit of an institution of higher education other than a public junior college.

(4) Institution of higher education has the meaning assigned by §61.003, Education Code.

(5) Business day means a day when the bond finance office is open for business.

§181.2.Notice of Intention to Issue.

(a) Unless exempt pursuant to statute or pursuant to §181.9 of this title (relating to State Exemptions), an issuer intending to issue state securities shall submit an electronic non-exempt notice of intention to issue to the bond finance office no later than twelve business days prior to the regularly scheduled planning session. Prospective issuers are encouraged to file the notice of intention as early in the issuance planning stage as possible. A notice of intention under this subsection is not required prior to each new issuance of commercial paper if the issuer's commercial paper is exempt pursuant to statute or if the issuer's commercial paper program has been approved by the Board or if it is exempt from approval pursuant to the provisions of §181.9 of this title. Except as required for Board approval pursuant to §181.3(f) of this title (relating to Application for Board Approval of State Securities Issuance), a notice of intention under this subsection is not required prior to each new issuance of commercial paper notes if the notes are issued in conformity with the terms of the commercial paper program that has been approved by the Board or is exempt from approval pursuant to the provisions of §181.9 of this title.

(b) A notice of intention to issue under subsection (a) of this section shall include:

(1) a brief description of the proposed issuance, including, but not limited to, the purpose, the tentative amount, proposed security, type of interest and any related credit agreements;

(2) the proposed timing of the issuance with a tentative date of sale and a tentative date for closing, or if the state securities are to be issued in the form of commercial paper notes, the period over which the state securities will be issued for projects to be financed;

(3) a request to have the issue of state securities scheduled for consideration by the Board during a specified bi-monthly meeting; and

(4) an agreement to submit the required application described in §181.3 of this title no later than ten business days prior to the regularly scheduled planning session.

(c) An issuer may reschedule the date requested for Board consideration of the state securities by submitting an amended notice of intention at any time prior to the application date in the same manner as provided in this section.

(d) The requested date for Board consideration shall be granted whenever possible. If at the Board's discretion, it becomes necessary to change the date of the Board meeting for consideration of the proposed issuance of state securities, notice of such change shall be sent to the issuer as soon as possible.

(e) An issuer intending to issue state securities that are exempt from approval pursuant to §181.9 of this title shall submit during regular business hours an electronic exempt issuer state debt notice of intent to the bond finance office as required by §181.9(c) of this title. Prospective issuers are encouraged to file the notice of intent as early in the issuance planning stage as possible considering the Board has six business days to review the complete application pursuant to §181.9(d) of this title. Submitting an exempt issuer state debt notice of intent under this subsection does not guarantee the Board will take action. An electronic exempt issuer state debt notice of intent under this subsection is not required prior to each new issuance of commercial paper notes if the notes are issued in conformity with the terms of the commercial paper program for which an electronic exempt issuer state debt notice of intent has been filed with the bond finance office or that has been approved by the Board pursuant to §181.9(d) of this title.

(1) To be considered at the next regularly scheduled planning session, if required by the Board pursuant to §181.9(d) of this title, the exempt issuer state debt notice of intent must be submitted to the bond finance office no later than ten business days prior to the regularly scheduled planning session.

(2) Exempt issuers pursuant to §181.9 of this title are required to submit an exempt issuer state debt notice of intent which must contain, but is not limited to:

(A) a completed exempt issuer state debt notice of intent in the form required by the bond finance office. A notice of intent is not required under this subsection for an issuance of commercial paper notes if the notes are issued in conformity with the terms of the commercial paper program for which a notice of intent has been filed with the bond finance office or that has been approved by the Board;

(B) proposed debt service schedule;

(C) proposed cash flow schedule, if applicable;

(D) proposed sources and uses statement;

(E) timetable of the financing;

(F) derivatives program summary in the form required by the bond finance office, if applicable;

(G) documentation that all necessary approvals of the issuance of the state securities or the project to be financed with the proceeds of the state securities have been obtained from the appropriate state boards or state agencies except:

(i) the approval of the state securities by the Attorney General;

(ii) environmental approvals and permits;

(H) Board memorandum for the proposed transaction prepared for issuer's governing board; and

(I) Issuer Board resolution(s) authorizing the issuance of bonds or other obligations, adopted no earlier than one year prior to the date the exempt issuer state debt notice of intent is submitted to the bond finance office.

