Senate reviews state budget shortfall

AUSTIN (KXAN) - The Senate Finance Committee met at the Texas State Capitol today to review and make recommendations regarding existing and future debt at all levels of state government.

"The goal is to get our arms around all of the state debt, not just a narrow category," said Committee Chairman Senator Steve Ogden (R-Bryan). "So what we want to do, today and ongoing, is to see how big
the issue is."

The day's first testimony was given by the Legislative Budget Board of the attorney general's office regarding outstanding, unauthorized, and unissued debt and debt-like obligations.

The senators asked the panel pointed questions in regards to state debt as it relates to a projected $11 billion budget shortfall.

"We're presumably coming out of an economic recession. And were the state to have to make good on some defaults, particularly at the local level, the question is what extent that might happen and where the
money's going to come from to do it," said Bob Klein, executive director of the Bond Review Board.

Klein said the senators were particularly interested in debt service, the structure of tuition revenue bonds, and swaps.

In finance, a swap is a derivative in which two parties exchange certain benefits of one party's financial instrument for those of the other party's financial instrument.

"Despite the testimony, they're not particularly simple and there are some risks involved with swaps" Klein said.

The discussion led to many questions from Ogden and the other committee senators to get an understanding of swaps.

Klein added that Texas is rated AA+ by credit rating agencies. After his lengthy testimony Klein believes Texas is well situated.

"I'm very positive about the state's debt position. I think we're in very good shape," Klein said. "The challenge for the legislature is to figure out how they're going to make up the presumably $11 billion shortfall."