On Tuesday, November 3, Americans vote in the midterm elections. Every news channel will be covering it. The results will drive the conversation for weeks.
On Wednesday, November 4, the U.S. Treasury Department will put out a press release almost nobody reads. It is called the Quarterly Refunding Statement. It is dry, technical, and full of numbers. It will not lead any broadcast.
There is a reasonable chance that the second document ends up mattering more to your mortgage rate, your city’s next bond sale, and your retirement account than the first one does.
This post explains why, starting from zero. If you have never thought about the bond market in your life, you are the intended reader.
Start with the basic problem
The federal government spends more than it takes in. To cover the gap, it borrows. It borrows by selling IOUs called Treasury securities.
There are short ones and long ones. A Treasury bill matures in a year or less. A Treasury note runs two to ten years. A Treasury bond runs twenty or thirty years. When you buy one, you hand the government money now and it pays you back later with interest.
The total pile of these IOUs is around $40 trillion. The interest alone now runs over $1 trillion a year. That is more than the government spends on national defense.
Here is the part that trips people up. The government does not pay off that pile. It rolls it over. When a bond comes due, Treasury sells a new one to pay off the old one, the way someone might pay one credit card with another. That means the government is constantly back in the market asking investors to lend again. Every week. Forever.
So the interest rate investors demand is not a trivia question. It is the price of keeping the whole thing running.
Who decides that price
Not the government. The market does.
The Federal Reserve sets one very specific interest rate, the overnight rate that banks charge each other. That heavily influences short-term rates. But the rate on a 30-year Treasury bond is set by supply and demand among investors: pension funds, insurance companies, foreign central banks, mutual funds, ordinary people.
If those investors get nervous, they demand a higher rate to lend for thirty years. That extra amount they demand is called the term premium. It is the compensation for taking a long, uncertain risk. Nobody sets it. It emerges.
And here is why you should care even if you never buy a bond. Treasury yields are the benchmark everything else is priced against. Mortgage rates follow the 10-year Treasury closely. Corporate borrowing costs, and city and school district bond rates, follow the longer end. When those yields go up, everything else that borrows long-term gets more expensive, from a family buying a house to a school district building an elementary school.
Enter the Treasury Secretary
Scott Bessent has run the Treasury Department since January 2025. Before that he spent forty years in investment management. He is a currency and bond specialist by training. He worked for George Soros, then started his own fund.
That background matters for understanding what he is doing now. He is not a career bureaucrat who ended up in charge of the government’s finances. He is a trader who ended up in charge of the government’s finances, and he has been acting like one.
Long-term interest rates have been uncomfortably high. So Bessent reached for a tool.
The tool: buybacks
The Treasury Department has a program where it buys back some of its own older bonds from the market. This is a real, boring, established program. It launched in 2024. It normally exists to help trading run smoothly in bonds that have gotten stale and hard to trade.
On August 19, 2026, Bessent announced that starting September 9, Treasury would at least double the size of these buybacks in the longest maturities, from around $2 billion per operation to at least $4 billion.
The mechanics are simple enough. Treasury announces which old bonds it wants to buy. Wall Street’s big bond dealers submit offers. The New York Fed runs the auction on Treasury’s behalf. Treasury takes the best offers, pays cash, and retires the bonds.
Now the question everyone should ask: where does the cash come from?
This is the whole story, so slow down here.
The Treasury Department cannot create money. Only the Federal Reserve can do that. So when Treasury spends $4 billion buying back 30-year bonds, it has to get that $4 billion somewhere. It gets it by borrowing more.
And because Treasury has already locked in how much long-term debt it plans to sell this quarter, the extra borrowing happens in short-term bills.
Read that again. Treasury is buying back 30-year debt and replacing it with 4-week debt.
Total debt does not go down by one dollar. Nothing is paid off. The government has simply swapped a long loan for a short loan.
If you have ever refinanced a house, you know this trade. Moving from a 30-year fixed mortgage to an adjustable-rate loan lowers your payment today. It also means your payment resets whenever rates reset. You have not reduced what you owe. You have changed what you are exposed to.
That is what the U.S. government is doing, at scale.
Why would that lower long-term rates at all?
The theory is about supply.
Imagine the world’s investors can only stomach so much long-term risk. If Treasury takes some 30-year bonds off the market, there is less long-term risk left for investors to hold. Less of something usually means a better price for it. So the rate on the remaining long bonds should fall.
That is the idea. It has a name and a history.
A short history detour: the Twist
In 1961, the Federal Reserve and the Kennedy administration faced a puzzle. They wanted short-term rates high, to keep money from leaving the country for better returns abroad. They also wanted long-term rates low, to encourage businesses to build things.
Those two goals fight each other. So they tried something clever: buy long-term bonds, sell short-term bonds, and bend the shape of the curve rather than moving it up or down as a whole.
Somebody in the financial press noticed that Chubby Checker’s “The Twist” was the biggest song in the country. The nickname stuck. Operation Twist.
It came back in 2011. The Fed had already cut its main interest rate to essentially zero and had no room left to cut. So it bought roughly $667 billion of long-term Treasuries and sold an equal amount of short-term ones. Officially the Maturity Extension Program. Everyone called it Twist 2.
Both times, the Federal Reserve did it.
Here is the thing that makes 2026 different
What Bessent is doing looks like a Twist and gets called a Twist, but it is not the same animal, for two reasons.
First, it is the wrong institution. Both historical Twists were run by the Fed, which can create money and whose job is managing interest rates. This one is being run by the Treasury Department, whose job is selling debt and paying the government’s bills.
Second, it runs the wrong direction on maturity. The Fed’s versions gave the Fed longer-term holdings. Bessent’s version leaves the government’s own debt shorter and therefore more exposed to future rate changes.
Think of it this way. The federal government has two hands. One hand is the Fed, which is supposed to be independent and worry about inflation. The other hand is the Treasury, which worries about paying the bills and answers to the President. For decades the arrangement has been that the Fed manages interest rates and Treasury does not try to.
When Treasury starts trying to steer long-term interest rates, that arrangement blurs. Economists have an unfriendly name for the far end of that road: fiscal dominance. It means the government’s debt problem, rather than the inflation target, has become the thing driving policy. Countries that get there do not enjoy it.
What the market actually did
Not much, and not in the right direction.
When the buyback expansion was announced, the dollar fell and the price of gold rose. That pairing is a tell. A falling dollar plus rising gold is the combination investors produce when they think U.S. risk has gone up, not down. The announcement was meant to project confidence and the market read it as worry.
The scale explains part of the shrug. Treasury expects to borrow about $739 billion this quarter. A $4 billion buyback against that is a rounding error. As one analyst quoted by the Wall Street Journal put it, the move is a band-aid that does not fix the problem.
Others pointed out an irony. Bessent was part of the team that famously bet against the British pound in 1992 and won, forcing the Bank of England to give up defending its currency. A man who made his name proving that governments lose fights with markets is now picking one.
The thing he is actually spending: credibility
There is a concept here that takes a minute to explain but is the most important idea in this entire post.
A Treasury Secretary has almost no direct power over interest rates. He cannot order them lower. What he has instead is credibility, which in this context means something specific: when he says the government’s finances are under control, do professional investors believe him enough to lend at a lower rate?
That belief is worth real money. A tenth of a percentage point across $40 trillion is $40 billion a year. Credibility is not a soft, reputational nicety in this job. It is the asset.
Bessent came into office with an unusually large supply of it. Wall Street knew him. Bond traders described him at the time as a fiscal hawk who would rein in spending and keep Treasury policy honest with markets. He was, by wide agreement, one of the appointments the financial community was most comfortable with.
That has been draining away, and the buyback episode accelerated it. Politico reported in late August that his credibility took a hit that may not recover. Mohamed El-Erian, one of the most widely followed economists in the business and previously a supporter, said he was worried, and that continued intervention in the bond market takes things somewhere different. Mark Dowding, the chief investment officer at BlueBay Fixed Income, put it more bluntly: the market is not granting Bessent the credibility he believes he has.
That last line is worth sitting with, because it describes a specific and dangerous gap. It is not that investors think he is wrong about the economy. It is that he is acting as though his word moves markets, and markets have decided it does not. When someone in that job overestimates his own standing, he tends to reach for bigger and more visible actions to prove the point, which is exactly the escalation dynamic described further down.
There is also a compounding problem. Credibility in debt management is built the boring way, over years, by being predictable. Treasury’s entire brand is “regular and predictable issuance.” Investors pay a premium for U.S. debt partly because they trust the process is not being improvised. Every intervention that looks improvised chips at that premium, and it is much easier to spend down than to rebuild.
Which brings us to November 4
The Quarterly Refunding Statement is where Treasury tells the world how it plans to borrow for the next three months. How much in bills. How much in notes and bonds. How big the buybacks will be. It comes out four times a year, and the professionals read every word.
The current buyback expansion was announced as running through November 4. That is not a coincidence of the calendar; that is the natural expiration date. So on November 4, Treasury has to say what happens next. There are three broad answers:
Quietly stand down. Sizes return to normal, the language goes back to routine plumbing talk, and the whole episode fades. This is the calm outcome.
Double down. Bigger buybacks. That tells markets Treasury is committed to defending a rate level, which invites investors to test whether it can.
Change the plumbing instead. Reduce how many long bonds Treasury sells at auction in the first place. This is actually the more powerful lever and it is completely ordinary debt management. If Bessent wants to move long-term rates without picking a fight, this is how.
Now stack the elections on top. On November 3, voters may change who controls Congress. Control of Congress shapes taxes and spending, which shapes how much the government has to borrow, which shapes the price of borrowing. Investors will spend election night forming a view about the fiscal outlook.
Then, before most people have finished reading the election coverage, Treasury publishes its borrowing plan into that fresh view.
Two big signals, back to back, into a market that is already unsettled. That adjacency is what makes this particular pair of days unusual.
Deliberately looking at the worst case
Most of the time, thinking through disaster scenarios is a waste of energy. Occasionally it is the most useful thing you can do, and the reason is not pessimism. It is that worst cases have a sequence, and if you know the sequence you can spot which step you are on before the rest of the market does.
So here is the bad version, laid out as a chain. Each link has to hold for the next one to happen.
Step one. The bigger buybacks start on September 9. Rates dip a little on the day, then drift right back up within a day or two. After a few rounds, everyone concludes the buying is mechanical, limited, and predictable. Worse, dealers start selling into it, because a buyer who announces in advance exactly what he will buy and when is a buyer you can position against.
Step two. Pressure builds to make the operations bigger. But bigger operations mean more short-term bills to fund them. There is only so much appetite for short-term bills before the government has to pay up to place them, which defeats the purpose.
Step three. This is the ignition point, and it is not the buybacks. It is a regular Treasury auction of 20-year or 30-year bonds where investors demand a noticeably higher rate than expected. In the trade this is called a tail. One bad auction is a story. Two is a pattern.
Step four. The term premium reprices. Long-term rates rise while short-term rates hold, which stretches the gap between them. Alongside it: the dollar weakens and gold rises again. This particular combination is important because it distinguishes between two very different fears. If investors are afraid of a recession, the dollar usually strengthens. If investors are afraid of the government’s finances, the dollar weakens. Watch which one happens.
Step five. Treasury is stuck with two bad options. Escalate into a market that is now actively testing it, or retreat and confirm it had no answer. Neither one is good, and both cost credibility, which is the resource that was already running low.
Step six. Stocks. Contrary to intuition, the level of interest rates matters less to the stock market than the speed of the change. Long-term rates drifting up over two months does very little. The same move compressed into two weeks breaks things, because it snaps the usual relationship where bonds go up when stocks go down. When both fall together, the standard diversified portfolio stops protecting anyone. That is the scenario that shows up in retirement account statements.
Why the worst case probably does not happen
Being honest about the bad chain also means being honest about how many links have to hold.
Severe requires the buybacks to fail, and a long-bond auction to go badly, and the election to produce a fiscal outlook investors dislike, and the Fed to decline to step in. Each of those is plausible on its own. All four together is a much narrower path.
There is also a natural brake that gets forgotten in scary write-ups. Every bond has a price at which somebody wants it. Pension funds have obligations stretching decades into the future and genuinely want long-term bonds. Insurance companies do too. Foreign central banks hold dollars because they need dollars. Push the yield high enough and those buyers show up in size. The market clears. The only real questions are what level it clears at and how quickly it gets there.
What to actually watch, in order
You do not need a Bloomberg terminal for any of this.
Buyback operations starting September 9. Do rates move, and does the move stick past the next morning?
Auction results for 20-year and 30-year bonds in September and October. This is the real early warning system, and it runs about six weeks ahead of anything that shows up in your local news.
The dollar and gold together. Both moving the wrong way at once is the fiscal-worry signature.
November 3, then November 4. Election result, then borrowing plan.
Why a local government finance blog cares
Because none of this stays in Washington.
When Treasury yields rise, city and school district borrowing costs rise with them, usually within days. Consider a district that got voter approval for a bond package back in 2021 or 2022, when rates were far lower, and has not yet sold all of it. The gymnasium still costs what a gymnasium costs. What changed is the interest owed on the money borrowed to build it, and that has gone up, not down. Same project, same par amount, more total dollars repaid over the life of the debt.
Under a failure scenario, this gets worse rather than better. That is the point worth being clear about. The entire purpose of the buyback program is to bring long-term rates down. If it fails, rates do not fall. If it fails badly, rates rise. So the local consequence of a failed intervention is not neutral. It is a higher cost of building schools, streets, and water lines than the voters were shown when they approved the projects.
In Texas, that debt service flows into the interest and sinking portion of the property tax rate. Which means a decision made in a Treasury press release on November 4 can end up on a tax bill in a suburb nobody in Washington has ever heard of.
That is the honest reason to pay attention to a boring document on a Wednesday. Not because the bond market is interesting. Because it is upstream of nearly everything else.
The elections on November 3 decide who governs. The refunding statement on November 4 reveals the terms under which they will have to. One of those gets wall-to-wall coverage. The other one is a PDF on a government website.
For six years, Texas school districts lived with a ballot rule they considered unfair and worked around at the margins. House Bill 3 in 2019 required every school bond proposition to carry the statement “THIS IS A PROPERTY TAX INCREASE.” Districts complied, but a number of them softened the blow — appending explanatory phrases, adjusting placement, letting the required language sit somewhere down in the body of a long proposition where a voter scanning quickly might not register it.
That era ended on May 24, 2025.
Senate Bill 1025 of the 89th Legislature rewrote Section 52.072(e) of the Election Code. Senate Bill 506 added a facial-neutrality requirement effective September 1, 2025. And on July 30, 2025, the Public Finance Division of the Texas Attorney General’s office issued a letter to all bond counsel that reads less like guidance and more like a door closing.
Put the three together and something structural has changed in how Texas asks voters to approve debt and tax rates. Districts have almost no discretion left over the wording that matters most — and the enforcement mechanism means the question is not even close.
What Senate Bill 1025 Actually Did
The amended statute requires that a ballot proposition seeking voter approval of the imposition or increase of a tax must include, at the top of the proposition, in capital typewritten letters of the same font size as the rest of the proposition, the statement “THIS IS A TAX INCREASE.”
Read that clause slowly, because every phrase is doing work.
At the top of the proposition. Not somewhere within it. The warning leads. A voter cannot reach the purpose language without passing the statement first.
In capital typewritten letters. No discretion on case.
Of the same font size as the rest of the proposition. This one is easy to miss and it is the sharpest edge in the bill. Before SB 1025, a district could satisfy the requirement with the statement rendered smaller than the surrounding text. Now it must match the body size.
And SB 1025 went further: the remainder of the proposition must be printed in mixed-case typewritten letters. Lower case except for the first word of a sentence, proper nouns, and the like. The practical effect is that “THIS IS A TAX INCREASE” becomes the only capitalized text in the entire proposition. It is visually isolated by operation of law.
The Attorney General Extended It to Bonds
Here is where the July 30 letter matters.
Section 52.072(e) speaks to propositions seeking approval of a tax increase. One could argue a bond proposition seeks approval to issue debt, not to raise a tax. The Attorney General rejected that reading.
The letter reasons that by conforming Section 52.072(e)(1)(B) of the Election Code to Section 45.003(b-1) of the Education Code — the 2019 school-bond provision — the Legislature indicated its intent that the rule applies to all ballot propositions seeking voter approval of the imposition or increase of a tax, including when such a proposition seeks approval to issue tax bonds.
The AG then supplies the compliance path: school districts satisfy both statutes together by placing “THIS IS A PROPERTY TAX INCREASE” at the top of the proposition, in capital letters at matched font size, with the remainder in mixed case.
There is a small drafting detail worth knowing. The word “PROPERTY” is required only for school district ad valorem tax bonds under Section 45.003(b-1). Other issuers — cities, counties, junior college districts, water districts — use the shorter “THIS IS A TAX INCREASE.” The AG notes this explicitly, observing that the omission of “PROPERTY” from the Election Code version signals that the rule reaches taxes other than ad valorem.
And Then It Closed the Workaround
The fourth section of the letter is the one that ends the conversation.
The AG observes that since Section 45.003(b-1) took effect, several school districts have qualified the required statement with phrases such as “REQUIRED STATEMENT FOR ALL SCHOOL DISTRICT BOND PROPOSITIONS PURSUANT TO SECTION 45.003, EDUCATION CODE.”
You can see the appeal. The added phrase tells a voter, in effect, do not read too much into this — the state makes us say it. For a district cutting its debt service rate while asking for new authorization, that framing feels like simple accuracy.
The AG’s response, quoting its own July 3, 2020 guidance: prescribed language is strictly construed; therefore, school districts may not modify, supplement, or qualify this mandatory ballot language.
Then the new hook. Effective September 1, 2025, such language may also violate Section 52.072(g) of the Election Code, added by Senate Bill 506, which requires a proposition to substantially submit the question with such definiteness, certainty, and facial neutrality that the voters are not misled.
That is a meaningful escalation. Under the old regime, qualifying the statement was non-compliance with a formatting rule. Under the new one, it is potentially a facial-neutrality defect going to the validity of the proposition itself.
Why This Is Checkmate and Not Merely Check
A skeptic could ask: so what? Statutes get ignored. Who enforces this?
The answer is that Texas built the enforcement mechanism a century ago and it has nothing to do with litigation.
Government Code Section 1202.003 provides that before the issuance of a public security, the issuer shall submit the public security and the record of proceedings to the attorney general. Only if the attorney general finds that the security has been authorized to be issued in conformity with law does the AG approve it and deliver the approving opinion to the comptroller.
The phrase “record of proceedings” is defined to include the issuer’s proceedings relating to authorization. Where the enabling law required an election as a condition precedent, the AG requires proof that the condition was satisfied. The election order and the ballot go into the transcript.
So consider what happens to a district that gets creative with proposition wording, wins its election, and then tries to sell bonds.