§181.3.Application for Board Approval of State Securities Issuance.

(a) An officer or entity may not issue state securities unless the issuance has been approved by the Board or exempted under law, including by Board rule, from review by the Board. An officer or entity that has not been granted an exemption by statute or Board rule from review by the Board and that proposes to issue state securities shall apply for Board approval by filing one state debt application with original signatures and eleven copies with the Executive Director of the bond finance office. The Executive Director of the bond finance office shall forward copies of the application to each member of the Board and to the Office of the Attorney General.

(b) Applications must be filed with the bond finance office no later than ten business days prior to the regularly scheduled planning session. Applications filed after that date will be considered at the regular meeting only with the approval of the Chair or two or more members of the Board.

(c) An application for approval of a lease-purchase agreement to be deemed complete must include, but is not limited to:

(1) a completed lease purchase application form in the form required by the bond finance office;

(2) documentation that all necessary approvals of the issuance of the lease purchase have been obtained from the appropriate state boards or state agencies except:

(A) the approval of the state securities by the Attorney General;

(B) environmental approvals and permits;

(3) draw schedule, if applicable;

(4) proposed amortization schedule;

(5) if the lease purchase is for the acquisition of energy conservation measures, which are subject to a guaranteed energy savings contract, a copy of the proposed contractual agreement, a copy of the third-party review, and any other documentation related to the guarantee; and

(6) Issuer Board resolution(s) authorizing the issuance of a lease purchase or other obligations adopted no earlier than one year prior to the date the lease-purchase application is submitted to the bond finance office.

(d) An application for all state securities other than lease-purchase agreements to be deemed complete must include, but is not limited to:

(1) a completed state debt application in the form required by the bond finance office;

(2) documentation that all necessary approvals of the issuance of the state securities or the project to be financed with the proceeds of the state securities have been obtained from the appropriate state boards or state agencies except:

(A) the approval of the state securities by the Attorney General;

(B) environmental approvals and permits;

(3) if a blind pool financing, a copy of the demand survey or justification indicating reasonable expectation to lend proceeds;

(4) a substantially complete draft or summary of the proposed resolution, order, or ordinance providing for the issuance of the state security;

(5) most recent draft copy of the preliminary official statement, if such a statement is required for the issuance of the securities;

(6) proposed cash flow;

(7) proposed draw schedule, if applicable;

(8) proposed sources and uses statement;

(9) timetable of the financing;

(10) derivatives program summary, in the form required by the bond finance office, if applicable;

(11) Board memorandum for the proposed transaction prepared for issuer's governing board; and

(12) Issuer Board resolution(s) authorizing the issuance of bonds or other obligations adopted no earlier than one year prior to the date the state debt application is submitted to the bond finance office.

(e) Applications to authorize the issuance of a state security in the form of commercial paper notes or for the approval of program proceedings authorizing the periodic issuance of commercial paper notes shall contain the information required by subsection (d) of this section to the extent it is available or capable of being determined.

(f) Unless exempt by statute from Board approval, commercial paper notes to fund any project or projects that will be permanently financed with tuition revenue bonds or general revenues of the state may not be issued unless the issuance of the notes, or the project or projects, have been specifically approved by the Board.

(g) At any time before the date for consideration of an application by the Board, an applicant may withdraw the application. Revisions to an application must be submitted in writing not less than 72 hours prior to the Board meeting.

(h) A member of the Board or bond finance office staff may require additional information to be submitted with respect to a complete notice of intent or application for state securities.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on November 12, 2019.

TRD-201904215

Rob Latsha

Executive Director

Texas Bond Review Board

Effective date: December 2, 2019

Proposal publication date: August 9, 2019

For further information, please call: (512) 463-1741


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

SUBCHAPTER A. PROGRAM RULES

34 TAC §§190.1 - 190.7

The Texas Bond Review Board (BRB) adopts amendments to Texas Administrative Code (TAC) 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 §190.7 Cancellation Withdrawal and Penalty Provisions. The amendments are adopted with changes to the proposed text of §190.3 and §190.4 as published in the August 9, 2019, issue of the Texas Register (44 TexReg 4173) and will be republished. The amendments are adopted without changes to §190.1, §190.2, §190.5 - §190.7 as proposed in the August 9, 2019, issue of the Texas Register (44 TexReg 4173) and will not be republished.

