Texas Constitutional Amendment Election, 2007 - Proposition 2

Proposition 2

Proposition 2 (S.J.R. No. 57) is the constitutional amendment providing for the issuance of $500 million in general obligation bonds to finance educational loans to students and authorizing bond enhancement agreements with respect to general obligation bonds issued for that purpose.

The measure passed 65.85 percent in favor to 34.15 percent against.

• Comments by those in support: The bonds to be authorized by the proposed amendment are essential to meet the growing demand for student loans for students attending colleges and universities, especially as tuition and fees continue to rise rapidly. The availability of student loans is critical to ensure that Texans can obtain the education they need to be productive contributors to the state’s workforce. Without the proceeds from the proposed bonds, the Texas Higher Education Coordinating Board will not be able to provide loans to all eligible applicants in the near future. The Hinson-Hazelwood College Student Loan Program is a successful, self-sufficient program, depending not on state tax dollars but on money from student loan repayments, federal interest subsidies, and other sources. While general obligation bonds issued under the student loan program authorized by the proposed amendment do represent debt incurred by the state, the funds borrowed by the state through the sale of those bonds are repaid not by state taxpayers generally, but by former students in the form of loan repayment. Using general obligation bonds to generate student loan funds allows the state to obtain those funds at the lowest cost by leveraging the state’s credit without actually drawing on state funds. Bond enhancement agreements will provide the Texas Higher Education Coordinating Board with additional tools to leverage its bonds to maximize the student loan money received from the sale of those bonds. Other state agencies that issue bonds, such as the Veterans’ Land Board and Texas Water Development Board, have successfully used bond enhancement agreements.

• Comments by those in opposition: The state should be wary of adding to its debt by issuing $500 million in additional general obligation bonds for the student loan program, the largest authorization for the program thus far. While the loan program has not required general revenue in the past, unexpected circumstances, such as a sudden increase in student loan default rates, could require the taxpayers to foot part of the bill to repay the bonds. The student loan program funded by the general obligation bonds competes with loan programs already offered by private lenders. Higher education loans will be available through the private lending market regardless of whether the state operates a separate program to offer such loans.