Nothing happens. That is the point.
There is no lawsuit, no injunction, no contested hearing. The transcript goes to Austin, the Public Finance Division reviews it against the very guidance it published, and approval is withheld. What the district holds is authorized-but-unissued paper that cannot be monetized. The voters said yes and the bonds still do not exist.
The Provenance Detail That Forecloses the Ignorance Defense
The July 30 letter states that it is provided pursuant to authority under Section 402.044 of the Government Code, which requires the AG to advise the proper legal authorities regarding the issuance of bonds that by law require the Attorney General’s approval.
Sit with that for a moment.
This is not a think-tank white paper or a trade association bulletin. It is the office that holds the approval pen, publishing its construction of the statute in advance, addressed specifically to the bond counsel who draft election orders.
A district that deviates cannot claim surprise. Neither can its counsel.
Which points to the real gate. In practice, the Attorney General is the backstop, not the checkpoint. Bond counsel would decline to render the approving opinion long before any transcript reached Austin. No firm in the Texas public finance bar is going to stake its name on a proposition format the AG has already said it will reject.
What Is Actually at Risk
The final piece explains why no district would attempt this even if it thought it could win.
Once a public security is approved by the Attorney General, registered by the Comptroller, and delivered against payment, it becomes valid and incontestable for all purposes — challengeable only on narrow grounds such as an alleged constitutional defect. The AG’s certificate is admissible as conclusive evidence of validity.
That incontestability is not a legal nicety. It is a pricing input.
It is a substantial part of why Texas school district paper trades where it does, and it stacks on top of the Permanent School Fund guarantee. To take one current example, McKinney ISD’s Series 2026 refunding bonds priced at Aaa and AAA on the strength of the PSF guarantee, with underlying ratings of Aa1 and AA+.
A district that jeopardizes AG approval is not risking a delay. It is risking the legal status that makes the debt sellable at all. Nobody trades hundreds of millions of dollars of issuance capacity for softer ballot wording. The math is not close.
Where Discretion Actually Survives
To be fair to the districts, the ballot is not entirely locked. The AG’s letter is careful to preserve Section 52.072(f), which provides that the political subdivision shall prescribe the wording of the proposition in accordance with Subchapter B of Chapter 1251 of the Government Code. Section 52.072(e), the letter says, applies in addition to that requirement.
So three levers remain.
Descriptive purpose language. The district still writes what follows the warning. Whether a proposition reads “school renovations, safety and security upgrades, and career and technical education facilities” or something drier is a drafting choice. This is the largest legitimate lever and it is entirely conventional.
Number of propositions. Education Code Section 45.003(g) forces separation only for specific facility types — stadiums, performing arts facilities, natatoriums — plus technology. Everything else may be consolidated. Because each proposition carries its own mandatory warning, four propositions produce four warnings and eight would produce eight. McKinney ISD once bundled a very high-dollar football stadium with replacing HVAC systems and school building roofs. Cities and counties can’t do that. And now, ISDs are blocked from the tactic to vote up or down on controversial big-ticket items and basic building care.
That creates a genuine tension worth naming. A district that consolidates minimizes the number of tax-increase statements on the ballot and simultaneously reduces the granularity voters get. Fewer warnings and finer voter choice are opposing objectives. No district can optimize both, and how a board resolves that tension is a legitimate subject for public discussion.
Everything off the ballot. The Voter Information Document required by Section 1251.052(b), the district website, the FAQ, the sample-ballot posting — all of it can explain a declining tax rate in full, which is exactly what the ballot forbids.
But that lever comes with its own boundary. Election Code Section 255.003 prohibits the use of public funds for political advertising, and the line between informational and advocacy is where districts get into trouble. In November 2025, Judson ISD drew an Attorney General electioneering complaint during early voting. Canyon ISD was criticized for promoting its tax rate election on a tax-funded website. Both measures failed. Advocacy belongs with a political action committee spending private money, and the distinction is not a technicality.
The One Proposition the Gate Does Not Cover
There is an asymmetry here that deserves attention, because it cuts against the tidy conclusion.
The Attorney General approval gate applies to bonds. It does not apply to a voter-approval tax rate election. A VATRE ratifies a tax rate, not a security. Nothing goes to Austin. The only check is an election contest under the Election Code — slower, privately financed, and considerably weaker.
And yet the VATRE ballot is arguably the most locked-down proposition in Texas law.
Section 26.08(b) of the Tax Code prescribes the sentence verbatim: “Ratifying the ad valorem tax rate of ___ in (name of school district) for the current year, a rate that will result in an increase of ___ percent in maintenance and operations tax revenue for the district for the current year as compared to the preceding year, which is an additional $___.”
Three blanks, all computed, none of them framing. The percentage and dollar figures come out of the Form 50-859 worksheet. There is technical judgment in a maintenance-and-operations revenue calculation, but it is audited arithmetic, not messaging.
So the Legislature locked down the unpoliced proposition by drafting it word for word, and locked down the policed ones by putting the Attorney General at the door. Different mechanisms, same destination.
The Structural Problem Nobody Has Solved
Here is what makes this more than a compliance story.
The mandatory warning is accurate in some cases and misleading in others, and the statute cannot tell the difference.
Consider a district that adopts a voter-approval tax rate election raising its maintenance-and-operations rate by roughly a penny while simultaneously cutting its interest-and-sinking rate by five cents. The total rate falls. Every homeowner whose appraised value holds steady pays less. And every proposition on that ballot — the tax rate election and each bond question — opens with a capitalized statement that this is a tax increase.
On the tax rate election, the statement is defensible. The maintenance-and-operations rate genuinely rises and maintenance-and-operations revenue genuinely increases. Truth-in-taxation law has always treated revenue growth as an increase regardless of what happens to individual bills, and there is a coherent argument for that convention.
On the bond propositions, where the debt service rate is coming down, the statement is harder to defend as informative. New authorization does create a new obligation, and reasonable people can argue that voters should be told so in the strongest terms. But a voter reading “THIS IS A PROPERTY TAX INCREASE” above a proposition financed by a falling rate is not receiving a precise signal.
And the ballot offers no reference point. It states the proposed rate. It does not state last year’s rate. A voter sees a number, sees a warning, and has no way to compare the two without outside information.
That is a design choice, and it was made deliberately. Whether it produces better-informed voters or merely more suspicious ones is an empirical question the Legislature has not tested.
What the Record Suggests
The empirical picture is mixed enough to resist easy conclusions.
An Austin American-Statesman analysis of 55 school districts holding tax rate elections found that 58% failed and roughly 42% passed. In November 2025, five San Antonio-area districts held voter-approval tax rate elections and only Boerne passed, narrowly. Schertz-Cibolo-Universal City failed by an even smaller margin. Canyon ISD’s measure failed with 59% voting against.
In November 2024, Frisco ISD voters rejected all four propositions on their ballot — a tax rate election and three bond propositions totaling more than $1 billion — despite substantial district promotion and organized local opposition.
But the same November 2025 cycle saw dozens of districts pass more than $10 billion in bond authorizations statewide. Grapevine-Colleyville passed its tax rate election with 58% approval. Austin ISD passed one in 2024 that added $41 million annually. The warning is a headwind, not a wall.
Turnout may matter more than typography. District officials in several failed elections observed that placing a local measure on a high-turnout general election ballot brings out voters unfamiliar with district finance. The November 2025 constitutional amendment election drew roughly 14% turnout statewide. A general election in an even year with a U.S. Senate race on the ballot can run several times that, and the marginal voter reads the ballot cold.
There is a counterweight worth noting: property under the over-65 and disabled tax ceilings is insulated from rate increases entirely. In many districts that is a meaningful share of taxable value and a highly reliable voting bloc. The ballot does not tell those voters they are insulated either.
What This Means Going Forward
Four things follow.
First, the ballot is settled. Districts should stop treating proposition wording as a communications problem. Six elements are locked — the statement, its placement, its case, its font size, the prohibition on qualifying it, and the computed blanks in a tax rate election. Energy spent there is wasted, and worse, it is risky.
Second, the timeline moved up. If the ballot cannot explain a falling tax rate, voters must arrive already knowing. That is a spring-and-summer information effort, not an October campaign. By the time the sample ballot posts — not less than 21 days before election day — the argument is either made or it is not.
Third, volume is not the answer. Frisco promoted aggressively in 2024 and lost everything. Judson and Canyon drew complaints for how they promoted and lost too. The lesson is not to spend more from the public purse; it is to be scrupulous about the line between information and advocacy, and to let a political action committee carry the rest.
Fourth, proposition architecture is now a substantive decision. Because each proposition carries its own warning, the choice of how many to put on the ballot is simultaneously a choice about voter granularity and about how many times a voter reads the word “increase.” Boards should make that trade-off consciously and explain their reasoning. It will be noticed either way.
A Closing Observation
I have watched Texas municipal finance since 1972, starting as budget director for the City of Garland. Ballot language fights are not new. What is new is the combination.
A prescriptive formatting statute. A facial-neutrality standard with teeth. Pre-published guidance from the office holding the approval authority. And an approval gate that converts non-compliance into unissuable debt rather than into litigation a district might survive.
Any one of those is manageable. Together they are not a rule that districts navigate. They are a rule that districts obey.
Whether that produces better public decisions is a separate question, and an open one. The Legislature has decided that a voter facing a bond proposition should be told, in capital letters, before anything else, that a tax increase is at stake. Districts that believe their particular facts are more complicated than that now have exactly one place to make the case, and it is not the ballot.
Checkmate.
Well, unless school districts put on a full blown campaign today to prepare the voter of the truth about the state’s corner ISD boards are painted into. It is unfair by almost every reasonable yardstick.
Now, time for a pop test:
Here’s the closing block. Reconstructed format, SB 1025 compliant — statement at top, capitals only there, everything else mixed case.
Try It Yourself
Enough theory. Here is what a McKinney ISD voter will see on November 3, reconstructed from the statutes and the district’s adopted propositions. The formatting is not stylistic license — it is what SB 1025 requires.
McKINNEY INDEPENDENT SCHOOL DISTRICT PROPOSITION A
THIS IS A TAX INCREASE
Ratifying the ad valorem tax rate of $1.0664 per $100 valuation in the McKinney Independent School District for the current year, a rate that will result in an increase of ____ percent in maintenance and operations tax revenue for the district for the current year as compared to the preceding year, which is an additional $__________.
☐ FOR ☐ AGAINST
McKINNEY INDEPENDENT SCHOOL DISTRICT PROPOSITION B
THIS IS A PROPERTY TAX INCREASE
The issuance of $430,950,000 of bonds by the McKinney Independent School District for the construction, acquisition, renovation and equipment of school buildings in the district, including two new elementary schools and a career and technical education facility, the purchase of school buses, and the levying of a tax sufficient to pay the principal of and interest on the bonds and the costs of any credit agreements executed in connection with the bonds.
☐ FOR ☐ AGAINST
McKINNEY INDEPENDENT SCHOOL DISTRICT PROPOSITION C
THIS IS A PROPERTY TAX INCREASE
The issuance of $62,000,000 of bonds by the McKinney Independent School District for the purchase of new technology equipment, other than equipment used for school security purposes, and the levying of a tax sufficient to pay the principal of and interest on the bonds and the costs of any credit agreements executed in connection with the bonds.
☐ FOR ☐ AGAINST
McKINNEY INDEPENDENT SCHOOL DISTRICT PROPOSITION D
THIS IS A PROPERTY TAX INCREASE
The issuance of $4,500,000 of bonds by the McKinney Independent School District for the renovation and equipment of a natatorium, and the levying of a tax sufficient to pay the principal of and interest on the bonds and the costs of any credit agreements executed in connection with the bonds.
☐ FOR ☐ AGAINST
McKINNEY INDEPENDENT SCHOOL DISTRICT PROPOSITION E
THIS IS A PROPERTY TAX INCREASE
The issuance of $2,550,000 of bonds by the McKinney Independent School District for the renovation and equipment of stadiums, including turf and track replacement, and the levying of a tax sufficient to pay the principal of and interest on the bonds and the costs of any credit agreements executed in connection with the bonds.
☐ FOR ☐ AGAINST
Five propositions. Five capitalized warnings. Nothing anywhere on that ballot tells you the district’s adopted rate last year was $1.1043, or that the total rate under all five propositions would be $1.0664 — three and a half cents lower.
Nothing tells you the interest and sinking rate is proposed to fall five cents while the maintenance and operations rate rises about a penny.
Nothing tells you that the district’s average annual debt service requirement through 2044 is $27,466,110, an obligation covered by a rate of $0.0919, while the district currently levies $0.3700 for debt.
Insult to Injury
And there is one more thing the ballot will not tell you, though the statute guarantees a number will appear. Proposition A must state the percentage increase in maintenance and operations tax revenue and the additional dollars raised. McKinney ISD is an excess local revenue district under Chapter 49 of the Education Code, satisfying recapture (“Robin Hood”) through the purchase of attendance credits — an arrangement its voters made permanent at the May 1, 2021 election.
The district reports the tax rate election would generate approximately $9,100,000 in additional maintenance and operations revenue, of which roughly $4,100,000 stays in McKinney. The remaining $5,000,000 goes to the State of Texas. That is 54.95 percent of the money, sent to Austin off the top, and the district keeps about forty-five cents of every dollar its own taxpayers approve. Here is where the drafting turns cruel: Section 26.08(b) measures maintenance and operations tax revenue, not revenue net of recapture.
The figure printed on the ballot, directly beneath the words THIS IS A TAX INCREASE, will be the gross amount — the larger number, the one the district never receives. A voter is warned in capital letters about revenue the district does not get to keep, and nothing in the prescribed language permits anyone to say so.
All of that is true. None of it is permitted on the ballot. And under the Attorney General’s July 30, 2025 letter, a district that tried to add it would risk the propositions themselves.
So here is the question I would put to any Texas voter, and particularly to the one who came to the polls for the Senate race and the state propositions and found five school district questions waiting at the bottom of the ballot:
What is your reaction to this ballot? If you walked in to vote mostly on state and federal issues, would you have voted for any of these five propositions — and would anything you just read have changed your answer?
I am not asking how you would vote on the merits of McKinney ISD’s building program. That is a separate argument, and a legitimate one on both sides. I am asking a narrower question: did this ballot give you what you needed to decide?
Because whatever your answer, that ballot is now the law in Texas, and it is not going to change before you get there.
One caution to include if you’re publishing before mid-October: the purpose clauses are my reconstruction from statutory categories. MISD’s exact wording is in the August 10 election orders, and the sample ballot posts roughly October 13. I’d add a one-line note so a reader who compares them later doesn’t find a discrepancy you didn’t flag.
Sources: Senate Bill 1025 and Senate Bill 506, 89th Texas Legislature; Texas Election Code Sections 52.072(e), 52.072(f), 52.072(g), 255.003; Texas Education Code Sections 45.003(b-1) and 45.003(g); Texas Tax Code Section 26.08(b); Texas Government Code Sections 402.044, 1202.003, 1202.006, 1251.052; Office of the Attorney General, Public Finance Division, All Bond Counsel letter dated July 30, 2025 (Leslie Brock, Assistant Attorney General, Chief, Public Finance Division); Office of the Attorney General, All Bond Counsel letter dated July 3, 2020; Austin American-Statesman analysis of tax rate election results; Texas Public Radio and Texas Scorecard reporting on November 2024 and November 2025 election results.
Note: the Attorney General’s July 30, 2025 letter states that it does not dictate how a court may rule in a legal proceeding. It reflects the Attorney General’s construction of the statutes, which is controlling in practice because the Attorney General approves the bonds, but it is not a judicial holding.
This blog is the writer’s understanding of the current requirements. He is not an attorney, and the reader is advised to seek advice from a local governments City Attorney or Bond Counsel.
How three words in a June memorandum became an economic siege, and why six months of deadlines have produced a very loud dog with a very small bite
A collaboration between Lewis McLain & AI
How three words in a June memorandum became an economic siege, and why six months of deadlines have produced a very loud dog with a very small bite
On Monday morning, Treasury Secretary Scott Bessent stood up and compared what he was about to do to the Normandy landings.
He announced Operation Economic Outcast, called it the single greatest financial offensive ever marshaled against an adversary, and said the objective was to sever every economic lifeline sustaining Tehran until Iran stands alone. Roughly sixty people, entities and vessels were designated. The categories eligible for secondary sanctions were widened to cover digital assets, gold, aviation, technology and shipping. Every country and every entity, he said, should expect to be held accountable. China was pointedly not exempted.
Brent crude fell about two and a half percent.
That gap — between the rhetoric of a continental invasion and a market that shrugged and took profits — is the whole story. The answer is not that the sanctions are trivial. It is that after six months of ultimatums, extensions, signings and un-signings, the people who move money for a living have stopped grading this administration on what it announces and started grading it on what it finishes.
The timeline, because the timeline is the argument
February 28 — Major combat operations begin. Joint U.S. and Israeli strikes hit military, government and infrastructure targets. Israel kills Supreme Leader Ali Khamenei with American intelligence support. Iran closes the Strait of Hormuz, through which roughly twenty million barrels a day had been moving.
March 23 — Trump gives Iran 48 hours to reopen the strait or face strikes on its power plants. Hours before the deadline he extends it five days, citing very good and productive talks. Tehran denies that any talks exist and calls the announcement an attempt to move markets. Oil drops ten percent, then climbs right back.
April 6 — Iran rejects a 45-day ceasefire proposal outright.
April 7–8 — A ceasefire is reached anyway. The strait briefly reopens. The ceasefire is extended indefinitely in late April.
April 11–12 — Talks in Islamabad collapse. The United States imposes a naval blockade of Iranian ports.
June 12–17 — Pakistan brokers a fourteen-point memorandum of understanding. It is digitally signed June 14 and formally signed June 17, with Trump signing at Versailles after the G7 dinner and Pezeshkian signing in Tehran. The blockade comes off. The new supreme leader endorses the memorandum while stating his misgivings.
Late June — Roughly a week after the signing, Iran drone-strikes a vessel in the strait.
July 6–8 — Iran attacks three commercial ships that transited outside its designated lanes. The United States strikes Iranian territory. Trump declares the truce over on July 7. On July 8 he says the exchange will not lead to long-term military action. Within days the conflict escalates considerably. The blockade returns.
August 5–8 — Iran and Oman agree on route coordinates, inbound through Iranian territorial waters and outbound to the south. Tehran then attaches conditions to reopening: compensation from the United States, unfrozen assets, Israel’s conduct in Lebanon. Deputy Foreign Minister Gharibabadi says flatly that the American claim that negotiations are underway is false.
August 18 — Trump says no talks are underway. Parliament speaker Ghalibaf issues a list of demands. A regional source says indirect contact continues through Pakistan anyway.
August 20 — Bessent promises the toughest sanctions in history and says they will collapse the regime. In the same week he concedes that large-scale combat is unlikely to restart.