Reasoned Justification for the Adoption of the Amendments

The BRB adopts updates and clarifications to its administrative code rules in TAC Chapter 190, including revisions to project limits and closing deadlines. Adopting these changes better aligns the administrative code with the changes made during the 86th Legislature to Texas Government Code Chapter 1372. The purpose of the amendments is to:

1) Update the maximum application fee amount applicable to issuers of residential rental projects in certain counties;

2) Clarify when state volume cap is available for Carryforward applications;

3) Correct grammatical and capitalization errors;

4) Remove outdated definition of Qualified water development bond;

5) Adjust the sub-ceiling numbers as referenced in code to reflect changes made during the 86th Legislature;

6) Remove the qualified census tract requirements in code to reflect changes made during the 86th Legislature;

7) Clarify an issuer's option regarding refusal to accept reservations pursuant to Texas Government Code §1372.041;

8) Update the closing deadlines in code to reflect changes made during the 86th Legislature;

9) Clarify the last day a carryforward application may be submitted;

10) Remove student loan language pursuant to HB 2911, 82nd Legislature and SB 1474, 86th Legislature;

11) Allow issuers created to act on behalf of the state to apply for unencumbered carryforward;

12) Reduce the number of applications copies required to be submitted;

13) Require that a copy of the issuer's board resolution authorizing the PAB applications be adopted within 18 months of the application date;

14) Remove references of the Texas Agricultural Finance Authority (TAFA) and add the Texas State Affordable Housing Corporation (TSAHC) to align with Texas Government Code §1372.028;

15) Correct references to §53B.47 of the Education Code;

16) Clarify an active earnest money contract is required at the time of application;

17) Clarify staff's practice of time stamping applications;

18) Clarify the cancellation process pursuant to §1372.039;

19) Define the term Unencumbered Carryforward;

20) Create reassignment of carryforward designation to align with Texas Government Code §1372.074; and

21) Create Unutilized carryforward designation to align with Texas Government Code §1372.074.

Summary of Changes made in the Proposed Rules after Comments

After reviewing comments received during the public comment period, the BRB:

(1) Revised §190.3(b)(3) by requiring that the inducement resolution be adopted within 18 months of the application date instead of one year of the application date for applications for reservation; and

(2) Revised §190.4(e)(3) by requiring that the inducement resolution be adopted within 18 months of the application date instead of one year of the application date for applications for carryforward.

Public Comment and BRB Responses

The public comment period on the proposed amendments opened on August 9, 2019 and extended through midnight on Saturday, September 7, 2019.

The BRB held a public meeting to consider comments on the proposed rule changes on Tuesday, September 10, 2019 at 10:00 a.m. in the Capitol Extension Room E2.026 at 1100 Congress Ave., Austin, Texas 78701.

During the public comment period, the BRB received written comments from the Texas State Affordable Housing Corporation (TSAHC). Specific comments are addressed below.

TSAHC Comments

Comment

TSAHC commented on the proposed change to §190.2(q) which adds language specifically stating an issuer created to act on behalf of the state could apply for unencumbered carryforward. TSAHC believes this would impact Water and River Authorities by allowing them to apply for unencumbered carryforward.

Response

The BRB declines to make any changes based on this comment. Although Water and River Authorities are created by the Texas Legislature, they are still limited by their statutory boundaries and cannot act on behalf of the state. Additionally, the change made to §190.2(q) mirrors the change made to §1372.073 of the Texas Government Code through passage of Senate Bill 1474 during the 86th Legislature.

Comment

TSAHC commented on the proposed changes to §190.3(b)(3) which now requires, as part of the application for reservation, an inducement resolution be adopted within one year of the application date, unless the resolution authorizes the issuer to seek allocation in multiple program years. TSAHC commented that a better timeline would be to require the inducement resolution be adopted within 18 months of the application date as the Internal Revenue Code grants this amount of time from the date of original expenditure, land acquisition. TSAHC also commented that the language, as proposed, suggests the inducement resolution would need to include the program year the bonds are to be reserved.

Response

The BRB agrees with the suggestion to change the inducement resolution expiration date to an 18-month timeline instead of a one-year timeline as originally proposed. The intent of the proposed rule change is to give defined guidelines as to the length of validity of an inducement resolution.

