According to the Legislative Budget Board (LBB), the fiscal implications of HB 1718 cannot be conclusively determined at this time. The bill alters the statutory definition of "closing" concerning private activity bonds to allow for incremental funding through partial payments of at least 10% of the total bond amount. This creates a new mechanism for qualifying residential rental project bonds to be initiated without requiring full payment upfront.

The uncertainty in fiscal impact stems primarily from the bill's lack of specificity regarding the timeline for drawdown of bond proceeds. Without clearly defined time limits or requirements for full funding, there's a risk that allocated bond authority might be underutilized or left idle. This could result in a loss of federal private activity bond volume cap allocated to Texas, since unutilized authority may expire or be reallocated, potentially reducing the state’s capacity to finance other eligible projects.

Furthermore, the Bond Review Board indicates that the bill introduces unpredictability into bond administration and oversight. Since the structure of incremental closings may vary widely in practice, the board lacks sufficient data to model or estimate the bill’s impact on bond issuance trends or the resulting tax implications. For local governments, the fiscal impact is also indeterminate at this stage due to similar concerns about the pace and scope of bond drawdowns.

HB 1718 seeks to amend Section 1372.001(3) of the Texas Government Code by broadening the definition of “closing” in the context of private activity bonds. Under current law, a “closing” occurs only when a bond is issued and delivered in exchange for full payment. HB 1718 would permit a closing to be recognized upon partial payment of at least 10% for qualified residential rental project bonds, thereby enabling incremental drawdowns of funds. The stated goal is to make financing more efficient by reducing interest accrual on unused funds and giving developers more flexibility in accessing capital for housing projects.

Despite its practical intent, the bill raises serious policy and fiscal concerns. First and foremost, the bill introduces fiscal uncertainty by failing to specify how long an issuer may take to draw down the remaining bond proceeds. This ambiguity could lead to underutilization or forfeiture of Texas’s federally allocated private activity bond authority—an asset that is subject to strict volume caps and “use-it-or-lose-it” rules. If allocated bond authority is reserved for projects that do not fully proceed or only incrementally utilize their funding, it could reduce the state’s ability to support other critical infrastructure or housing efforts. The Legislative Budget Board explicitly states that the fiscal implications of the bill cannot be determined, reflecting the seriousness of this concern.

In addition, the bill increases the complexity of regulatory oversight without providing the necessary tools or guidance to the agencies responsible for bond administration. The redefinition of "closing" introduces new compliance risks that will likely fall on the Bond Review Board or other state-level financial monitors. These agencies would need to track partial payments, enforce eligibility conditions, and ensure projects remain on track—tasks that will add to their administrative burden. Importantly, HB 1718 does not grant these agencies additional rulemaking authority or funding, which could result in enforcement inconsistencies or overreach. For those committed to limited government, this quiet expansion of state oversight responsibilities, without adequate statutory boundaries, is a red flag.

Lastly, there is philosophical opposition to the structure of the bill. Private activity bonds are a form of government-facilitated financing that allow private developers to borrow at tax-advantaged rates. While sometimes used for public purposes like affordable housing, they inherently involve the government picking winners in the private sector. By making it easier to qualify for such financing through partial closings, HB 1718 expands the government’s role in private markets, contrary to the principles of free enterprise and fiscal restraint. Rather than scaling back reliance on these subsidized financing tools, the bill entrenches them further, potentially crowding out truly private investment.

In conclusion, while HB 1718 may be well-intended, it is flawed in execution and philosophy. The bill introduces fiscal risk by failing to protect the integrity of the state’s bond allocation; it increases the burden on regulatory agencies without necessary guardrails; and it further embeds government involvement in private capital markets. These concerns outweigh any theoretical efficiencies gained from partial bond closings. For these reasons, Texas Policy Research recommends that lawmakers vote NO on HB 1718.

• Individual Liberty: The bill does not directly affect individual rights such as freedom of speech, religion, or personal autonomy. It deals with the structure of bond financing between private entities and governmental authorities. As such, its implications for individual liberty are minimal or neutral.
• Personal Responsibility: The current statute requires bond issuers to secure full payment at the time of closing, which imposes financial discipline and clear expectations. The bill removes this full-payment requirement for certain projects and introduces a lower threshold (only 10%) to constitute a legal closing. This reduces the upfront financial accountability of bond recipients, potentially enabling speculative or underprepared developers to tie up public bond authority without full financial commitment. That shift undermines principles of personal and financial responsibility in public-private partnerships.
• Free Enterprise: From a market perspective, the bill aims to enhance flexibility for developers by allowing incremental drawdown of funds, which could reduce interest costs and align capital with actual project needs. On its face, this could support enterprise and capital efficiency. However, private activity bonds are not purely market-driven instruments—they are government-enabled financing tools that offer preferential tax treatment and are capped in annual volume. By making it easier to access these government-favored tools, the bill tilts the playing field in favor of politically approved or well-connected actors, rather than allowing true open-market competition. That undermines the principle of free enterprise by introducing greater reliance on subsidized financing.
• Private Property Rights: The bill does not directly restrict or expand property rights. It may indirectly support private development by facilitating bond access for residential rental projects, but this impact is secondary and not clearly tied to any structural improvement in property rights protection.
• Limited Government: The bill significantly undermines the principle of limited government. By complicating the definition of “closing” and failing to set clear limits or timelines, the bill creates a regulatory gap that oversight agencies must fill. That gap will likely require additional guidance, tracking, and potentially new enforcement mechanisms, expanding the role of regulatory bodies like the Bond Review Board without formally authorizing such expansion. Moreover, it deepens state entanglement in private-sector financing through ongoing facilitation of tax-advantaged bond issuance, rather than encouraging private capital solutions.

• SB 708 (Same As)