August 23 — Bessent publishes an op-ed announcing that an economic D-Day is coming. Iran’s Mohsen Rezaei threatens to halt all oil movement through the strait if neighboring states cooperate with Washington.
August 24 — Operation Economic Outcast. Sixty designations. The rial falls past two million to the dollar. Brent falls two and a half percent to about $92.
Read that list in one sitting and the pattern is unmistakable. Deadline, extension, denial, signature, violation, declaration, reversal, escalation, announcement.
Six months of maximum verbs and the strait is still closed.
The three words that broke the deal
The June memorandum committed Iran to use its best efforts for the safe passage of commercial vessels, with no charge, for sixty days only. The future administration of the strait was left to be determined later.
Read that again the way you would read a bond covenant. Sixty days only is not a concession. It is the assertion of a right, temporarily waived. If passage is free for sixty days, somebody has standing to charge on day sixty-one, and the document does not say who.
Iran read it as an acknowledgment that Hormuz is theirs to administer. Washington read it as a pause while the grown-ups worked out a permanent arrangement. Both readings survive the text, which is what happens when negotiators paper over the one issue they cannot resolve in order to get a signing ceremony on the calendar.
The Iranian parliament is now advancing legislation to establish transit service fees. That is not opportunism. That is Tehran executing the clause exactly as written, and it is going to be a great deal harder to unwind a fee schedule than a blockade.
Barking, and the question of teeth
I want to be careful here, because I am not a reflexive critic of this administration. Given the same choices, I would certainly vote for him again. But I have watched enough negotiations from the finance side of the table to know the difference between leverage and noise, and this has been drifting toward noise for a while.
Consider what actually enforces a secondary sanction. It is not the designation. It is the willingness to penalize a large foreign bank, a Chinese refiner, a Gulf trading house or an allied shipping registry that keeps doing business anyway. That step is expensive, it hits our own markets, and this administration has not yet taken it against anyone whose loss would sting.
Until it does, Operation Economic Outcast is a list. Iran has been on lists since 1979.
And the audience is not lining up. China is buying. Tehran denies that negotiations exist even as Washington describes them in the present tense. The Revolutionary Guard has instructed the United States not to interfere in the Oman channel. The Saudi crown prince spent last week in Paris signing deals with Macron and discussing the strait with someone other than us. Iran’s parliament speaker publicly called the whole exercise theater diplomacy.
When the people you are pressuring, the people you are recruiting, and the people you are protecting all respond by going around you, the pressure is not working the way the press release says it is.
The moving target
The deeper problem is that the tactics change faster than any counterparty can respond to them.
A 48-hour ultimatum becomes a five-day extension becomes a claim of productive talks that the other side denies the same afternoon. A truce is declared over on Monday and downgraded to a non-event on Tuesday. Negotiations are happening, then they are not, then a regional source says they quietly are. And on the very day Treasury launched its economic D-Day against Iran, the President was also announcing 50% tariffs on Canadian automobiles, auto parts and steel and declaring that Canada would no longer be treated like a state.
You cannot run a maximum-pressure campaign that requires sustained multilateral cooperation while simultaneously opening a second front against your largest trading partner and closest neighbor. Pressure campaigns are compounding instruments. They require patience, sequencing and allies who believe the terms will still be the terms in ninety days.
Improvisation is the one input they cannot survive, and improvisation has been the house style.
Bessent is the messenger
I have less and less use for the podium performances. The D-Day comparison was not analysis, it was staging, and I suspect the Treasury Secretary knows better than the script he was handed.
The tell is that the language shifts week to week. On Thursday the sanctions will collapse the regime. On the same Thursday, large-scale combat is unlikely to resume. On Sunday it is an economic D-Day. On Monday it is a sixty-name designation list and a two percent decline in crude.
Those are not the statements of a policy architect working a plan. They are the statements of a man narrating decisions made elsewhere, in real time, by someone whose mind changes on an hourly basis.
The market has already graded it
Brent has spent the past month swinging roughly between $72 and $102 on alternating rumors of breakthrough and breakdown. It sat near $92 after Monday’s announcement. One analyst put it plainly: Brent at $93 rather than $120 to $150 tells you enough oil is getting through.
The turning point would be Iran actually closing the strait with rockets and drones, and that has not happened.
Sanctions do not remove barrels that are already off the water. The rial collapsing past two million to the dollar is real and it is painful for ordinary Iranians, but a falling rial has never once reopened a shipping lane.
Adaptation is the enemy of resolution
The most consequential development of the past several months is also the least dramatic. The U.S. military reports escorting more than 660 million barrels through Hormuz since early May. Vessels run with transponders off and under false flags. Cargoes reroute. Gulf producers have adjusted their logistics.
A crisis that was acute in March has become chronic in August, and chronic is comfortable. Once shippers, refiners and finance ministries have absorbed the cost of working around a problem, the urgency that produces settlements drains out of the room.
Nobody has to fix what everybody has learned to live with.
What would actually signal movement
Four things. None of them happened Monday.
The Oman routing arrangement being implemented rather than announced. The coordinates are reportedly agreed. That framework is the only mechanism on the table that lets both governments claim victory without either conceding sovereignty. Watch transit counts, not communiqués.
China’s response to the expanded secondary sanctions. This is the only real test of whether Operation Economic Outcast has teeth. If Chinese refiners and their banks keep lifting Iranian barrels without consequence, the operation is a press release. The Hormuz fee legislation in the Iranian parliament. If it passes and Tehran starts invoicing, a wartime position becomes a permanent revenue institution.
The fracture inside Tehran. Pezeshkian has defended the June memorandum publicly and said his country cannot continue at war forever. The supreme leader signed with reservations. The Revolutionary Guard treats the strait as national power rather than commerce. That argument gets settled one way or the other, and how it settles matters more than any designation Treasury issues.
The clock that is actually running
Gasoline averaged $4.09 a gallon on Sunday, roughly 37.5% above the pre-war level. Longer-dated Treasury yields have climbed through the summer on inflation and debt concerns, taking mortgage rates with them.
For those of us on the municipal side, that is the part of this story that arrives in the mail. Fuel lines in fleet and public safety budgets are running well past the assumptions baked into fiscal 2026 adoptions. Asphalt, chemicals and every petroleum derivative have followed.
And a sustained energy contribution to headline inflation keeps pressure on the long end of the curve, which is the number that sets what a November bond package costs a city or a district for the next twenty-five years. A fight over a shipping lane eight thousand miles away arrives here as basis points in a competitive sale.
Where this leaves me
I have supported this President and I am not walking that back over one press conference. There is a serious argument that patient economic strangulation is the least bad option available, that the alternative was a ground war nobody wanted, and that regimes under this kind of financial pressure eventually do break.
That argument deserves a hearing, and it may yet be proven right.
But it requires steadiness, and steadiness has not been on offer. Six months in, the strait is closed, gasoline is up better than a third, our neighbors are being tariffed, our partners are negotiating around us, and the adversary has learned that every deadline is negotiable and every declaration is subject to revision by morning.
The likeliest outcome from here is not victory or settlement. It is the quiet normalization of a frozen conflict, punctuated by periodic strikes and periodic announcements that move crude two percent in whichever direction the traders were already leaning.
Tehran can wait. That has always been the asymmetry. Monday’s announcement, for all its D-Day framing, did nothing to change it.
Yesterday I posted a long piece arguing that the United States government had passed forty trillion dollars in debt, and that the forty trillion was the small number.
I stand by every word of it. But I left something out, and I did not have to wait long to find out what. By the evening came around the bond market and three separate wire services had explained it to me.
Here is what I missed.
I wrote that piece as though the federal government were the only large borrower that mattered — as though Washington set the price of money and everybody else stood in line behind it and paid whatever was left. That is how it has worked for most of my career. That is how I was taught it works.
It is not how it worked this summer.
This summer, somebody else got to the window first.
ONE: WHAT HAPPENED WHILE WE WERE WATCHING WASHINGTON
Four companies — Alphabet, Amazon, Meta, and Oracle — have sold about $223 billion in bonds so far this year. Last year, all four of them together sold about $108 billion.
They more than doubled it. In eight months.
And that is only four companies. Add Microsoft and the forecasts get bigger still. JPMorgan raised its estimate for technology borrowing this year to $540 billion. Goldman Sachs expects the big five to borrow about $250 billion this year and $400 billion next year. UBS thinks these companies will spend approaching $770 billion on buildings and chips and power this year alone.
For most of my life, these were the companies that did not borrow much. They generated so much cash they did not know what to do with it. Apple and Microsoft and Google sat on cash piles that embarrassed small countries.
That era ended. The artificial intelligence buildout costs more than even those companies earn, and so they have come to the bond market — the same bond market where the Treasury sells its paper, at the same long maturities, to the same buyers.
And here is the part that ought to get your attention. Bank of America’s economists wrote that this borrowing is potentially crowding out demand for long-term Treasury bonds, and that it has played a major part in pushing yields up.
Think about what that sentence means. For forty years, the complaint ran one direction: the government borrows so much that it squeezes out everybody else. Now the accusation runs backwards. Now there is at least a serious argument that private companies are squeezing out the government.
One analyst went further and raised the possibility that all this corporate supply could eventually force the Treasury to sell fewer long-term bonds to keep from paying too much.
Sit with that a minute, because if you read my last piece you already know why it matters. The single most dangerous thing about America’s debt is not the size of it. That’s a squeaky close second. It is how short it has gotten — a third of it coming due inside a year, which is what makes a rate shock hit the budget in three years instead of ten.
And now the government may be pushed even shorter, not by its own choice, but because Amazon and Oracle got to the long end of the market ahead of it.
TWO: WHAT CROWDING OUT ACTUALLY MEANS
Let me get this out of the jargon, because it is a simple idea wearing a suit.
Picture a small-town bank on a Monday morning. There is one loan officer and there is a certain amount of money to lend that week. That is it. That is what he has got.
If the county comes in at nine o’clock and takes most of it for a new jail, then the farmer who walks in at two o’clock is going to hear a higher rate, or hear no.
That is crowding out. One big borrower ahead of you in line changes the price for everybody behind him or her.
For decades the county was always first through the door. Government borrowing was so much larger than anything a company could do that nobody else really moved the needle.
What changed this year is that a handful of companies got big enough to matter in that line. Two hundred twenty-three billion dollars is not a rounding error. It is real money competing for the same lender’s attention, at the same long maturities, in the same week.
As one strategist put it plainly: whoever is issuing — a government, a tech company, anybody — is now competing with more borrowers. And so yields have to be higher.
The evidence that this is duration and not the Fed
Bookmark the link above. If you are unable to interpret what it means, that is perfectly okay. My audience is wide, so I know only a few would even read this particular blog. Just know that a basis point in 1/100th of one percent. When the rates go up only 1 basis point, sounds tiny, the Federal government will eventually pay $4 billion every year just on that level of current outstanding debt! What if the rates go up 10 basis points? I know for sure that the person sitting in honking traffic isn’t focused on this condition. But hear me out.
Split this year in half at June 30 and look at what the Treasury’s own yield curve did.
Short-Term (2-Year)
Long-Term (30-Year)
January through June
rose sharply
barely moved
July through August
barely moved
rose sharply
In the first half of the year, the short end did all the moving and the long end sat still. That is a market arguing about the Federal Reserve — about whether rates get cut this fall or next spring. When they quibble over the increments or decrements, the are usually talking about 25 basis points, sometimes 50. Quick quiz now that you are informed. What does 50 basis points do to the Fed’s $40 trillion, not to mention all other governments? Even you.
In the second half, it flipped completely. The short end went quiet and the long end took off.
That is not an argument about the Fed anymore. When the thirty-year moves and the two-year does not, the market has stopped asking what the Fed will do next quarter and started asking a different question entirely: what does a person deserve to be paid for parting with their money until 2056?
And that question — what long money is worth — is precisely the question a flood of thirty-year corporate bonds forces the market to answer.
The thirty-year Treasury closed at five dollars and thirty-one cents per hundred on August 17, and touched about five dollars and thirty-four cents the next morning. That is the highest since 2007. Do you recall what happened back then?
One correction to yesterday’s piece. I wrote that the government sold thirty-year bonds on August 13 at five dollars and twenty-two cents. That was accurate as far as it went — it is the price at that particular auction. But the market kept right on going in the days after, and by the time I hit publish it had moved. Then on the 19th, the Treasury doubled the size of its bond buyback operation to steady things, and yields came down some.
I would not read too much into that last part. As one strategist noted, the buyback operation changes very little about the fundamentals — which remain the need to finance an enormous wave of technology borrowing on top of very large government deficits. You can rearrange the furniture. The house is still the same size.
THREE: THE HONEST OTHER SIDE
Now I have to slow down, because I do not want to sell you something the evidence will not carry.
There is a real argument on the other side, and it deserves a fair hearing.
Corporate bonds and Treasury bonds are not the same thing. They do not draw from a single fixed pot of money. Different investors buy them for different reasons, and a pension fund that buys an Amazon bond was not necessarily going to buy a Treasury bond instead.
These are not shaky borrowers. The hyperscalers are among the strongest credits in the entire investment-grade market. They carry far less debt against their earnings than a typical big company. Treating a company with that balance sheet as a source of stress in the government bond market may confuse a lot of supply with a lot of risk, which are not the same problem.
And there are other suspects. Japanese long-term rates have been climbing for reasons that have nothing whatever to do with data centers, and world bond markets move together. An inflation shock from the war has repriced everything. Foreign central bank buying has been soft. The federal deficit itself is running near two trillion dollars annually. Any one of those, by itself, could have pushed the thirty-year up this summer.
So here is what I actually believe, stated as carefully as I know how:
The AI borrowing is not the cause of higher long-term rates. It is a genuine, measurable, and rapidly growing contributor to a move that has several fathers. Anyone who tells you it explains the whole thing is selling something. Anyone who tells you it explains nothing has not looked at $223 billion.
And the direction of travel is not in dispute. Whatever share you assign it today, that share is getting bigger, because the buildout is not slowing down.
One thing to watch that I find genuinely sobering
Demand for these bonds is cooling even as the supply climbs.
Apollo tracked how many orders came in relative to how many bonds were offered. In February, hyperscaler deals were drawing nearly five dollars of orders for every dollar offered. By July, that had fallen to under two.
And a Reuters review found that of ninety-one hyperscaler bonds issued this year with comparable data, seventy-eight were trading at worse prices than where they were sold. Buyers who took them at issue are underwater. That means they are holding investments that have lost their value.
Supply climbing while appetite falls is how markets get repriced. Not all at once. But steadily, and in one direction.
FOUR: AND NOW LET US TALK ABOUT TEXAS
Everything above is a national story. Any newspaper can write it.
Here is the part that belongs to us, and I have not seen anybody put it together, and it is the reason I sat down with Claude to write this at all.
Texas is paying for this twice.
Once at the bond window, in higher interest on every road and school and water line we finance.
And once at the tax office, because we are subsidizing the very buildout that is raising our cost of money.
The numbers
Texas exempts qualifying data centers from sales tax on their equipment. Two sections of the Tax Code do the work — 151.359 for regular data centers, 151.3595 for the very large projects. To qualify, a facility generally needs at least a hundred thousand square feet, a commitment of two hundred million dollars over five years, and twenty qualifying jobs.
When the Comptroller’s office scored that exemption back in 2020, it estimated the cost to the state at about $29 million for fiscal 2025.
The actual figure for fiscal 2025 came in at over $1 billion.
Read those two numbers again. Twenty-nine million estimated. A billion delivered. That is not a forecast that missed. That is a forecast that was off by a factor of more than thirty.
And it is still climbing. The Comptroller now projects the annual value approaching $1.8 billion by 2030, and the state expects to forgo about $3.2 billion over the next two years.
Texas has more than three hundred operating data centers, with a hundred forty-two more under construction — the most of any state in the country. Fifty-nine new certifications were approved this year alone, and the Comptroller’s office expects roughly ten new ones every month going forward.
Now here is the part that lands directly on city hall
Section 151.359 exempts the state sales tax. But section 151.3595 — the one for large projects — exempts the state and local sales tax both.
That is your city’s money. That is your two percent. That is the revenue line your finance director builds a General Fund budget on.
Layer on top of it the property tax side — Chapter 312 abatements, the JETI program — and a city can find itself hosting an enormous capital investment while collecting a fraction of what a facility that size would ordinarily generate.
And nobody is checking
This is the part that would end a municipal finance career if it happened at a city.
Of the one hundred thirty-eight data centers certified for the exemption, the Comptroller’s office has audited twenty.
Of those twenty, six were found in breach of the terms. Four failed to create the jobs they promised. One did not build to the required square footage. One reported that its required power agreement had fallen through.
Six out of twenty. Nearly a third of everything they looked at.
And a hundred eighteen certified facilities have not been looked at yet, while ten more get added every month.
I want to be careful here, because a thirty percent failure rate among the first twenty audited does not necessarily mean thirty percent of all hundred thirty-eight are out of compliance — auditors often start where the questions are. But that is exactly the point. We do not know. The Comptroller’s own testimony was that the office has little information about whether these facilities are meeting their promises. Facilities found in breach do have to pay the money back, which is the system working. But it only works on the ones somebody looks at.
Accounting for results with such a few number of data centers involved (few for those of you who manage hundreds of big projects), is simply not that hard. Were project tracing and results reporting not part of the agreement in the first place?
The Legislature noticed. The Senate Finance Committee held an interim hearing on this in July, and both the Governor and the Lieutenant Governor have raised questions about the exemption’s cost. One senator put it about as plainly as it can be put: no tax exemption should operate on autopilot.
The fair case for the other side
I am not going to pretend there is no argument for these incentives, because there is one and it is not foolish.
A data center brings enormous capital investment into a county. Even abated, the improvements eventually hit the tax roll. Construction employment is real while it lasts. Utility load can improve a municipal system’s cost recovery. And Texas won this industry over Virginia and Arizona partly because of these incentives — if we repeal them, some of that development goes elsewhere, and we get the higher interest rates anyway with none of the buildings.
That last point is the strongest one against me, and I want it stated in its best form: you cannot stop the national borrowing wave by taxing Texas data centers. The bond market does not care what Collin County does. Repeal the exemption tomorrow and the thirty-year Treasury does not move a basis point.
Fine. Granted. But that is an argument for getting the exemption right, not for leaving it on autopilot at thirty times its estimated cost with eighty-five percent of the participants unexamined.
FIVE: WHAT A CITY COUNCIL SHOULD ACTUALLY DO ABOUT IT
Enough diagnosis. Here is the practical part.
Reprice your capital plan, and do it now. If your five-year plan assumes anything close to what money cost in 2021, it is fiction. Long rates are at twenty-five-year highs and there is a very large private borrower standing in line ahead of you who was not there before. Run your debt service at today’s rates plus a cushion, and find out what falls off the list before the bond market finds out for you.