Regarding TSAHC's comment that the language, as proposed, suggests the inducement resolution would need to include the program year of the bonds to be reserved, this is not a requirement of the proposed rule change. The proposed rule change is designed to allow more flexibility for the issuers when adopting an inducement resolution. For example, if an inducement resolution states it is effective for program years 2020 and 2021 then the issuer could apply for a PAB reservation, regardless of the date of adoption, as long as the reservation is for the program years specified in the inducement resolution. If the adopted inducement resolution does not specify that a reservation for multiple program years is authorized, then the inducement resolution would only be effective for 18 months after the date of adoption.

Comment

TSAHC commented on the proposed changes to §190.3(e)(4) by questioning if a certified copy of the bond resolution is required to be submitted to the BRB after the bonds have closed.

Response

The BRB declines to make any changes based on this comment. The proposed amendments to TAC 190 do not change the requirement of submitting a certified copy of the final bond resolution to the BRB no later than the fifth business day after the bonds have closed. The proposed rule change is meant to clarify that the bond resolution should be adopted within one year of the application date unless the resolution authorizes the issuer to seek an allocation in multiple program years. A certified copy of the final bond resolution authorizing the issuance of bonds and setting forth the specific principal amount of the bonds issued is a requirement of all PAB issuers, whether they are required to receive BRB board approval as part of the process or not.

Statutory Authority

The amendments are adopted under Texas Government Code §1231.022(1) authorizing the BRB to adopt rules relating to applications for review, the review process, and reporting requirements. The amendments are also authorized by direction provided in SB 1474 from the 86th Legislative Session, which incorporated critical updates to the Private Activity Bond Program codified in Chapter 1372 of the Texas Government Code. Texas Government Code §1372.004 authorizes the BRB to adopt rules necessary to accomplish the purposes of Chapter 1372.

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

§190.3.Filing Requirements for Applications for Reservation.

(a) Form. Applications must be filed on forms prescribed by the board and must contain all information and documentation required under the Act and this chapter, as applicable.

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

(1) the application fee;

(2) the certificate regarding fees, on the form prescribed by the board;

(3) a copy of the inducement resolution or other similar official action taken by the issuer with respect to the bonds and the project which are the subject of the application, certified by an officer of the issuer; or a copy of the certified resolution of the issuer authorizing the filing of the application for reservation, in either case certified with an original signature by an officer of the issuer and unless the resolution authorizes the issuer to seek an allocation in multiple program years, adopted within 18 months of the application date.

(4) a copy of the issuer's articles of incorporation as certified by the secretary of state of Texas and bylaws, including amendments thereto and restatements thereof, or alternatively, a certification with an original signature by an authorized representative of the issuer that there have been no amendments to the articles of incorporation or bylaws since the last submission of these items to the board;

(5) a copy of the issuer's certificate of continued existence from the secretary of state of Texas dated within 30 days of submission of application, an issuer's certificate of good standing is not an acceptable substitution for this requirement;

(6) a copy of the borrower's and, if the borrower is a partnership, each partner's certificate of good standing from the comptroller of public accounts of Texas, dated within 30 days of submission of application;

(7) a statement by the issuer, other than an issuer of a state-voted issue or the Texas Department of Housing and Community Affairs (TDHCA) or the Texas State Affordable Housing Corporation (TSAHC) that the bonds are not being issued for the same stated purpose for which the issuer has received sufficient carryforward during a prior year or for which there exists unexpended proceeds from a prior issue or issues of bonds issued by the same issuer, or based on the issuer's population;

(8) if unexpended proceeds exist, including transferred proceeds representing unexpended proceeds, from a prior issue or issues of bonds, other than a state-voted issue or an issue by the TDHCA or TSAHC, issued by the issuer or on behalf of the issuer, or based on the issuer's population, for the same stated purpose for which the bonds are the subject of this application, a statement by the trustee as to the current amount of unexpended proceeds that exists for each such issue. The issuer of the prior issue of bonds shall certify to the current amount of unexpended proceeds that exists for each issue should a trustee not administer the bond issues;

