When Texans head to the polls in November, they’ll find a slate of pro-taxpayer constitutional amendments designed to keep the Lone Star State a magnet for investment and growth. Unfortunately for taxpayers, that’s where the good news ends. Across counties large and small, voters will decide on more than 250 measures to collectively raise hundreds of millions in tax revenues or authorize tens of billions in new government debt. Everything is bigger in Texas, but that shouldn’t include the tax bill.
Our research finds at least 50 counties have measures on the ballot, including 26 unique ballot property tax, lodging tax, or sales tax increases that would put taxpayers on the hook for a collective $281 million in local tax revenue annually. We’ve identified another 56 tax measures that don’t have a fiscal estimate in the ballot language, which means taxpayers will be left in the dark about the cost of tax increases when they cast their vote.
That isn’t the biggest news from our analysis of initiatives across the state. We find there are another 180 ballot measures that would issue at least $26.6 billion in new bonds. Bonds result in a long-term debt obligation, frequently in the form of higher property tax rates. Indeed, most of these bonds trigger higher property taxes in their respective jurisdictions without concrete information on the tax implications should they be approved.
Since most bonds last for decades, voters could approve a substantial tax increase without even knowing how it would impact their property tax bills. This lack of transparency is a serious problem that state lawmakers ought to remedy in the next legislative session so their constituents can make better-informed decisions in future elections.
However, an interesting question arises if these measures are approved: who will buy municipal bonds at auction? It seems mundane because in the past they were purchased by retail investors, asset managers, banks, and mutual funds. However, in recent years Texas lawmakers enacted policies to punish some financial institutions for their positions on certain environmental or social issues and have prohibited many of them from doing business with the state or its subdivisions.
The state comptroller’s office and Attorney General Ken Paxton have targeted America’s top financial institutions and put many of them on a “blacklist” so the state – including local governments and school districts — are banned from contracting with them. The AG is also championing a misguided lawsuit against BlackRock, State Street, and Vanguard that, if successful, would force the divestiture of their shares in a number of coal companies.
The political message is clear: if a financial institution even appears to consider climate risk or social responsibility when maximizing returns for shareholders, Texas will shut the door on them.
Texas’ aggressive posturing towards asset managers certainly doesn’t create a welcoming environment. When Texas restricts competition among underwriters and asset managers, it reduces the pool of potential buyers for its bonds. Fewer bidders mean higher borrowing costs, and higher borrowing costs mean fewer roads, smaller schools, and delayed utility projects — or, alternatively, higher taxes to pay for larger yields that entice investors to be buyers.
This is a reality. In fact, a 2022 study by economists at the University of Pennsylvania and the Federal Reserve Bank of Chicago found Texas’s law blacklisting certain financial institutions for their policies cost Texas taxpayers as much as $532 million in higher interest costs in just eight months. Some of the largest municipal bond underwriters in the nation either withdrew from the market or were barred from participating, thereby burdening local taxpayers.
Granted, the state has removed some companies from its blacklist, but it could have long-lasting consequences for taxpayers. Primarily, that governments shouldn’t harass the private businesses that are contributing to Texas’ success. Large institutional investors, who prize stability and reputational safety, may decide it’s simply not worth the risk, and ultimately leave taxpayers paying the price.
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