Read your economic development agreements again — specifically the sales tax section. If you have a large data center project under 151.3595, find out exactly what local sales tax you are forgoing and for how long. Put that number in your long-range forecast as a line item, not a footnote. If you have a Chapter 380 or 381 agreement layered on top, add it up.
Ask for the compliance file. If a facility in your city is certified for the exemption, somebody should be able to tell you whether it has been audited and whether it met its job and investment commitments. If the answer is that nobody knows, that is your answer, and it belongs in front of your council.
Watch the Legislature. The 2027 session is going to take up this exemption. Cities with certified projects should know what a repeal, a cap, or a retroactive modification would do to their revenue — in both directions. This could be a revenue gain for a host city or a lawsuit, depending on how it is written.
And watch your own investment portfolio, gratefully. The same rates that are punishing your bond issues are paying your operating funds better than they have since 2007. Book the income. Do not build a payroll on it.
CLOSING
Yesterday’s arithmetic has not changed, and I would not take back a line of it. Forty trillion borrowed. Something near eighty-eight trillion promised and never written down. The trust funds empty, with dates already on them — 2032 and 2033.
What one day added is that Washington is no longer the only one standing at the window.
For my entire career, the government has been the largest borrower in the world by so wide a margin that everyone else was a rounding error. That is ending. Not because the government got smaller — it has never been bigger — but because a handful of companies decided to build something enormous, and discovered they could not pay for it out of pocket either.
So now there are two great borrowers in that line. Both of them want long money. Both of them want it this morning. And neither one of them is going to stop.
The lender is the same lender he always was. There is only so much in the drawer on Monday morning.
And the man who walks in at two o’clock — the school district refinancing a bond, the city building a fire station, the young couple buying a first house in Princeton or Anna — that man does not get told about any of this. He just gets told the rate.
Here in Texas, we have done something that would be funny if it were not our money. We have written a tax exemption we scored at twenty-nine million dollars, delivered a billion, and put it on autopilot heading toward one point eight billion a year — to subsidize the construction of the very thing that is raising the interest rate on our own bonds.
I do not say that to argue the exemption should be repealed. Reasonable people are lined up on both sides of that, and it will get settled in Austin in 2027, not by me.
I say it because a city that does not know it is paying twice will only budget for it once.
SOURCES
Hyperscaler issuance volumes: LSEG data as reported by CNBC and Reuters, August 2026. Forecasts: JPMorgan, Goldman Sachs, UBS, and Barclays analyst notes, 2026. Crowding-out analysis: Bank of America economics notes and Bloomberg reporting, August 17, 2026; Federal Reserve Bank of Dallas, “How AI debt financing impacts duration supply and interest rates,” February 10, 2026. Order-book cover ratios: Apollo Global Management. Secondary market performance: Reuters analysis of LSEG data, July 28, 2026. Yield curve movements and auction data: U.S. Treasury daily yield curve and TreasuryDirect. Treasury buyback operation: August 19, 2026.
Texas data center exemption figures: Texas Comptroller of Public Accounts testimony before the Senate Committee on Finance interim hearing, July 27, 2026, as reported by The Texas Tribune and others; Texas Tax Code sections 151.359 and 151.3595; 34 Texas Administrative Code section 3.335. Data center counts: Comptroller testimony and industry analysis.
The interpretation, the Texas argument, and any errors in either are my own.
On the eighteenth day of August, 2026, the debt of the United States government passed forty trillion dollars.
The exact figure was $40,047,425,768,420.22. Treasury publishes it every day, to the penny, the way a bank publishes a balance. It is not a guess. It is not a projection. It is a number somebody has to pay.
Now I want you to hold that number in your mind for a minute, because I am going to tell you something about it that most of the news coverage left out.
Forty trillion is the small number.
That is the part we have already borrowed. That is the part with a signature on it. There is another number, and it is more than twice as large, and the government’s own auditors will tell you it does not appear on the balance sheet liability at all.
We will get there. But let us start where we ought to start, which is at the beginning.
ONE: HOW WE GOT HERE
I started in this business in 1972, as Budget Director for the City of Garland. That year the whole federal debt was under $450 billion. The government now borrows that much about every ten weeks.
Something changed around 1980. Before then, the debt grew about like inflation grew. After then, it did not.
Here is every president since, and what happened on his watch. These are Treasury’s own year-end figures.
President
Years
Started
Ended
Added
Reagan
1981–1988
$0.91T
$2.60T
$1.69T
G.H.W. Bush
1989–1992
$2.60T
$4.06T
$1.46T
Clinton
1993–2000
$4.06T
$5.67T
$1.61T
G.W. Bush
2001–2008
$5.67T
$10.02T
$4.35T
Obama
2009–2016
$10.02T
$19.57T
$9.55T
Trump I
2017–2020
$19.57T
$26.95T
$7.37T
Biden
2021–2024
$26.95T
$35.46T
$8.52T
Trump II
2025–today
$35.46T
$40.05T
$4.58T
Now those numbers cover different lengths of time, so they do not compare cleanly. Divide each one by the years served and you get the honest picture — how much debt got added in an average year:
President
Added Per Year
Reagan
$212B
G.H.W. Bush
$366B
Clinton
$201B
G.W. Bush
$544B
Obama
$1.19T
Trump I
$1.84T
Biden
$2.13T
Trump II
~$2.41T
Read that column from top to bottom. Go slow.
Every man in that list borrowed faster than the man before him — every single one — except Clinton. One president in forty-six years slowed the car down. One.
I want to be fair here, because fairness matters more than a good line. The federal budget year starts October first, so a new president spends his first nine months operating on his predecessor’s budget. Congress writes the checks, not the president. Wars and recessions and pandemics are not chosen. And Reagan’s $212 billion in 1985 money would be near $650 billion today.
So do not read that table as a scorecard on eight men. Read it as a scorecard on us. On all of us. Both parties. Every Congress. Every election in which somebody promised more and charged less, and we voted for him, and then we did it again.
The trend does not belong to a party. The trend belongs to the country.
And it is speeding up
Look at how long each trillion took:
The first trillion took until October 1981.
Getting to $10 trillion took until 2008.
Getting to $20 trillion took until 2017.
Getting to $30 trillion took until February 2022.
Getting to $40 trillion took until this week.
Ten trillion dollars in four and a half years. The last two trillion took ten months.
Right now the government is borrowing about $200 billion a month. That is $6.6 billion a day. Every day. Saturdays. Sundays. Christmas.
I live in Collin County. Every house, every store, every warehouse, every acre on the tax roll of this entire county would not cover two months of it.
One more thing while we are on the subject
Last summer Congress raised the debt ceiling to $41.104 trillion. We are at $40.047 trillion.
That leaves about $1.06 trillion of room. At $200 billion a month, that is a little over five months.
I am not predicting a crisis. Treasury has tricks — extraordinary measures, they call them — that buy some time, and the timing shifts around. But if you are wondering when this becomes a front-page fight again, look at your calendar for early next year.
TWO: THE COFFEE CAN IS EMPTY
Now. Let me tell you about the trust funds, because this is where the plain truth has been buried under sixty years of comfortable language.
That $40 trillion splits into two pieces:
About $32.2 trillion we borrowed from the public — from investors, from banks, from foreign countries.
About $7.7 trillion the government owes to itself. Social Security. Medicare. Federal retirement.
Everybody calls that second piece “the trust funds,” and the word trust does a lot of work it has not earned.
Here is what actually happened.
For about thirty-five years after 1983, Social Security collected more in payroll taxes than it paid out in benefits. Real money. Your money, out of your check, every two weeks, with your name on it.
That money did not go into a vault. It did not go into a savings account. It did not get invested in anything.
By law, it was handed over to the general fund of the Treasury and spent. On the Navy. On highways. On farm programs. On everything the government does. And in return, the trust fund got a piece of paper — a special Treasury bond that cannot be sold to anybody, ever, that says the government owes the government some money.
Now every city finance director in Texas knows exactly what that is, because we do it too, and we have a name for it. It is an interfund loan.
Suppose a city borrows ten million dollars out of its water fund to patch a hole in the general fund. The city writes an IOU. Now the water fund’s books show a ten-million-dollar asset. Looks fine. Auditor signs off.
But the city is not one dollar richer than it was that morning. And when the water plant needs a new clarifier, somebody has got to raise the water rate, cut a budget, or sell bonds. The IOU did not create one dime. All it did was write down whose problem it is.
Or put it the way my grandmother would have. She kept the grocery money in a coffee can on top of the icebox. If my grandfather took forty dollars out of the coffee can and left a note in there saying “IOU $40,” there is not forty dollars in that can. There is a note. When Momma reaches in on Friday to buy groceries, that note does not feed anybody. Somebody has to come up with forty real dollars.
There is no money in the Social Security trust fund. There never was. There is a stack of notes describing money that was already spent, and a promise that somebody in the future will find it.
And the future has a date on it now
For four decades, those trust funds were among the biggest buyers of government bonds in the world. That is finished. They have flipped from putting money in to taking money out.
The Trustees put dates on it this June:
Fund
Runs Dry
What Happens Then, Under Current Law
Social Security retirement (OASI)
Late 2032
Automatic 22% cut to every benefit check
Medicare Part A (hospital)
Mid-2033
Hospital payments cut about 11%, growing to 16% by 2040
Social Security combined
2034
83% of promised benefits payable
Read that middle column again. Not “Congress might consider reductions.” Automatic. Under current law, on that date, every retiree in America — the ones already drawing, not just the young ones — gets a 22% cut. And it grows to 38% by the end of the century.
Social Security’s retirement fund moved a whole quarter closer just since last year’s report. These dates keep walking toward us, not away.
Here is the part that nobody explains
When those trust funds start cashing in their special bonds, the Treasury has to come up with real cash money. It gets it exactly three ways. Raise taxes. Cut something else. Or borrow from the public.
It will borrow from the public.
So the redemption does not reduce anything. It just moves the debt out of the pocket where nobody is watching and into the pocket where the whole bond market is watching. Dollar for dollar. That is a big part of why what we owe to actual outside investors — which is the part that has to be sold at auction to real buyers — goes from roughly the size of the entire American economy today to about a fifth larger than the economy by 2036.
The trust fund is not a cushion. It is a bill with the due date already printed on it.
THREE: THE BILL NOBODY PUTS ON THE BOOKS
Now we come to it. This is the part I most want you to understand, and it is the part that requires a little patience, because it involves an idea most people have never had explained to them plainly.
The idea is called present value. Let me get it out of the way in one story.
Say your granddaughter is eight years old and you have decided you are going to pay for her wedding, and you figure that is going to run $50,000, and she is not getting married for fifteen years.
How much do you need in the bank this morning?
Not $50,000. Less than that — because whatever you put in there is going to sit and earn interest for fifteen years while she grows up. Depending on the rate, maybe $25,000 does it.
That smaller number is the present value. It is what a future promise costs you today. It is the honest price of the promise, right now, in this morning’s money.
Every insurance company on earth runs on this. Every pension fund. Every actuary. If a company promises you a check thirty years from now, the law requires it to put the present value of that promise on its balance sheet as a debt, today, in ink, where the auditors can see it.
The federal government does not do that.
The numbers
The government does calculate it. It is required to. It just does not have to count it.
Here is what its own accountants and actuaries reported this year:
What Is Being Measured
The Hole, In Today’s Money
Social Security, next 75 years
$30.3 trillion
Medicare, next 75 years
$65.3 trillion
— Part A, the hospital half
$4.2 trillion
— Parts B and D, doctors and drugs
$60.9 trillion
Treasury’s own audited figure for both
$88.4 trillion
Treasury’s broadest measure of the gap
$79.6 trillion
Different offices count it different ways and land somewhere between seventy-nine and ninety-six trillion. I am not going to pretend to referee that argument. Here is the part that does not depend on who wins it.
For every single dollar this country has borrowed in its entire history — every war, every depression, every program, every bailout, the whole forty trillion — we have promised away about two more dollars that nobody ever wrote down.
That is the sentence. You do not need any arithmetic to check it. The borrowed part is forty. The promised part is around eighty-eight trillion. Two dollars promised for every dollar borrowed.
And I want to be precise about what those numbers mean, because it is easy to hear them wrong. That $88.4 trillion is not what we are going to spend on Social Security and Medicare. It is the amount by which the spending exceeds everything those programs will collect — after every payroll tax, every premium, every dollar of dedicated revenue. It is the hole. And it is not the future dollar amount of the hole either. It is what you would need in the bank this morning to fill it.
The Treasury’s own report says the shortfall grew by $6.9 trillion in a single year.
Six point nine trillion dollars. In one year. And it did not show up in the deficit, it did not show up in the debt, and it did not make the news.
Now here is the sentence I want you to sit with
From the Financial Report of the United States Government, published by the Treasury Department, audited by the Government Accountability Office. This is not a think tank. This is not a politician. This is the government’s own audited annual report:
“Under federal accounting rules, social insurance amounts as reported in both the SLTFP and in the SOSI are not considered liabilities of the government.”
Not considered liabilities.
An eighty-eight-trillion-dollar gap between what has been promised and what will be collected, and under the accounting rules the government wrote for itself, it is not a debt.
Let me tell you what would happen to a Texas city that tried that. If a city promised its police officers a pension and then declined to book the liability because it had decided the promise was not really a promise, the auditors would qualify the opinion, the rating agencies would downgrade the bonds, the Attorney General would have something to say, and somebody would very likely go to jail.
The federal government does it every year, on purpose, and calls it accounting.
And one more thing, which I did not know until I went looking
The Government Accountability Office — the government’s own auditor — gave the Medicare portion of these statements a disclaimer of opinion.
In plain English, a disclaimer of opinion means the auditor could not gather enough reliable evidence to say whether the numbers are right or wrong. Not “we found problems.” Not “we disagree.” We cannot tell you.
That is roughly $60 trillion of the total — sixty-eight percent of it — that the nation’s auditor will not sign his name to.
If your bookkeeper handed you a set of books and said “I can’t form an opinion on two-thirds of this,” you would not shrug and file it. You would sit down at that table and not get up until you understood it.
Why Medicare is the bigger problem, and why nobody says so
Everybody argues about Social Security. Almost nobody argues about Medicare. But look at the table again — Medicare’s hole is more than twice the size of Social Security’s.
And here is why: Social Security’s cost is basically demographics and a cost-of-living adjustment. It grows, but it grows in ways you can count.
Medicare grows with the price of health care, and health care has been outrunning the economy for fifty years. Part B — that is your doctor visits — is projected to grow better than eight cents on the dollar every year. Part D, your prescriptions, better than nine. The economy grows about four.
Anything growing at 9% inside something growing at 4% will eventually be the whole thing. That is not an opinion. That is a bank statement in slow motion.
Your Part B premium went from $174.70 to $202.90 this year. That is a 16% jump in one year, and it still does not cover the cost, because it never has. About three-quarters of Part B and Part D comes out of general income taxes.
Here is that number, and it is the one I would put on a billboard:
Last year, about eighteen cents out of every dollar of income tax collected in this country — personal and corporate, all of it — went to pay for Medicare Parts B and D. By 2040 the Trustees expect that to be nearly twenty-nine cents. By the end of the century, thirty-eight.
Not for Medicare altogether. Just for the doctor-and-drug half of it. Nearly forty cents out of every income tax dollar in America.
Putting it all together
So set the ledger out plain:
We have borrowed $40 trillion. That is on the books.
We have promised, beyond what we will collect, somewhere around $88 trillion more. That is not on the books.
The not-on-the-books part grew $6.9 trillion last year alone.
The auditor could not form an opinion on the biggest piece of it.
Forty trillion is the small number.
It is the small number, and we cannot pay it, and everybody is arguing about it, and it is not even the main thing.
FOUR: WHEN THE INTEREST EATS THE PAYCHECK
Let me put this in terms of a household, because that is where it lives.
The federal government this year will take in about $5.6 trillion and spend about $7.4 trillion. The gap is about $1.9 trillion, and it borrows every dime of it.
Out of that $5.6 trillion coming in, interest on the debt already takes about $1.4 trillion. That is a quarter of the paycheck, gone before the first bill gets paid.
Interest is now bigger than the entire national defense budget. It is the biggest thing the government spends money on except Social Security and Medicare.
And it is going to get worse for a reason that has nothing to do with Congress.
The reason: old cheap debt is being replaced by new expensive debt
Let me put interest rates the way a banker would have explained them to my father: as dollars per hundred borrowed.
In early 2022, the government was paying about a dollar and forty-five cents a year on every hundred dollars it owed. Money was nearly free.
Today it pays about three dollars and forty-four cents on every hundred.
But that figure is stale, and here is why. Most of the debt was borrowed back when money was cheap, and a lot of it has not come due yet. When it does come due, it gets borrowed all over again at today’s price.
And today’s price is higher. On August 13, the government sold thirty-year bonds at five dollars and twenty-two cents on every hundred — the steepest price it has paid for thirty-year money since 2001.
Set those two side by side. Old money: three forty-four. New money: five twenty-two. Every dollar that rolls over gets replaced by a dollar that costs about half again as much.
So the average is going to keep climbing on its own. Nobody has to vote for it. Nobody can stop it. It happens quietly, as the old paper matures, the way a balloon note comes due whether you were ready or not.
That is the single most important thing to understand about the next ten years. The interest bill is going up no matter what anybody does.
So when does interest eat everything?
I built a model to answer this. It is straightforward arithmetic: the debt grows by the deficit plus the interest, revenue grows with the economy, and the average interest rate creeps toward today’s rate as old bonds come due. I ran it three ways.
If things go about as the budget office expects — the economy growing four cents on the dollar, new borrowing at four dollars and thirty cents per hundred:
Year
Interest Bill
Revenue
Share of Every Dollar
2026
$1.10T
$5.60T
20 cents
2030
$1.69T
$6.55T
26 cents
2036
$2.50T
$8.29T
30 cents
2040
$3.18T
$9.70T
33 cents
If rates simply stay about where they sit today — the economy growing a little slower, borrowing at five and a half dollars per hundred:
Year
Interest Bill
Revenue
Share of Every Dollar
2026
$1.10T
$5.60T
20 cents
2030
$2.16T
$6.43T
34 cents
2036
$3.52T
$7.90T
45 cents
2040
$4.66T
$9.06T
52 cents
2050
$9.07T
$12.79T
71 cents
By 2040, in that middle case, more than half of every tax dollar this country collects goes to interest. Everything else — Social Security, Medicare, the Army, the veterans, the courts, the border, all of it — comes out of the other half. Plus more borrowing.
And if we get a bad decade — a slow economy and money at seven dollars per hundred — interest swallows every last dollar of federal revenue by 2044. Eighteen years from now.