(9) if unexpended proceeds, including transferred proceeds representing unexpended proceeds, other than prepayments exist from a prior issue or issues of bonds, other than a state-voted issue or an issue by TDHCA or TSAHC, issued by the issuer or on behalf of the issuer, or based on the issuer's population, for the same stated purpose for which the bonds are the subject of this application, a definite and binding financial commitment agreement must accompany the application in such form as the board finds acceptable, to expend the unexpended proceeds by the later of 12 months after the date of receipt by the board of an application for reservation or December 31 of the program year for which the application is being filed. For purposes of this paragraph, the commitment by lenders to originate and close loans within a certain period of time shall be deemed a definite and binding agreement to expend bond proceeds within such period of time and any additional period of time during which such origination period may be extended under the terms of such agreement; provided that any extension provision may be amended, prior to the date on which the bond authorization requirements described in subsection (c) of this section must be satisfied, to provide that such period shall not be extended beyond the later of 12 months after the date of receipt by the board of an application for reservation or December 31 of the program year for which the application is being filed. For purposes of this paragraph, issuers of qualified student loan bonds authorized by §53B.47, Education Code, may satisfy the requirements of §1372.028(c)(3)(F) by, in lieu of a definite and binding agreement, providing with the application evidence as certified by the issuer that the issuer has purchased, in each of the last three calendar years, qualified student loans in amounts greater than or equal to the amount of the unexpended proceeds;

(10) if unexpended proceeds exist from a prior issue or issues of bonds, other than a state-voted issue or an issue by the TDHCA or TSAHC, issued by the issuer or on behalf of the issuer, or based on the issuer's population, for the same stated purpose for which the bonds are the subject of the pending application, a written opinion of legal counsel, addressed to the board, to the effect, that the board may rely on the representation contained in the application to fulfill the requirements of the Act and that the agreement referred to in paragraph (9) of this subsection constitutes a legal and binding obligation of the issuer, if applicable, and the other party or parties to the agreement;

(11) a written opinion of legal counsel, addressed to the board, stating the bonds are required to be included under the state ceiling and that the issuer is legally authorized to issue bonds for projects of the same type and nature as the project which is the subject of the application. This opinion shall cite by constitutional or statutory reference, the provision of the Constitution or law of the state which authorizes the bonds for the project;

(12) a qualified mortgage bond issuer that submits an application for reservation as described in §1372.032, Government Code, shall provide a statement certifying to the most recent closing of qualified mortgage bonds determined as provided in §190.2(c)(3) of this title (relating to Allocation and Reservation System), and the most recent date of a reservation received for mortgage revenue bonds and state the government unit(s) for which the local population was based for the issuance of bonds or for receipt of a reservation; and for said issuers who have received an allocation of volume cap for the purposes of issuing qualified mortgage bonds within the six years prior to the date of application, a statement on the form prescribed by the Board as to the utilization percentage relating to its most recent allocation calculated in accordance with §1372.0261. If during the previous year, a qualified mortgage bond issuer submitted an application for reservation that has not been granted at the time of application for the lottery, the issuer may opt to file a statement explaining whether there are any changes in information from the application filed the previous year in lieu of submitting a complete application. If there are changes, the statement must specify current information. The issuer must pay the same application fee whether filing a statement or a complete application;

(13) 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) if applicable, proof of application for Low Income Housing Tax Credits with TDHCA, and

(B) a copy of an earnest money contract that is in full force and effect or the reservation will automatically expire;

(14) 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 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 issuer of qualified student loan bonds authorized by §53B.47, Education Code, shall submit with the application for reservation the information as required in 1372.0281.

(c) Bond authorization requirements. Not later than 35 calendar days after an issue's reservation date, the board or Comptroller of Public Accounts, as applicable, must be in receipt of the following from the issuer:

(1) one-third of the closing fee;

(2) the certificate regarding fees, on the form prescribed by the board;

(3) a certificate signed by the issuer or authorized representative of the issuer that certifies the principal amount of the bonds to be issued or the portion of the state ceiling that will be converted to mortgage credit certificates;

(4) a list of finance team members with their addresses and telephone numbers;

(5) if applicable, an amended agreement pursuant to subsection (b)(9) of this section;

(6) a bond authorization requirements checklist, on the form prescribed by the board.

(7) if the borrower was originally identified as a to-be-formed entity, the final formation of the borrower must be identified as part of the submission and must meet the specifications set forth in the application for reservation of allocation. No changes will be permitted in the general partner of the borrower after the 35th day after the date of reservation;

(8) if an issuer fails to meet the 35-day deadline, the issuer may request a waiver from the board. The board will consider taking action to waive the missed deadline only if:

(A) the board is notified via facsimile transmission or e-mail of the missed deadline and intent to seek waiver not later than 36 calendar days after an issue's reservation date, and;

(B) the Bond Authorization Requirements filing, accompanied by a statement and evidence regarding extenuating circumstances that prevented a timely filing, is made not later than 38 calendar days after an issue's reservation date. Extenuating circumstances that would be grounds for waiver include acts of God, unforeseen acts of war, or medical emergency;

(9) an issuer described by §1372.022(a)(2) is not required to submit items described under paragraphs (1) and (2) of this subsection.

(d) Closing fee. The remaining two-thirds of the fee must be paid by all issuers other than those described by §1372.022(a)(2) simultaneously with closing on the bonds. The board shall be in receipt of the fee from the issuer as confirmed by the Comptroller of Public Accounts not later than the fifth business day after the day on which the bonds are closed.

(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) a certificate regarding fees, on the form prescribed by the board;

(2) a closing documents checklist, on the form prescribed by the board;

(3) a certificate of delivery on the form prescribed by the board;

(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 one year of the application date.

(5) if one is required, a copy of the approval of the local government unit or local government units, certified by a public official with the authority to certify such approval. This requirement shall not apply to any bonds for which the Code does not require such a public hearing and approval of a local government unit or local government units;

(6) the document evidencing compliance with §1372.040, Government Code;

(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;

(C) maturity schedule;

(D) purchaser or purchasers; and

(8) an official statement.

(9) 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

(C) program plan.

(10) For a residential rental project described in §190.2(d)(1) or (2) 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.

(f) Additional information. The board may require additional information at any time before granting a certificate of reservation or certificate of allocation.

(g) Application restrictions.

(1) In order to submit an application for reservation prior to October 21 of the year immediately preceding the program year an issuer or borrower must have been in existence on October 1 of that year.

(2) Project substitutions will not be allowed after the application for reservation has been delivered to the board. Alterations to the project, including changes to unit size, number of total units and unit mix, as well as changes to the land size necessitated as part of the development or finance approval process in the case of residential rental projects will be permitted only if said changes:

(A) are agreed to by the issuer, and;

(B) do not include the addition of land that is the subject of another application in the current program year.

(3) No issuer may submit an application for reservation for the same or substantially the same project or projects as are contained in the application of another issuer.

(4) No issuer prior to August 15 of the program year may apply for an amount that exceeds the maximum application limits as described in §1372.037(a).

(5) The board may not accept applications for more than one project located at, or related to, a business operation at a particular site for any one program year.

(6) For a qualified residential rental project issue, the Residential Rental Attachment contained in the Application packet for Reservation of Allocation must correctly reflect the regional designation of the project's location at the time of the lottery. If it is found to be incorrect on or after the lottery date, the project will be placed at the end of the lottery list once the region designation error is detected and corrected.

(7) For a qualified residential rental project, an applicant may not ever amend the priority status of the project once the application for reservation of allocation has been submitted to the Board.

(8) Qualified residential rental projects submitted post-lottery will be placed after all qualified residential rental projects submitted prior to the lottery, regardless of priority designation.

§190.4.Filing Requirements for Applications for Carryforward.

(a) Form. Applications must be filed on forms prescribed by the board and must contain all information and documentation required under the Act and this chapter, as applicable.

(b) Filing. The issuer shall submit one original and one copy of the application for carryforward. Each application must be accompanied by the following:

(c) Fee. The fee required by §1372.006(e) must be paid not later than the fifth business day following the date of receipt of the certificate of carryforward designation.

(d) Additional Information. The board may require additional information at any time before granting a certificate of carryforward.

(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) a closing documents checklist on the form prescribed by the board;

(2) a certificate of delivery on the form prescribed by the board;

(3) 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 of the application date;

(4) if one is required, a copy of the approval of the local government unit or local government units, certified by a public official with the authority to certify such approval. This requirement shall not apply to any bonds for which the Code does not require such a public hearing and approval of a local government unit or local government units;

(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;

(C) maturity schedule;

(D) purchaser or purchasers; and

(6) an official statement.

(f) Reassignment of carryforward designation--Traditional carryforward can be reassigned by the issuer as described in §1372.074(a).

(g) Unutilized carryforward designation available after a project closes can be reassigned as described in §1372.074(c) and subject to the time period allowed by the Code and described in §1372.061(b).

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on November 12, 2019.

TRD-201904216

Rob Latsha

Executive Director

Texas Bond Review Board

Effective date: December 2, 2019

Proposal publication date: August 9, 2019

For further information, please call: (512) 463-1741