Now, I want to be honest about those tables. They are arithmetic, not prophecy. Change the assumptions and the dates all move. And nobody actually gets to 100% — something breaks long before, politically or financially. Read the far end of those columns not as a forecast but as pressure. As the reason something has to give.
The dates that will actually matter
Forget 100%. The crossings that will change American politics come much sooner:
Interest already passed national defense. Done.
Interest passes everything the government spends on domestic programs — parks, highways, the FAA, medical research, grants to cities — in about three years.
Interest passes Medicare around 2030.
Interest passes Social Security, the biggest line in the whole budget, sometime in the mid-2030s.
That last one is the day the conversation in this country changes. When the single largest thing the United States government spends money on is interest on money it already spent — not defense, not retirement, not medicine, just rent on the past — the politics of the budget will not survive it in its current form.
FIVE: THE POINT WHERE YOU CANNOT TURN THE SHIP
People ask me: is there a number where this becomes unfixable? Is it $50 trillion? A hundred?
No. There is no such number. Japan owes more than we do, measured against the size of its economy, and Japan borrows just fine.
The point of no return is not a debt level. It is a race between two percentages, and it is easy to explain.
The race
Compare two things: the interest rate the government pays, and the rate at which the economy grows.
Think of it as your credit card against your paycheck.
If the card charges 4% and your pay goes up 6% a year, that card gets lighter every single year even if you never pay a dime on it. You grow out of it.
Flip it. Card charges 6%, pay goes up 4%. Now the card gets heavier every year even if you never charge another thing. You cannot grow out of it. You have to actually cut something.
That is the whole thing. That is the entire question, and nothing else about the debt matters half as much.
For forty years, America was in the first case. That is exactly how we handled World War II. In 1946 we owed a little more than the entire country produced in a year. By 1980 we owed about a third of it. And we never paid it off — we simply grew faster than the debt, and we inflated faster than the debt, and after thirty-four years of that it had shrunk to something manageable.
We are now crossing into the second case. The government pays about three dollars and forty-four cents per hundred, and that is climbing on its own as old cheap debt rolls off. The economy grows about four cents on the dollar a year. Those two numbers are neck and neck right this minute — and only one of them is rising.
What it costs to stop it
Once the interest rate passes the growth rate, you cannot grow out of it. You have to cut spending or raise taxes — permanently, every year — just to keep the debt from growing as a share of the economy. Not to pay any of it back. Just to stop the bleeding.
Here is what that costs at different interest rates:
If Money Costs
And the Economy Grows
The Fix, Every Year, Forever
Which Is About
$4.30 per hundred
4 cents
$920 billion a year
one dollar in six of all federal revenue
$5.00 per hundred
3.5 cents
$1.29 trillion a year
one dollar in five
$5.20 per hundred
3.5 cents
$1.45 trillion a year
one dollar in four
$7.00 per hundred
3 cents
$2.07 trillion a year
two dollars in five
That last column is the one to read. A trillion and a half dollars a year means taking one dollar out of every four the federal government collects — either by cutting a quarter of everything it does, or by raising every tax bill in America by a quarter, or some mix of the two. And then holding it there. Not for a term. Not for a decade. Permanently.
If you want it at kitchen-table scale: spread across every household in the country, a fix that size runs somewhere between eight and eleven thousand dollars a year, per household, indefinitely.
Now, nobody actually gets that bill in the mail, and I am not suggesting they do. Households do not pay in equal shares and never have. I use the figure only because “four and a half percent of gross domestic product” is a phrase that slides right off a person, and eleven thousand dollars a year does not.
Has anybody ever done it?
Yes. That is worth knowing, and it is the closest thing to good news in this whole piece.
The third column translates each one into what it would mean if we did the same thing here, at today’s size — in dollars, and in how much of the federal government’s money it amounts to.
Country
When
Same Fix, In American Terms
How They Did It
United States
1993–98
$1.6 trillion a year — a bit over a quarter of federal revenue
Spending caps, pay-as-you-go rules, a tech boom
Ireland
1987–89
$2.2 trillion — two dollars in five
National agreement between labor and government
Canada
1993–97
$2.5 trillion — nearly half
Line-by-line program review, strong growth
Denmark
1982–86
$3.2 trillion — over half
Currency peg forced the issue
Sweden
1993–98
$3.8 trillion — two dollars in three
After a banking crash, with broad agreement
Greece
2010–16
$5.1 trillion — nearly everything it collects
Forced from outside. Economy shrank a quarter.
Look at our own line first. In the nineties this country pulled off a fix worth about a quarter of what the government collects — and we did it with spending caps, a rule that said you had to pay for what you passed, and a technology boom that filled the Treasury. Divided government. Both parties at the table. It was ugly and it worked.
The countries below us on that list are small, homogeneous nations that could get most of their people to agree on something, and most of them had a cheaper currency softening the blow. And Greece did not choose its fix at all. It was handed one from outside, and the economy shrank by a quarter while they swallowed it.
So here is the honest answer:
If money settles back around four dollars per hundred, the fix is roughly one federal dollar in six. Hard. Painful. We have done it before, and the men who did it are still alive.
If money stays where it is today, the fix is one dollar in four — bigger than everything the federal government spends on every domestic program combined. You cannot get there without touching Social Security or Medicare or raising broad taxes. Possible on paper. It requires an agreement this country has not produced in thirty years.
If money goes to seven dollars per hundred, the fix is two dollars out of every five the government collects. No large democracy has ever done that voluntarily. Not one, not ever. The arithmetic still works fine. It is the country that stops working.
That is what unfixable means. Not that the math is impossible. That the math stays possible while the country loses the ability to do it.
Now the part about speed
Magnitude is only half of it. The other half is how fast the trouble arrives, and this is where America has quietly put itself in a bad spot.
Think about the difference between a thirty-year fixed mortgage and a note you have to renew every single year.
Same house. Same debt. But if interest rates jump three points, the man with the fixed mortgage does not feel a thing. The man with the annual note feels all of it, right now, this year.
The United States has been drifting toward the annual note. Right now, about a third of the debt comes due within twelve months. Roughly $10 trillion, coming due inside a year, that has to be borrowed all over again at whatever the rate happens to be that morning.
So watch what a three-point rate increase does to the government’s actual interest bill:
Say rates jump three points and stay there. Here is how much of that damage has actually landed on the federal budget as time passes — us, versus a country that borrowed long and slow:
After
Landed On Us
Landed On the Careful Country
One year
three-tenths of it
one-tenth
Two years
over half
one-fifth
Three years
seven-tenths
one-quarter
Five years
nine-tenths
four-tenths
Inside of three years, seven-tenths of the damage has already arrived.
A country that borrowed for the long term gets a decade to argue about it, hold elections, pass a law. We get three years.
Put the two halves together and you have your answer. The magnitude threshold is interest running about two points above growth, and staying there. The speed is three years to full damage. Multiply them and you get a required fix bigger than any peacetime democracy has ever voluntarily made, arriving faster than this Congress has ever passed anything.
That is the scenario. Not a dramatic failed auction. Just a vise, closing slowly, on a government that cannot agree on what day it is.
And what “a crash” would actually look like
Not bankruptcy. Let me be clear about this, because there is a lot of foolishness talked about it. The United States borrows in dollars and prints dollars. It cannot be forced to default. That is not the risk.
The risk is the thing that happened last time.
Between 1946 and 1980, what this country owed fell from more than a full year’s national output down to about a third of one. Almost none of that was repayment. It was inflation, and it was rules that held what bondholders earned below the rate at which prices were rising, year after year after year.
Every bondholder got paid every dollar he was promised, right on time. Those dollars just did not buy what they used to.
That is the American way of handling too much debt. It requires no vote. No debate. Nobody’s name on it. It is what happens if nobody does anything, and doing nothing is the one thing this system reliably produces.
SIX: WHO IS BUYING ALL THIS
Short version: about $32 trillion is out there in the market. Three groups hold it.
Foreign countries and foreign investors: about $9.5 trillion, roughly 30 cents of every dollar.
You hear that foreigners are dumping our debt. In total, they are not. Foreign holdings hit a record this year — up $587 billion over twelve months.
The biggest holders as of December:
Country
Holdings
Japan
$1,185B
United Kingdom
$863B
China
$684B
Belgium
$477B
Canada
$468B
Two cautions on that list. First, it tracks where the bonds are kept, not who owns them. A Saudi fund holding through a London bank shows up as Britain. Belgium’s number is mostly one big clearinghouse in Brussels. Second, most foreign holding is now private investors, not central banks — about 59% private. That matters, because a central bank holds bonds for policy reasons and does not much care about the yield. A private fund manager cares about nothing else. Price-sensitive money is fickle money.
And China is genuinely leaving. Down from $759 billion a year ago to $684 billion. Down roughly by half from where it was in 2013. Japan and Britain bought enough to cover the gap. So far.
The Federal Reserve: about $4.3 trillion, roughly 14 cents of every dollar.
The Fed bought enormous amounts of Treasury debt after 2008 and again during COVID, then spent three years letting it run off. That runoff ended December 1, 2025.
And I owe you a correction here. The standard line — the one I have used myself — is that the Fed’s holdings do not really count, because the Fed sends its interest earnings back to the Treasury. Money out of one pocket into the other.
That stopped being true in September 2022.
The Fed now pays more interest to banks on their reserves than it earns on the bonds it holds. It has been losing money. Payments back to the Treasury have been zero since September 2022 — the first time that has happened since 1934. The shortfall got booked as something called a “deferred asset,” an accounting device no regulated bank on earth is permitted to use, and it peaked above $240 billion.
The Fed turned a small profit again this spring. But payments to the Treasury do not resume until that whole $240 billion hole is filled — projected 2030 or later.
So a revenue line that brought in $76 billion in 2022 has been zero for four years and stays zero for four more. And the budget office’s projections assume it comes back.
Everybody else: about $18 trillion, roughly 56 cents of every dollar.
This is the biggest group and it gets the least attention. Mutual funds and money market funds — the money funds now hold about 40% of all short-term Treasury bills. Banks. Pension plans. Insurance companies. State and local governments, which means every Texas city and school district with a portfolio. And ordinary households, buying directly, more than they have in a generation, because for the first time since 2007 the yield is worth having.
The thing to understand about all of this: the buyers used to be people who did not care much about the price. Foreign central banks buying for reserves. The Fed buying for policy. Trust funds buying automatically.
The buyers now are people who care about nothing but the price.
That is a different market entirely. And it is why the government is now paying better than five dollars and twenty cents per hundred for thirty-year money.
SEVEN: WHAT IF THEY QUIT BUYING
Let me knock down the scary version first, because it is wrong.
“Nobody shows up at the auction and the government cannot borrow.” That does not happen. There are two dozen firms legally obligated to bid. The auction clears. It always clears.
The question is never whether it clears. The question is at what price.
And we have a live example from six days ago.
On August 13, Treasury sold $25 billion of thirty-year bonds. Plenty of buyers showed up — demand was actually a hair above the recent average. But they demanded five dollars and twenty-two cents on every hundred — the steepest price the government has paid for thirty-year money since 2001. And they demanded more than the market had expected that morning.
Read that carefully, because it is the whole story in one auction.
Demand did not disappear. Demand got expensive.
The bonds already on the books cost about three dollars and forty-four cents per hundred. New thirty-year money costs five dollars and twenty-two cents. That difference is not a forecast and it is not a worry. It is an appointment. Every dollar of old cheap debt that comes due walks up to the window and gets replaced by a dollar that costs half again as much.
The day after, Treasury announced it would start buying back more long bonds to prop up the market. When the debt manager starts doing that, pay attention.
What actually happens as it gets worse
First, the price goes up. That is where we are. Yields climb until somebody bites.
Second, Treasury borrows shorter to dodge the expensive long rates — which is exactly what it has been doing, and exactly what makes the three-year damage clock run faster.
Third, the dealers fill up. There are limits on how much inventory the big banks can carry, and they are near them. Behind the dealers sit hedge funds running borrowed money into Treasury bonds — a trade worth trillions that provides real liquidity in calm weather and evaporates in a storm. It evaporated in March 2020, the deepest bond market in the world simply stopped working, and the Fed had to buy hundreds of billions in a matter of days just to get it started again.
Fourth, the Fed. Which brings us to the honest question nobody in Washington wants asked out loud: at what point does the central bank buying government bonds stop being monetary policy and start being printing money to cover the government’s checks?
There is no line in the accounting that tells you. It is a matter of why, and how much, and whether anybody believes you.
And if you want to know how fast it can go wrong, look at Britain in September 2022. The government announced a budget the market did not believe. Pension funds got margin calls, had to sell, which pushed prices down, which caused more margin calls. Thirty-year bond yields moved more in days than they normally move in years. The Bank of England had to step in with emergency purchases and the budget was withdrawn.
Start to finish: about three weeks.
EIGHT: WHAT THIS MEANS AT HOME
I have spent fifty-four years working on Texas city and school budgets. Let me bring this down off the mountain.
Your city’s projects cost more now. Municipal bonds are priced off Treasury bonds. When the thirty-year Treasury goes from four dollars per hundred to five, city bonds follow it up. On a hundred-million-dollar bond issue over twenty years, that one extra dollar per hundred costs $13.3 million in additional interest. That is a fire station. That is two elementary school gyms. That is a stretch of arterial road. Every five-year capital plan in North Texas built on 2021 numbers is now a work of fiction.
Your tax bill has a second half you have not been watching. Your city and school tax rate has two pieces: one for operations, one for debt service. As debt gets more expensive, the debt piece grows. It does not fall under the same voter-approval limits as the operations piece — but it is the same total rate on the same bill, and it squeezes out room for everything else.
Bond elections that voters approved when money cost two and a half dollars per hundred are being sold at five. Voters approved a project. They did not approve doubling the interest. Somebody has to have that conversation honestly.
Federal grant money is the first thing to go. This is the one I would watch hardest. When interest is eating 19% of the federal budget and Social Security, Medicare, and defense cannot be touched politically, there is only one place left to cut. It is the discretionary budget, and inside the discretionary budget the easiest thing to cut is money sent to somebody else’s government. Community development grants. Water infrastructure funds. Transportation formula money. Police and fire grants. Every one of those lines is in the shrinking bucket, and every city in Texas has some of them built into a plan right now.
And watch the tax exemption on municipal bonds. The federal government gives away about $1.9 trillion a year in tax breaks — more than it spends on all domestic programs combined. When the day comes that Congress has to find real money, everything on that list gets looked at, and the exemption for city and school bond interest has been on the chopping block in every serious deficit conversation for forty years. Cap it and every issuer in Texas pays more the next morning.
One piece of good news. For the first time since 2007, city investment portfolios are earning real money. A city sitting on $200 million is generating meaningful interest income. Take it and be grateful — and do not you dare build a permanent payroll on top of it, because it is the most cyclical dollar on your books.
CLOSING
Let me gather it up.
Forty trillion dollars is what we have already borrowed. It grew under every president since 1980, faster under each one than the one before, with one exception in forty-six years.
The seven point seven trillion sitting in the Social Security and Medicare trust funds is not money. It is a stack of notes describing money that was spent a long time ago, and the dates those notes come due are 2032 and 2033.
And behind all of that sits the number that does not appear on any balance sheet: somewhere around eighty-eight trillion dollars in promises beyond what will ever be collected. It grew by nearly seven trillion last year. The government’s own auditor could not form an opinion on two-thirds of it. And under the rules the government wrote for itself, it is officially not a debt.
Forty trillion is the small number.
Nobody is refusing to lend us money. The auctions clear every week. The world still wants dollars.
It just costs 5.216% now. That is not a warning shot. That is a receipt.
And the thing I want you to take with you is this. The arithmetic in this piece is not hard. There is nothing in it that a careful person cannot follow. It has been published, every year, by the Treasury Department, audited, printed, and posted on a website where anyone can read it.
We have not been deceived. We have been informed, thoroughly and repeatedly, and we have decided not to look.
The interest on this debt is already bigger than the United States Army, Navy, Air Force, and Marine Corps combined. Nobody voted for that. It was not in any platform. No congressman ran on it.
It is just the bill for forty-six years of promising more than we were willing to pay for, and it is coming due on our children, and every year that we do not deal with it, the payment gets larger and the choices get fewer.
Forty trillion is the small number.
Let us at least be honest about the big one.
SOURCES
Debt figures: U.S. Treasury, Debt to the Penny and Historical Debt Outstanding. Budget projections: Congressional Budget Office, The Budget and Economic Outlook 2026–2036, February 2026, with the August 2026 update. Trust fund dates, benefit cuts, and unfunded obligations: 2026 Social Security and Medicare Trustees Reports, June 9, 2026. Present value figures and the “not considered liabilities” language: Financial Report of the United States Government, FY2025, Statements of Social Insurance and Statements of Long-Term Fiscal Projections, Bureau of the Fiscal Service. Disclaimer of opinion on HHS social insurance statements: GAO-26-108073. Foreign holdings: Treasury International Capital System, December 2025. Federal Reserve remittances and deferred asset: Federal Reserve H.4.1 and Combined Quarterly Financial Report, Q1 2026; CRS IF12147. Auction results: TreasuryDirect, August 13, 2026. Debt limit: P.L. 119-21.
The interest-versus-revenue projections and the required-adjustment tables are my own calculations under the assumptions stated in the text. They are arithmetic, not forecasts. Historical fiscal consolidation figures are approximate.
How the Legislature built the machine it is now trying to stop
Subject article: “Texas lawmakers turn against massive power lines they ordered after outcry” — Kelsey Brown, San Antonio Express-News / Austin American-Statesman, August 17, 2026
Prepared: August 17, 2026
Method: 18 discrete claims checked against primary sources — ERCOT filings, enrolled bill text, PUC orders, and the CCN applications themselves — plus contemporaneous reporting from ten outlets.
The short versionYour instinct is right — this is big, and it is bigger than the article makes it look. The core narrative checks out: Texas legislators voted 135–0, 31–0 and 139–3 for the bill that produced this buildout, and a bipartisan-but-mostly-Republican bloc is now trying to stop it. That reversal is real and well documented. But three headline numbers are wrong or stale, two material facts are missing, and the single most damning finding never appears: House Bill 5066 itself created the 180-day permitting clock that landowners are now furious about, and Sen. Charles Schwertner — who is demanding the applications be denied — was the bill’s Senate sponsor.
The article is a competent, directionally accurate account of a genuinely significant story. It is also loose with three numbers in ways that matter, and it leaves out the two things that would make the piece land hardest.
Core narrative — lawmakers ordered it, now oppose it
SOUND
Vote counts, hearing, and reversal all confirmed by primary sources.
Named officials, titles, party, hometown
ACCURATE
Schwertner, Kolkhorst, Campbell, Sparks, Gleeson, Staples all correctly identified.
Procedural chronology
MOSTLY ACCURATE
July 29 hearing and Aug. 14 PUC meeting confirmed. The Aug. 19 House State Affairs hearing could not be confirmed — no notice appears in Texas Legislature Online’s posted House committee meetings as of Aug. 17.
Headline dollar figures
1 WRONG, 1 LOOSE
“$1.4 billion” is one utility’s share of a $2.9 billion line. “$33 billion” is the statewide plan, not the Permian plan — a conflation most Texas outlets share.
Demand forecast
STALE
“Quadruple by 2032” is a number ERCOT’s CEO superseded at the very hearing the article covers.
Direct quotes
2 UNSOURCED
Campbell and Staples quotes could not be found in any other account. Not evidence they are wrong — evidence they are exclusive or paraphrased.
Political completeness
MATERIAL GAP
Lt. Gov. Dan Patrick called for denial and made it a 2027 priority. He is not mentioned.
Structural analysis
MISSED
HB 5066 created the 180-day clock and the statutory deference to utility forecasts. Schwertner sponsored it in the Senate.
The story is usually told as a property-rights fight: ranchers versus power lines. That framing is accurate but small. Three larger things are happening underneath it.
A statutory boomerang. The Legislature did not merely order a plan. It shortened the approval clock from one year to 180 days and wrote into law that the PUC “must consider” load forecasts supplied by the utilities — including load with no signed interconnection agreement. It then expressed surprise at the result.
A cost-allocation reckoning. Under ERCOT’s postage-stamp method, every ratepayer in the state pays for every line regardless of who benefits. That is precisely what Sen. Campbell was attacking. A rulemaking that could change it must conclude by December 31, 2026 — and almost nobody is covering it.
A possible partisan realignment on energy. One July 2026 poll found Texas Republicans wanting more regulation of data centers than Texas Democrats do — 75–14 versus 59–30. That is a single question in a single survey and should not be over-read, but the state’s agriculture commissioner is publicly warning his own party it will lose seats over this. Transmission is where three Republican orthodoxies — property rights, permissive permitting, and cheap power — collide and cannot all survive.
Eighteen checkable assertions, in the order they appear. “Partly” means the substance survives but a detail does not.
#
Claim
Verdict
Finding
1
The Permian Basin Reliability Plan is a “$33 billion” plan
PARTLY
ERCOT’s own Permian plan totals $13.77B for the 765-kV option ($12.95B for 345-kV, $15.32B for 500-kV). The $33B ($32.99B) figure is ERCOT’s statewide 765-kV Strategic Transmission Expansion Plan, of which the Permian plan is one component. Most Texas outlets make the same conflation, so the article is in good company — but it overstates the Permian plan by roughly 2.4x.
2
A “$1.4 billion line” through 14 Hill Country counties, San Antonio to West Texas
WRONG
This is Docket 59336, Howard–Solstice — a joint AEP Texas / CPS Energy application filed March 2, 2026, running ~371 miles from CPS’s Howard Road station in southwest Bexar County to AEP’s Solstice station near Fort Stockton. The 14 counties are right. But $1,369,459,891 is CPS Energy’s share alone. AEP’s share is $1.516B; the project totals roughly $2.886B. Also: only about half the 14 counties are Hill Country — Pecos, Terrell, Crockett, Val Verde, Sutton and Kinney are Trans-Pecos and border country.
3
In 2023 legislators “overwhelmingly voted” for the bill requiring the plan
VERIFIED
HB 5066 (Rep. Charlie Geren, R-Fort Worth). House 135–0 on May 6, 2023; Senate 31–0 on May 21; House concurrence 139–3 on May 25. Signed June 13, effective immediately. “Overwhelmingly” understates it — it was very close to unanimous.
4
A “15-hour public hearing last month”
VERIFIED
Senate Committee on Business and Commerce, Wednesday July 29, 2026, running past midnight. Interim charge: “Managing the Impacts of 765-kV Transmission Lines on Private Property Rights.” Attendance reports vary — 100+ testified, 200+ attended.
5
Schwertner chairs Senate Business & Commerce; his quote and call to deny
VERIFIED
Confirmed by at least two independent outlets. His July 31 letter asked the PUC to reject the applications and called for “a complete overhaul” of the process before they advance.
6
Thomas Gleeson is PUC chairman; plan submitted mid-2024 before ERCOT’s forecast
VERIFIED
Gleeson is chair as of the Aug. 14, 2026 meeting. ERCOT filed the Permian plan July 25, 2024. The chronology holds — and is more damaging than the article says, because the plan was built on load forecasts supplied by the transmission companies, which ERCOT’s COO testified were “substantially higher” than ERCOT’s own.
7
ERCOT forecast peak demand “could more than quadruple by 2032”
WRONG
Arithmetically defensible against an April 2026 statewide figure, but regulators called that forecast almost certainly flawed and ERCOT has withheld official forecasts while reworking its methodology. At the July 29 hearing the article covers, ERCOT CEO Pablo Vegas gave the committee roughly 175,000 MW by 2032 — “nearly double,” not quadruple. Attributing “quadruple” to ERCOT on August 17 is the most substantive accuracy problem in the piece.
8
Sen. Donna Campbell: “We ask data centers to bring their own power…”
UNVERIFIED
Campbell is correctly identified as R-New Braunfels and the argument is squarely hers. But this exact wording appears in no other account. Her documented hearing line was: “It just seems like it’s just a rich daddy that doesn’t want to pay for developing transmission lines.” Worth noting the article omits Schwertner’s on-the-spot rebuttal: “There is a universal benefit of a public utility, whether it’s water or electricity.”
9
Kolkhorst: Permian demand is electrification, not population growth
PARTLY
Correctly identified as R-Brenham. The substance is right and supported by ERCOT’s data. But her most-quoted line that day was different and far better: “We voted on House Bill 5066, and I’m not sure we knew what that was going to become.”
10
Sen. Kevin Sparks voted for the plan; “overlooking the obvious” on gas
VERIFIED
Sparks (R-Midland) voted for HB 5066 in the 31–0 Senate vote. Quote confirmed. The article omits his stated motive: “If we charge through with these lines right now, it’s almost guaranteed that what we’ll fill these up with is more wind, mostly solar.” That reframes his objection considerably.
11
Todd Staples is TXOGA president; his “five years” quote
PARTLY
Title confirmed. The quote could not be located in any other account. His documented lines are different but make the same point: “This is not an academic exercise. These are real people with a real crisis.”
12
One 765-kV line carries as much as three or four 345-kV lines
PARTLY
Conservative. ERCOT’s own claim is five, and physics supports it — capacity scales with the square of voltage, and (765/345)² ≈ 4.9. But ERCOT’s actual plan delivers only 1.57x per import path (2,105 MW vs 1,340 MW). Both numbers are true and measure different things; the gap between the marketing and the engineering has fed a lot of the distrust.
13
Exxon, ConocoPhillips and Chevron commissioned a 2022 study
PARTLY
It was six companies, not three — add Devon Energy, Diamondback and Pioneer Natural Resources. Conducted by S&P Global, December 2022. It projected Permian demand growing from 4.2 GW to 17.2 GW by 2032, and ERCOT relied on it. That the demand case rests partly on an industry-funded study is a fact the article should have surfaced.
14
At the Aug. 14 meeting the PUC took no action to halt development
VERIFIED
Special open meeting requested by Gleeson. His advance memo said explicitly that no final decisions would be made on any individual line. More than 20 landowners testified. Rep. Brad Buckley told commissioners: “The only remedy to this is denial of all applications of CCN.”
15
A House committee hearing Wednesday; PUC could review a line Friday
UNVERIFIED
Reported as House Committee on State Affairs, 8 a.m. Wednesday Aug. 19, chaired by Rep. Ken King, announced by Speaker Dustin Burrows. Two independent research passes could not confirm it: Texas Legislature Online’s posted House committee meetings run current through Aug. 17 and show no State Affairs hearing on Aug. 18 or 19, and the only House hearing located that week is an Aug. 18 broadband hearing. This may simply be a notice posted after publication — but do not repeat the date without checking. The Aug. 21 PUC item is the northern line (Dockets 59029 and 59315), not the Hill Country line.
16
Jimmy Fair of Lingleville testified
UNVERIFIED
Circumstantially strong. “Jimmy Fair” and “Lingleville” both appear in PUC Docket 59315 filings dated April 8, 2026, and Lingleville sits in Erath County directly on the Oncor Dinosaur–Longshore route. The vineyard, the reclaimed-wood house and the 35-year insurance career could not be independently confirmed — presumably direct reporting.
17
Lt. Gov. Dan Patrick
OMITTED
Not mentioned in the article at all. Patrick publicly endorsed denial — “and not consider re-applications” — and pledged the Senate would prioritize the issue in the 90th session. Every other major outlet led with him. Omitting the lieutenant governor materially understates the political weight behind the reversal.
18
Whether lawmakers actually approved 765 kV
OMITTED
HB 5066 contains no voltage specification. It ordered a plan; the PUC chose the technology, in two separate decisions (Sept. 26 / Oct. 7, 2024 to authorize applications on all eight import paths, and April 24, 2025 to select 765 kV). Gleeson acknowledged as much at the July hearing. This is the crux of the entire legal and political fight and the article does not raise it.
On the two unsourced quotes Neither the Campbell nor the Staples quote could be found in any other account of the July 29 hearing. That is not evidence they are fabricated — a staff reporter at a 15-hour hearing will capture lines nobody else does, and both are consistent with what those speakers demonstrably argued. But if this analysis is going anywhere it can be challenged, the safe move is to source them to the hearing recording before quoting them onward. The same applies to Jimmy Fair. The docket filings put a person of that name in the right county on the right route in April 2026, which is about as good as external confirmation gets without the recording.
The most useful thing to understand about this story is that almost nothing went wrong procedurally. The Public Utility Commission did roughly what the Legislature instructed, on the schedule the Legislature imposed, using the inputs the Legislature told it to weigh. The outrage is real, but it is outrage at an outcome that the 2023 statute made close to inevitable.
Four provisions matter. Only one of them is widely discussed.
Provision
What it says
Consequence
§39.166 The general power
Requires reliability plans for any region with rapid electrical load growth, as determined by transmission service providers. No expiration date.
Almost never mentioned, and it is the durable one. §39.167 expired; this did not. Whatever happens to the Permian lines, the statutory machinery for the next region remains in force.
§39.167 The Permian plan
Directs the PUC to direct ERCOT to develop a reliability plan for the Permian Basin under §39.166, addressing transmission to mineral-production areas. Expired Sept. 1, 2025.
The only part anyone remembers. Notably voltage-neutral — it says nothing about 765 kV, 345 kV, or any technology.
§37.057 The 180-day clock
Changed the PUC’s decision deadline from “the first anniversary” of filing to “the 180th day,” enforceable by mandamus in Travis County district court.
This is the compressed timeline landowners are now protesting. It was not imposed by the PUC or the utilities. The Legislature wrote it.
§37.056(c-1) The deference rule
For ERCOT reliability projects, the PUC “must consider” forecasted load growth and load seeking interconnection — “including load for which the electric utility has yet to sign an interconnection agreement, as determined by the electric utility with the responsibility for serving the load.”
The quiet one, and the most consequential. It writes statutory deference to the utilities’ own load projections, including speculative uncontracted load, into the need finding. Transmission owners earn a regulated return that scales with capital deployed.
Read together, the provisions do something specific: they expanded what the commission must weigh while halving the time it has to weigh it, and told it whose numbers to use. A Bell County landowner put it more crisply than any analyst has: “More to evaluate, half the time to evaluate it.”
The finding the article missedSen. Charles Schwertner was HB 5066’s Senate sponsor — and it moved through his own committee. The chairman now demanding the PUC deny these applications, and calling for “a complete overhaul” of the certification process, carried in the Senate the bill that created the 180-day clock and the deference rule he is objecting to. Texas Legislature Online lists the bill as “By: Geren; Morales, Eddie (Schwertner)” — Rep. Charlie Geren as author, Rep. Eddie Morales as joint author, Schwertner as the Senate sponsor. Confirmed independently by LegiScan, which lists him as the only senator on the bill. It was referred to Senate Business and Commerce — the committee he chairs, and where he held the July 29, 2026 hearing that produced the reversal. This is not a gotcha. Near-unanimous votes mean almost every legislator now complaining voted for it, and Sen. Kolkhorst has said as much candidly. But it is the strongest available evidence for the article’s own headline premise, and it appears in none of the coverage located.
Not the Legislature. The record is unambiguous and it happened in two steps a year apart:
September 26 / October 7, 2024. The PUC approved the Permian plan and authorized transmission providers to prepare applications for all eight import paths — three at 765 kV and five at 345 kV — while deferring the voltage decision. ERCOT’s own January 2025 report records that the commission “deferred a decision on the voltage level of the import paths,” with a determination anticipated by May 1, 2025, and approved the plan “irrespective of the voltage level.”
April 24, 2025. A second order selected the three 765-kV paths and terminated authorization for the 345-kV alternatives.
December 9, 2025. ERCOT’s board endorsed the first two 765-kV projects — the AEP Texas / CPS Energy / Oncor / CenterPoint “Eastern Backbone” and the Oncor / AEP “Drill Hole to Sand Lake to Solstice” project. This is the step between the voltage selection and the 2026 applications, and it is missing from most accounts.
That deferral is the crux. The commission plainly understood the voltage choice to be its own discretionary call, made nine months after it approved the plan and nearly two years after the statute passed. Critics who say the Legislature never voted for a statewide 765-kV grid are correct on the record.
The counter-argument is equally fair: the Legislature ordered a reliability plan, wrote a deference rule favoring the utilities’ forecasts, and imposed a deadline that made deliberation harder. Having done all that, complaining about the technology the commission selected is a thin position. Both things are true, which is why this will be litigated politically rather than resolved factually.
Three things fall out of that table that change how you should read the political fight.
765 kV is not the cheapest option. 345 kV is roughly $820 million cheaper in the Permian plan. The case for 765 kV rests on fewer corridors, lower losses, and — per ERCOT’s long-run simulation for 2039 — about $229 million a year in consumer energy cost savings plus $28 million in production cost savings. Not on capital cost. Anyone claiming 765 kV was chosen to save money is wrong; anyone claiming it was chosen despite being more expensive is right but incomplete.
The right-of-way argument is the strongest one, and it is regionally true but statewide false. In the Permian, 765 kV needs 25% less new corridor — 1,255 miles versus 1,676. Across the full statewide plan, ERCOT’s own comparison states that the 765-kV build “includes 434 more miles of new ROW impact” than the 345-kV alternative, offset by roughly 1,443 fewer miles of upgrades to existing lines. “Fewer lines, less land” is a defensible regional claim being deployed as a statewide one.
The capacity ratio depends entirely on which number you cite. The widely repeated framing is that one 765-kV line on a 200-foot corridor replaces five 345-kV lines needing 750 feet combined. That is textbook-correct for long-distance transfer and consistent with the physics. But the incremental transfer capability in ERCOT’s plan is 2,105 MW for the 765-kV configuration against 1,340 MW for the 345-kV configuration — a ratio of about 1.57, because the 345-kV costing assumes double-circuit construction while the 765-kV paths are single-circuit. Both figures can be honest and still leave a legislator with two very different impressions.
“One 765-kV line can carry the same amount of energy as three or four 345-kV lines” is a fair, conservative rendering. The more interesting story is that a 5:1 framing and a 1.57:1 engineering result are both circulating in the same hearing room and nobody has reconciled them publicly. That gap is worth a direct question to ERCOT rather than an accusation — but it is exactly the kind of thing that, once a landowner’s engineer notices it, corrodes trust in the rest of the case.
One caveat on sourcing: ERCOT publishes the underlying Permian study as a ZIP archive, and the 1,340 / 2,105 MW figures could not be re-verified independently of the research trail. Confirm them against the study itself before building an argument on the ratio.
The standing official record for most of the period this plan was designed in.
Peak, July 22, 2026
~91,089 MW
Up 6.5% over three years — real growth, but nothing like the forecast curve.
2030, transmission-company reported
208 GW
The number the utilities filed. HB 5066 requires ERCOT to count this, including load with no signed agreement.
2030, ERCOT adjusted
138 GW
ERCOT’s own screen of the same pipeline.
2030, independent (Ascend Analytics)
~120 GW
Applies a 55% success rate to announced projects.
2032, cited in the article as ERCOT
“more than quadruple”
Traceable to an April 2026 figure regulators have called almost certainly flawed.
2032, per ERCOT CEO on July 29, 2026
~175 GW — “nearly double”
Given to the committee at the hearing this article is about.
Large-load interconnection queue
474 GW, ~90% data centers
Roughly five times the state’s all-time peak. About 205 GW survive ERCOT’s first viability screen; 315 projects had no qualifying study at all.
The spread between 208 GW and 120 GW for the same year is not a rounding difference. It is the difference between a $33 billion emergency and a very expensive mistake, and the statute tilts the commission toward the high number.
Chairman Gleeson told senators the buildout is “mostly based on oil and gas electrification.” By ERCOT’s own arithmetic it is about half.
Permian load component
2030
2038
Share
Oil and gas electrification
11,964 MW
14,705 MW
51% → 56%
Everything else
11,695 MW
11,695 MW
49% → 44%
Total projected
23,659 MW
26,400 MW
vs ~7 GW today
Two facts inside that table deserve far more attention than they have received.
The non-oil-and-gas half is mostly crypto and hydrogen, not data centers. Roughly 59% is crypto mining, 22% green hydrogen, 13% general commercial and industrial, and only about 6% data centers. Federal hydrogen credits expire after 2027. Only 39% of this load is confirmed by executed contract; more than half rests on officer letters. This is the softest load in the plan and it is nearly half the plan.
The oil-and-gas estimate itself varies by a factor of four. The S&P Global study commissioned by six oil majors put it at 11,964 MW. The University of Texas Bureau of Economic Geology put it at 5,291 MW in its base case. ERCOT’s own long-term load forecast implies roughly 3.1 GW. ERCOT built the plan on the highest of the three — the one paid for by the companies that benefit from the lines.
The strongest argument against the plan, and the article barely touches it Not “this crosses my ranch.” The argument is: the need finding rests on a forecast supplied by parties with a financial interest in it being large, using an input study funded by the industry that benefits, under a statute that requires the regulator to count uncontracted load, on a 180-day clock that makes independent verification impractical. That is a serious regulatory-capture argument that a court could engage with. “We want to revisit this next session” is not.
None of the above means the lines are unnecessary. ERCOT’s technical case is not speculative:
The Permian has roughly 2,800 MW of conventional generation against 28,400 MW in North Central Texas and 25,900 MW on the Coast. The region is structurally short.
ERCOT’s base cases for both 2030 and 2038 failed to solve — voltage instability even at N-0, meaning before any equipment fails.
ERCOT’s COO told the committee rolling blackouts in the Permian are possible as soon as next year, and that pushing the required power through existing lines “would damage the existing infrastructure.” He also said the lines are necessary “with or without” HB 5066.
Todd Staples’ fairness point is legitimate and rarely rebutted: West Texas ratepayers helped fund transmission buildouts for Houston, San Antonio and the Rio Grande Valley under the same postage-stamp method now being questioned when the money flows the other direction.
One wrinkle worth flagging for anyone tracking this closely: on July 29 the COO said blackouts were possible “next year.” On August 14 the framing had become “within five years.” That may be a difference between speaking to a hostile committee and speaking to a friendly regulator, or a genuine revision. Either way it is the kind of drift that opponents will notice.
Sen. Campbell asked the right question: why can’t the Permian Basin pay for it themselves? The answer is structural, and it is the reason this fight exists.
How it works. Each transmission provider’s revenue requirement is recovered across all of ERCOT based on the four coincident peak (4CP) method — the average of the single highest 15-minute load intervals in June, July, August and September. There is no locational or beneficiary-pays element. A line built for the Permian and a line built for Houston recover identically, statewide.
Why residential customers pay more than their share. Large industrial and transmission-level customers are billed on their own measured 4CP, so they can — and increasingly do — shut down during the four intervals that set their bill. Residential customers are billed volumetrically per kWh and cannot. At CenterPoint in 2023, residential customers were 33% of energy consumed but bore 49% of allocated transmission cost. Per-utility residential allocators run 41.6% to 49.3%.
It is getting worse fast. ERCOT’s transmission cost of service went from about $1.5 billion in 2010 to $5.1 billion in 2024, with projections near $13 billion by 2034. Transmission and distribution together have gone from roughly 30% of a Texas residential bill in 2002 to roughly 40% today. The ERCOT transmission rate is up 116% since 2013, and the number of large customers actively dodging the 4CP intervals grew from 418 in 2022 to 1,080 in 2024 — which shifts more cost onto everyone who cannot dodge.
Residential transmission and distribution component up 24–32% at a $32.99B buildout with 4CP unchanged. Assumes 7.0% weighted cost of capital, 30-year depreciation, ~48% residential allocation. Also finds the buildout at least doubles annual ERCOT transmission cost of service, adding more than $6B/year.
Texas Public Policy Foundation (Jan. 2026)
“At least $100 per year”
Adds more than $3 billion annually in transmission cost of service across the 2030s; normalized to $18/MWh by 2034. TPPF opposes the plan and also opposes the renewable buildout — read accordingly.
Public Utility Commission
None
A commission spokesperson confirmed in February 2025 that the agency does not have an estimate. That is, on its own, a finding.
Sierra Club (June 2026)
Residential charges could fall ~10%
If 4CP is replaced with 12CP plus a large-load demand charge — the pending rulemaking. The ERCOT-wide residential allocator would drop from 30.75% to 27.53%. (Note this is the system-wide allocator, not the per-utility figures cited above.)
Texas has done exactly this before. Between 2009 and 2014 the state built roughly 3,600 miles of transmission to unlock West Texas wind under the Competitive Renewable Energy Zones program — also on the postage stamp, also with no cost assigned to the generators who benefited.
CREZ
Outcome
Read-across
PUC cost estimate, 2008
$4.93 billion
—
Final capital cost
$6.9 billion
A 40% overrun, driven largely by route changes that added more than 600 miles.
Bill impact
“Several dollars” per month
Never officially quantified. Reconstructed from cost-of-service data at roughly $4/month at the 2015 peak, falling to about $2.50 by 2024.
Offsetting benefit
$31.5 billion
Comptroller’s estimate of wholesale price savings from CREZ wind, 2010–2022. The strongest argument that these buildouts can pay for themselves.
Applied to this plan
$33B → ~$46B
If the same 40% overrun rate holds. Route litigation is already heavier than CREZ faced.
The deadline nobody is covering Senate Bill 6, passed in 2025, requires the Public Utility Commission to reevaluate the 4CP cost allocation methodology and amend its rules no later than December 31, 2026 — before the Legislature convenes. That is Project 58000. It proposes replacing 4CP with 12CP, codifying the settlement interval, and imposing a minimum billing demand on large loads. Comments closed August 11, 2026. A decision is expected in December. If it lands as proposed, it could cut the residential share of transmission cost by roughly a tenth and put real cost on the large loads driving the buildout — which is precisely what Campbell, Abbott and most Texas voters say they want. It may move more money than the entire certification fight, it requires no legislation, and it arrives one month before the session that everyone is waiting for. If you write one thing about this story that nobody else is writing, this is it.
Sen. Sparks says the utilities are “overlooking the obvious” by not building gas plants in a region swimming in natural gas. It is the most intuitive objection in the debate and the one that survives contact with the evidence least well.
GE Vernova was taking reservations for 2031 delivery as of July 2026. Siemens Energy quotes three years or more. Mitsubishi’s recent orders deliver 2028–2030.
GE Vernova’s gas power backlog went from 83 GW at the end of 2025 to 116 GW by mid-2026. Global orders are running near 110 GW a year against 60–70 GW of manufacturing capacity. The bottleneck is single-crystal turbine blades, which cannot be scaled quickly.
Prices have moved accordingly: roughly $785/kW in 2022 to about $2,400/kW today. BloombergNEF put US combined-cycle capital cost at $2,157/kW in 2025, up 66% against 2023, with build times 23% longer.
A gas plant ordered today does not reliably serve load before 2029–2031 — which is the same window the transmission lines are targeting, at a cost that is no longer obviously lower.
ERCOT’s scarcity pricing mechanism was active for 57 hours in 2025, against 1,458 hours in 2022. The revenue that justifies a peaker has largely evaporated.
The West zone’s average real-time price in 2024 was $35.71/MWh — below the lowest new combined-cycle levelized cost, and below even a fully depreciated plant’s marginal cost 55% of the time.
Brattle’s cost-of-new-entry study found no merchant combined-cycle plant met its criteria; aeroderivative turbines accounted for 98% of recent merchant thermal entry, at a levelized cost above solar-plus-storage.
Revealed preference settles it. ERCOT’s 2025 additions were 6.2 GW of solar, 7.3 GW of storage, and 280 MW of gas. Developers are not declining to build gas in West Texas because they overlooked it.
The Texas Energy Fund offers 3% twenty-year loans covering up to 60% of project cost for dispatchable generation of 100 MW or more. It drew more than 70 applications totaling over 38 GW.
Texas Energy Fund
Figure
Note
Selected for due diligence, Aug. 2024
17 projects, 9.7 GW
$5.38 billion requested.
Withdrawn by November 2025
≥8 projects, ~35% of proposed capacity
ENGIE cited “equipment procurement constraints.” WattBridge withdrew 1,620 MW across four projects.
Loans finalized as of June 2026
8
Several were already under development before the fund existed.
Statutory disbursement deadline
Dec. 31, 2025
Extended to Dec. 31, 2027 — the mechanical trigger for most withdrawals.
Flared gas is not a fuel supply. Total reported Permian flaring runs around 275 MMcf/d. A single 1,000 MW plant running at 90% capacity factor consumes 133–181 MMcf/d depending on heat rate — half to two-thirds of everything flared in the Texas Permian, and that assumes 100% capture, which is not achievable across thousands of dispersed wells. No grid-interconnected flare-gas power plant exists in the basin, and the sum of all genuine flare-gas generation ever built nationwide is well under 500 MW.
Permian gas is often off-spec. Pipeline specification is 4 ppm hydrogen sulfide; some Permian wells run above 4% — ten thousand times that — with CO₂ above 10%. Treating requires amine plants and acid-gas injection wells. There is precedent: when Odessa built a 62-mile pipeline to burn local high-nitrogen gas in 2010, the turbines could not run on it at all above a 50% blend.
Air permitting risk is rising. No part of the Permian is currently in ozone nonattainment, but a petition filed in April 2026 seeks that designation for 36 Texas counties. If granted, major-source thresholds drop sharply, emission offsets must be sourced from inside the area — and the Permian has no offset bank — and the required control standard does not consider economic impact. The limiting pollutant would be nitrogen oxides, which is exactly what turbines emit.
Where this leaves Sparks and Staples They are describing the same market from opposite ends, and both are right. Staples is right that so much Permian demand is now met by intermittent solar and wind that a gas plant running only in the gaps cannot earn its capital back. Sparks is right that building 765-kV transmission into a region full of wind and solar will, in practice, move more wind and solar. Neither is describing a gas plant that can be financed, permitted, supplied with turbines and energized before 2030. That is the part of the argument that does not survive.
Utilities Code §37.056(a) says the commission “may approve an application and grant a certificate only if” it finds the line necessary for the public convenience and necessity. Approval, not denial, is the burdened act. Subsection (b) expressly permits the commission to grant as requested, grant only a portion, or refuse to grant.
The problem is the stated reason. “The Legislature intends to revisit this next session” is not among the statutory factors. A denial order resting on that rationale is squarely exposed on substantial-evidence and arbitrary-and-capricious review in Travis County district court.
The durable path is to deny on grounds already in the record: defective notice and due process — roughly 1,300 landowners were added to proceedings after route changes — plus community values and environmental integrity, all of which are statutory factors. Legislative timing then operates as unstated motive rather than stated basis.
Section 37.056(b)(2) lets the commission grant a certificate for only a portion of the requested system. Given that the three import paths differ substantially in contestedness — the northern line is far further along than the Hill Country line — a partial grant would let the commission preserve the reliability case for the least-contested segments while sending the rest back. It has appeared in essentially no public commentary.
The 180-day clock in §37.057 is enforceable by mandamus — but mandamus compels the commission to decide, not to approve. Any party can force a decision, and the commission could then deny. Docket 59182 has already blown past its deadline with no order. Indefinite delay is not a stable position; it just moves the fight to a courthouse.
This also explains why opponents specifically want denial rather than delay. A denial kills the application; the utilities can refile, but a 2027 refiling would run under whatever rules the 90th Legislature writes. Delay leaves the current applications alive under current law. Following HB 5066’s own transition-rule pattern — new law governs proceedings commencing after enactment — denial-then-refile is the only route that actually changes the governing rules.
The industry is not united. The Association of Electric Companies of Texas appears to have publicly conceded the process was inadequate — its president is quoted saying “it’s become clear that the existing transmission routing process has been inadequate for the geographic expanse of these projects.” If that quote holds up, it is a remarkable admission from the trade association of the applicants, and it substantially weakens any later argument that denial on process grounds was arbitrary. It rests on a single sourcing chain and should be confirmed before it is relied on in an argument.
Oncor is the most likely lone litigant. The Permian Basin Petroleum Association has said it is “agnostic about the voltage, routes, or other considerations” and cares only about delay. No utility has publicly threatened suit.
Two political facts sit underneath all of this. Every sitting commissioner was appointed by Gov. Abbott — close to tautological given he has been governor since 2015, but it matters for how a denial would be read. And both Abbott and Patrick are on the November ballot.
No precedent for the PUC denying a major transmission certificate was located in any source consulted. That is an argument from absence and should be treated as one — the commission also routinely grants applications in part, which may be the more likely outcome here than a clean denial.
The article correctly notes that public sentiment has turned against data centers. The numbers behind that sentence are more dramatic than the sentence.
Data centers in your community. 1,200 registered voters. Republicans 42–44. Rural 22–62, with 50% strongly opposed. Suburban women 18–65. Pollster Jim Henson: “we were a little surprised by the lopsidedness.”
Emerson College / Nexstar, Aug. 9–10, 2026
33% support, 60% oppose
1,000 likely voters. Six weeks later, no improvement.
Texas A&M Bush School, July 27–30, 2026
65–22 for regulating data centers
Republicans 75–14. Democrats 59–30. Republicans want more regulation than Democrats — potentially the most politically consequential number in this story, though it is one question in one survey of 619 likely voters and the Republican crosstabs here sit oddly against the UT poll’s 42–44. Worth a second data point before building on it.
UH Hobby School, April 2026
78–79% say data centers should pay
Under 5% say households should pay for the grid upgrades data centers require. Identical across party lines.
Abbott job approval on the grid
36 approve / 40 disapprove
Republicans 61–13, down from 43/39 overall in February 2024. His weakest issue with his own base.
An analysis of project locations found that at least 82 data centers — nearly 60% of those planned or under construction — sit in state House districts that voted for Trump and elected a Republican in 2024. More than half of planned Texas data centers are in unincorporated areas, up from 12% of existing ones — meaning they land in exactly the places with the least local authority to say no.
Agriculture Commissioner Sid Miller said it plainly in Lubbock on August 6: “Republicans should be on this issue and we’re not. The Democrats are, and they’re right on the issue. I’m not endorsing any Democrats, but we’re going to lose some elections in the midterms because of this one subject.”
Reporting this as “landowners versus the lines” obscures at least five distinct positions that want incompatible things.
Position
Who
What they actually want
Deny outright
Sen. Schwertner; Rep. Brad Buckley; most July 29 witnesses; Lt. Gov. Patrick (per most coverage)
Denial, so the 90th Legislature rewrites the process and utilities refile under new law.
Defer the need finding
American Stewards of Liberty; 43 legislators via a TPPF-drafted amicus brief
Reopen the demand case and force consideration of local gas generation.
Reroute
Hill Country Preservation Coalition; Bandera, Real, Edwards and Val Verde county resolutions; Devils River Conservancy
Move the lines to highway and existing corridors. The lines still get built. “We’re not against progress.”
Reform and build
Association of Electric Companies of Texas; Sen. Kolkhorst; Patrick’s own words
Fix notice and routing. Patrick said explicitly the lines are ones “many believe must be built.”
No delay
Oncor; Texas Oil & Gas Association; Permian Basin Petroleum Association
Proceed. “The greatest risk of failure is for these necessary projects to falter under any sort of delay.”
The ideological cross-current the coverage keeps missing The intellectual engine of the pause campaign is the Texas Public Policy Foundation, which drafted the 43-legislator amicus brief. TPPF also opposes the state’s wind and solar buildout, and its policy director argues Texas should “expand local gas generation” rather than transport power “to manage the problems associated with overbuilding wind and solar.” Sen. Sparks made the same point at the hearing: “If we charge through with these lines right now, it’s almost guaranteed that what we’ll fill these up with is more wind, mostly solar.” So one of the strongest currents against these lines is not property-rights conservatism at all — it is opposition to renewables, wearing property rights as a coalition partner. And the pro-transmission counterweight includes environmental groups, because 765-kV lines would move a great deal of West Texas wind and solar. Framing this as ranchers versus oil companies gets the alignment backwards.
Local governments elsewhere kill data center projects by denying rezoning. Texas counties cannot — they have no zoning authority. The consequences are visible:
Hood County: commissioners rejected a six-month pause 3–2 after a state senator sent a same-day letter to the attorney general asserting counties lack moratorium authority. They then cut allowed lot coverage from 50% to 10% — one commission member conceded the strategy was to make the rules strict enough “so none of them come.” Two developer lawsuits are pending.
Hill County: passed the state’s first county data-center moratorium on May 12, 2026. A developer sued for $100 million in federal court on May 27. The moratorium was rescinded unanimously on June 4. Preemption did in four weeks what politics could not.
San Marcos: voted 4–3 on June 16, 2026 to make data centers ineligible anywhere in the city — the first outright Texas municipal ban. A state senator has said he will challenge it.
Fort Worth: voted unanimously on August 11, 2026 to take the first step toward a moratorium and to require every new application to show PUC and ERCOT interconnection approval — precisely when the state approval process is frozen.
Texas has no statewide initiative process, so the referendum route available in other states is closed. At least 34 counties have formally asked the state for more information.
Where Texas is genuinely ahead is market design — SB 6’s curtailment mandate, its 75 MW interconnection regime, and the December 4CP rewrite have no real peer in other states. The gap is in land use and water, not electricity markets.
The data-center sales tax exemption has gone from costing the state $5–30 million a year between 2014 and 2022 to at least $1.3 billion in fiscal 2026. The biennial estimate for 2027–28 was revised from roughly $180 million to $3.2 billion. At a July 27 Senate Finance hearing it emerged that of 138 qualified data centers, only 20 had been audited — and 6 of those 20 were in breach. The Finance chair, who voted for the exemption in 2013, said: “No tax exemption should operate on autopilot.”
Reported House Committee on State Affairs hearing on the 765-kV regulatory and planning process, chaired by Rep. Ken King
First House engagement. The Senate has moved; whether the House matches determines if this is a Patrick project or a chamber-wide one. Call before relying on the date — no notice appears in Texas Legislature Online as of Aug. 17.
Aug. 21, 2026
PUC may act on Dockets 59029 and 59315 — the northern line
The first real test. Not the Hill Country line, contrary to some coverage.
Aug. 25–27, 2026
AEP Texas open houses on the Blu Lacy–Howard segment
A 150-mile segment from Nueces to Bexar County — evidence the buildout extends well beyond the Hill Country.
End of Aug. 2026
PUC deadline on Howard–Solstice, Docket 59336
The Hill Country line. The single most-watched decision.
Sept. 2026
LCRA expects a decision on Bell County East–Big Hill, Docket 59475
122 alternative routes, 14 counties including Burnet, Llano and San Saba. The PUC already delayed this once in June.
Overdue
Docket 59182 (Big Hill–Sand Lake) is past its 180-day deadline
Anyone can seek mandamus to force a decision. Watch for whoever moves first.
Nov. 2026
Bill pre-filing opens; Abbott and Patrick on the ballot; possible Lubbock moratorium ballot measure
The first electoral read on whether the backlash converts into votes.
Dec. 31, 2026
Statutory deadline for the PUC to amend its cost allocation rules — Project 58000
The most consequential and least covered date on this list. Could shift roughly 10% of transmission cost off residential bills without any legislation, one month before the session convenes.
Jan. 2027
90th Texas Legislature convenes
Schwertner wants “a complete overhaul” of the certification process. Abbott wants data centers to bring their own generation, pay their own interconnection, use closed-loop water, and lose the sales tax exemption.
Has the Public Utility Commission ever denied a major transmission certificate? No precedent was found in any source. If the answer is genuinely no, that reframes both the political demand and its likelihood.
ERCOT commissioned its own study from the University of Texas Bureau of Economic Geology, which put Permian oil and gas load at roughly half what the industry-funded S&P study projected. Why did the higher number drive the plan? Someone should ask that question on the record.
If the cost allocation rewrite lands in December and shifts real cost onto large loads, does it defuse enough of the political pressure to let the lines proceed — or does it arrive too late, after the applications have already been denied?
What to tell someone who asks why this matters Texas is about to spend roughly $33 billion statewide — of which the Permian plan is about $14 billion, and which could reach $46 billion if the CREZ overrun rate repeats — recovered from every electricity customer in the state, on infrastructure justified by a demand forecast that ranges by nearly a factor of two depending on whose numbers you use. The statute requires the regulator to weigh the highest one. The Legislature ordered it near-unanimously, compressed the review window, and told the commission to defer to the applicants. Now, facing voters who oppose the development driving it by roughly two to one, it wants the decision back. Whichever way it resolves, someone pays: ratepayers for lines that may not be needed, or West Texas for reliability it has been promised for a decade. There is no version where nobody loses.
Primary documents were prioritized over reporting wherever both existed. Two constraints on this research are worth stating: the PUC Interchange document server and texasscorecard.com both block automated retrieval, so filings and some quotes are sourced through trade press, party filings and search extraction rather than the original pages. Docket numbers are given so they can be pulled directly.
Primary — statute and orders
HB 5066 enrolled text (88th Legislature, 2023) — capitol.texas.gov/tlodocs/88R/billtext/html/HB05066F.htm
SB 6 enrolled text (89th Legislature, 2025) — capitol.texas.gov/tlodocs/89R/billtext/html/SB00006F.htm
Permian Basin Reliability Plan Study, July 2024 — the source of the 345/500/765 comparison table
2024 Regional Transmission Plan: 345-kV Plan and Texas 765-kV STEP Comparison, Jan. 2025
Senate Business & Commerce presentations, July 29, 2026 — Panel 1 (Vegas, load) and Panel 2 (Rickerson, 765 kV)
ERCOT all-time peak demand records — ercot.com/static-assets/data/news/content/a-peak-demand/all-time-records.htm
ERCOT West Texas Load Study, June 2022
Analysis and advocacy — read with the source’s position in mind
NRG, ERCOT Transmission Costs and Rate Design, Feb. 25, 2025 — the $178–268/year residential estimate
Texas Public Policy Foundation, The Explosion of Transmission Costs in ERCOT, Jan. 2026, and the 765-kV STEP assessment, June 2026 — TPPF opposes both the plan and the renewable buildout
Sierra Club, Texas’ $33 Billion Transmission Plan, June 2026
Brattle Group, ERCOT Cost of New Entry for the 2026 Online Year
Potomac Economics, 2025 State of the Market Report for ERCOT
American Stewards of Liberty, Motion to Defer Determination of Need, Docket 59029
Reporting
Texas Tribune — July 31 and Aug. 14, 2026 coverage of the hearing, Patrick’s intervention, and the PUC special meeting
KUT — July 30, 2026, the fullest account of the 15-hour hearing
E&E News — “$33B transmission build-out leaves Texas ranchers fuming” and “Texas regulators urged to halt $33B transmission plan”
The Texan — official reactions to the July 29 hearing
Texas Scorecard — the Gleeson “never explicitly approved” reporting (advocacy-aligned; the verb “admitted” is theirs, though the substance is independently corroborated by the Oct. 2024 order)
Utility Dive and RTO Insider — the 2024–25 PUC approval sequence
DailyTrib — Aug. 7, 2026, on the scheduling of the House hearing and PUC meeting
San Antonio Express-News — “Century-old H-E-B-tied farm threatened by biggest-ever Texas transmission line,” July 26, 2026
One correction to carry forward The Express-News story the article links to describes Constanzo Farm in Atascosa, southwest Bexar County — the Adamek family. The H-E-B connection is a roughly 90-year supplier relationship dating to the 1930s, when the current owner’s grandfather drove produce to San Antonio’s Market Square in a Model T. The Butt family does not own the farm. Any summary saying “H-E-B’s farm” would be wrong.
Not everything in this document is equally well established. Three tiers:
Verified against primary documents. All HB 5066 content and vote counts; Schwertner’s Senate sponsorship; the §37.057 and §37.056(c-1) statutory text; the ERCOT 345/765 cost comparison ($12.95B / $13.77B statewide $30.75B / $32.99B); the 434-mile right-of-way differential; the $229M and $28M savings figures; the April 2025 voltage selection; the December 2025 ERCOT board endorsements. Build on these freely.
Corroborated across independent reporting but not re-read from the source. The July 29 hearing and its quotes; the Aug. 14 PUC meeting; Patrick’s and Schwertner’s statements; the docket details for Howard–Solstice and the other lines; the polling; the local data-center fights; the Texas Energy Fund figures. Solid, but cite the underlying source rather than this document.
Single-chain sourcing — confirm before publishing. The Aug. 19 House hearing (probably wrong); the AECT president’s quote; the 1,340 / 2,105 MW per-path transfer figures; the NRG and CREZ bill-impact numbers; the flaring baseline; Jimmy Fair’s testimony; and the Campbell and Staples quotes carried over from the article itself. The PUC Interchange server and several news sites block automated retrieval, which is the reason for most of these gaps.
What the audited numbers show in Collin and Dallas Counties
A collaboration between Lewis McLain & AI
The core assertions in the original post hold up. Texas school districts are adopting deficit budgets in large numbers, campuses are closing, and the funding formula has not kept pace with cost growth. But “the system is broken” is a conclusion, not a diagnosis. Five districts within a thirty-mile radius — Plano, Frisco, Richardson, McKinney, and Allen — all operate under the identical state formula, and their 2026-27 outcomes range from a balanced budget to a $44,800,000 shortfall. That spread is where the real explanation lives.
Every figure below for fiscal year 2025 is audited. All five districts received unmodified opinions.
Two corrections before going further
The average teacher salary figure of $63,749 is one year stale. That was the Texas Education Agency’s calculation before last year’s statewide raises took effect. The current TEA figure is $68,001, against an NEA-computed national average of $76,552. Texas ranks 29th nationally in average teacher pay — the third consecutive year at that position. Adjusted for inflation, Texas teachers earn 3.67% less than in 2017, a compound annual real decline of 0.47% over eight years. That is the more durable number, and the one worth citing.
Second, the post’s framing implies inaction. The 89th Legislature appropriated $8.5 billion in new public education funding through House Bill 2 in June 2025. What it did not do is raise the basic allotment meaningfully — the per-student allotment moved from $6,160 to $6,215, an increase of 0.89%, with most of the $8.5 billion routed into teacher pay mandates and program-specific allotments rather than the base amount districts can deploy against inflation. That distinction separates “the state spent nothing” (false) from “the state spent a great deal in ways that do not close operating deficits” (demonstrably true, as the five districts below prove).
District
County
Revenue
Expenditures
Deficit
Deficit as % of expenditures
Plano ISD
Collin
$634,600,000
$691,600,000
$44,800,000
6.48%
Richardson ISD
Dallas
$403,800,000
$427,700,000
$20,800,000
4.86%
Allen ISD
Collin
$220,700,000
$226,000,000
$5,314,470
2.35%
McKinney ISD
Collin
$276,000,000
$282,000,000
$5,800,000
2.06%
Frisco ISD
Collin
$751,900,000
$751,900,000
$0
0.00%
Every one of these boards adopted in June 2026. Every one operates under the same basic allotment, the same tax compression schedule, the same special education and transportation mandates, and the same House Bill 2 allotments. Four of the five are in the same appraisal district. The 6.48-point spread between Plano and Frisco is not a difference in state treatment.
The audited picture: fiscal year ended June 30, 2025
Adopted budgets are projections. The annual comprehensive financial reports are the ground truth, and they change the story materially.
District
Revenues
Expenditures
Net change in fund balance
Ending fund balance
Frisco ISD
$754,569,861
$733,947,380
+$22,494,543
$263,799,633
Plano ISD
$686,920,617
$677,146,430
+$3,386,247
$276,399,468
Allen ISD
$214,896,617
$216,790,527
−$916,685
$73,258,476
McKinney ISD
$256,206,330
$267,673,202
−$10,711,346
$99,861,556
Richardson ISD
$414,279,418
$430,319,383
−$16,993,327
$166,520,684
Note McKinney. Its adopted 2025-26 budget anticipated a $7,500,000 draw. The audited fiscal 2025 result was a $10,711,346 decline — 9.69% of beginning fund balance in a single year, the steepest proportional drawdown of the five. Richardson’s larger dollar decline was 9.26% of its beginning balance.
District
Total fund balance
Unassigned
Total FB as % of expenditures
Unassigned as % of expenditures
Unassigned as % of total FB
Plano ISD
$276,399,468
$82,118,880
40.82%
12.13%
29.71%
Richardson ISD
$166,520,684
$108,523,219
38.70%
25.22%
65.17%
McKinney ISD
$99,861,556
$93,080,833
37.31%
34.77%
93.21%
Frisco ISD
$263,799,633
$248,420,281
35.94%
33.85%
94.17%
Allen ISD
$73,258,476
$50,220,294
33.79%
23.17%
68.55%
This is the finding that only the audits produce. Rank the districts by total fund balance and Plano leads at 40.82%. Rank them by usable reserves and Plano finishes last, at 12.13% — less than half the next-lowest and roughly a third of McKinney’s and Frisco’s.
Only 29.71% of Plano’s general fund balance is unassigned. McKinney’s is 93.21% unassigned and Frisco’s is 94.17% — essentially unencumbered. The difference is that Plano’s board has pre-committed the balance: $170,000,000 assigned to cash flow requirements, $10,000,000 to insurance deductible, $7,800,000 to the following year’s budgeted deficit, and $4,577,161 to purchases on order — $192,377,161 in total assignments. McKinney carries $2,550,000. Frisco carries $14,388,186.
District
Days of operations, total FB
Days of operations, unassigned
Unassigned ÷ adopted FY27 deficit
Plano ISD
149.0
44.3
1.83 years
Richardson ISD
141.2
92.1
5.22 years
McKinney ISD
136.2
126.9
16.05 years
Frisco ISD
131.2
123.5
Not applicable — balanced
Allen ISD
123.3
84.6
9.45 years
Plano holds 44 days of unassigned reserves. McKinney holds 127 — nearly triple, on a district roughly 40% Plano’s size. The district running the largest deficit in absolute dollars and the highest deficit as a share of expenditures also has the least discretionary cushion behind it.
McKinney’s board policy sets a floor at three months of operating expenses, or 25%. At $267,673,202 in fiscal 2025 general fund expenditures, that floor is $66,918,301 — leaving $26,162,532 of headroom above policy, or 4.51 years at the adopted $5,800,000 deficit. That is materially better than the estimate available from board presentations alone, which suggested roughly 2.6 years.
Frisco’s audit states the reserve convention explicitly: the standard practice is roughly 25% of annual expenditures, and Frisco has deliberately raised its own target to about 30% to absorb enrollment decline without leaning on additional state aid. Its unassigned balance at June 30, 2025 equals 32.6% of the fiscal 2026 adopted budget.
Variable one: recapture exposure
Chapter 49 recapture does more work in this comparison than any other single line item, and the audited figures make the disparity unmistakable.
District
Amount
% of GF expenditures
Per student
Plano ISD
$136,249,803
20.12%
$3,110
Frisco ISD
$13,398,645
1.83%
$205
McKinney ISD
$7,041,655
2.63%
$302
Richardson ISD
$5,452,555
1.27%
$147
Allen ISD
$3,423,716
1.58%
$170
Plano remitted 20.12% of its total general fund expenditures to the state in fiscal 2025 — more than one dollar in five, before a single teacher was paid. Frisco, a district with a larger budget, remitted 1.83%. Per student, Plano’s recapture burden is roughly fifteen times Frisco’s and twenty-one times Richardson’s.
The mechanism deserves stating plainly, because it is counterintuitive and it is the heart of the problem. Recapture is calculated on taxable value per student in weighted average daily attendance. When a district loses students but retains its property wealth, value-per-student rises, and the recapture obligation rises with it. Plano’s certified net taxable value grew from $61,900,000,000 in tax year 2021 to $74,400,000,000 in tax year 2025 — 20.09% cumulative, a compound annual growth rate of 4.71% across four growth periods — while enrollment fell at a compound annual rate of 5.21%.
So Plano loses formula revenue on the way out and pays more recapture on the way in. Each departing student subtracts state entitlement and simultaneously increases the share of local collections classified as excess wealth. The district is penalized twice for the same demographic event, and it has no policy lever that touches either side. Richardson’s audit documents the inverse: the September 2025 amendment reflecting House Bill 2, Senate Bill 4, and Senate Bill 23 reduced its recapture, because the enlarged homestead exemptions cut taxable value 5% against a budget built on 5% growth.
McKinney’s audit isolates the same pressure at smaller scale. Its $10,711,346 general fund decline is attributed in part to a $1,610,473 increase in recapture — a 29.65% jump in one year — alongside a $14,300,000 drop in state program revenue.
This is the single most important specific to add to the original post. Underfunding and recapture are different problems requiring different legislative fixes. A basic allotment increase helps Richardson, McKinney, and Allen considerably. It helps Plano far less, because a meaningful share of any increase is recaptured back. Districts on Plano’s side of the line need the wealth-per-student threshold indexed, not just the allotment raised.
Variable two: enrollment and cost per pupil
District
Prior
Current
One-year change
Multi-year CAGR
Plano ISD
43,808 (2025-26)
41,830 (2026-27 proj.)
−4.52%
−5.21% (2024-25 to 2026-27)
Allen ISD
20,140 (2025-26)
19,575 (2026-27 proj.)
−2.81%
−3.15% (Oct. 2024 to 2026-27)
Frisco ISD
66,698 (FY2024)
65,289 (FY2025)
−2.11%
−1.22% from 2023 peak
Richardson ISD
36,970 (2024-25)
36,247 (2025-26)
−1.96%
−0.44% over five years
McKinney ISD
23,306 (FY2024)
23,296 (FY2025)
−0.04%
−0.68% over nine years
District
Enrollment CAGR, 2016–2025
Operating cost per pupil, 2016
2025
Cost per pupil CAGR
Frisco ISD
+2.28%
$7,276.48
$10,297.80
+3.93%
McKinney ISD
−0.68%
$9,112
$13,527
+4.49%
Both districts’ own statistical schedules tell the same story from opposite demographic positions. Frisco grew enrollment 2.28% annually for a decade; McKinney shrank 0.68% annually. Cost per pupil rose 3.93% and 4.49% respectively. Growth did not protect Frisco and stability did not protect McKinney, because in both cases per-pupil cost outran the basic allotment, which rose 0.89% in the same period that these districts absorbed compounding increases in salary, utilities, insurance, and mandated services.
McKinney is the cleanest proof available that this is not an enrollment story. Its enrollment fell 10 students last year — 0.04%. It still drew $10,711,346 out of fund balance.
Richardson supplies the second control case. Its five-year decline is 2.2%, a 0.44% compound annual rate, and it still adopted a $20,800,000 deficit and drew $16,993,327 in fiscal 2025.
The state demographer attributes the broader regional decline to out-migration toward the outer ring counties — Rockwall, Wise, Parker, Johnson, Ellis — and to falling birth rates. Neither originates in Austin. Any honest version of this argument concedes that some North Texas district distress is demographic. But McKinney and Richardson demonstrate that demographics are not the binding constraint.
District
Primary approach
Documented actions
Result
Frisco ISD
Revenue generation
Renegotiated TIRZ agreement with City of Frisco permitting operating use (+$29,000,000 GF revenue in FY2025); Access Frisco open enrollment (870 students, $8,400,000); tuition pre-K (600 students); fare-based busing; $20 Chromebook fee; $21,800,000 personnel savings via attrition
FY2025 closed +$22,494,543 against a budgeted −$30,800,000; FY2027 balanced with 2% raises, rate held at $1.0194
Richardson ISD
Expenditure reduction
$25,700,000 in cuts this cycle; nearly $42,000,000 over three years; four elementary consolidations plus Dobie Pre-K Center
$20,800,000 deficit remains; another $20,000,000 sought in August
McKinney ISD
Facility consolidation
Three elementary closures (Eddins, McNeil, Wolford) effective fall 2026; position eliminations cut the budgeted FY26 draw from $17,000,000 to $7,500,000
$5,800,000 deficit; audited FY25 draw $10,711,346
Allen ISD
Administrative attrition
More than $8,000,000 reduced in a single year, primarily administrative positions
$5,314,470 deficit; FY2025 draw only $916,685
Plano ISD
Not yet restructured
Four campus closures approved June 2024; $5,200,000 annual savings, $20,100,000 one-time capital savings, $340,000,000 avoided future replacement cost
$44,800,000 deficit; leadership states structural change now required
The TIRZ finding reframes the Frisco story. The commonly cited elements — open-enrollment transfers, tuition pre-K, bus fares, device fees — total roughly $10,000,000. The renegotiated tax increment reinvestment zone agreement with the City of Frisco, which permitted the district to apply TIRZ proceeds to operating costs rather than only construction, added $29,000,000 to general fund revenue in a single year. That is nearly three times the fee-and-transfer package.
Frisco balanced its budget primarily by finding a municipal partner willing to redirect an existing revenue stream. That is a genuine achievement and a replicable strategy only where a city has an active TIRZ and a cooperative council. It is not available to Plano, Richardson, McKinney, or Allen on comparable scale, and it should not be presented as evidence that better management alone closes these gaps.
The transfer program does carry a second-order consequence worth naming. Those 870 students came from somewhere, and in Collin County the somewhere is Plano, McKinney, Allen, and Prosper. In a county where every district is shrinking, one district has begun competing directly for average daily attendance — a rational response by a single board and a destructive equilibrium if all of them adopt it.
The non-recurring revenue problem, across all five
Two districts posted fiscal 2025 gains. Neither is repeatable.
Plano’s fund balance grew $3,386,247, from $273,013,221 to $276,399,468 — 1.23%. The growth came from a $22,600,000 initial Chapter 313 payment from Texas Instruments and a $31,400,000 state aid increase driven by an Available School Fund per-capita rate that rose from $423.747 to $619.868 per average daily attendance. The unassigned balance also rose partly for a mechanical reason: the assignment for budget deficit dropped from $35,000,000 to $7,800,000 as the prior-year deficit failed to materialize.
Frisco’s $22,494,543 gain came against a budgeted $30,800,000 deficit — a favorable swing of $53,294,543 — attributed by its audit largely to the TIRZ reallocation. A revenue stream can only be reallocated once. Frisco’s fiscal 2027 revenue of $751,900,000 is already down $19,790,000, or 2.56%, from the $771,690,000 budgeted for fiscal 2026.
McKinney shows what the year looks like without a one-time item: state program revenue fell $14,300,000, or 25%, expenditures rose 5%, and the fund balance absorbed $10,711,346.
Every one of these districts is one non-recurring item away from the structural gap becoming fully visible. Plano arrives there first because its recapture obligation compounds against it.
What this adds up to
The original post’s underlying claims survive scrutiny. Deficit budgets are widespread. Campuses are closing. Teacher compensation trails inflation in real terms. Mandated programs are underfunded — Plano projects six required programs costing $141,300,000 in 2026-27 against $66,900,000 in state funding, a $74,400,000 local subsidy for services no district may legally decline.
What the audited specifics add is precision about the mechanism. This is not uniform starvation. It is a formula in which per-pupil cost growth of roughly 4% annually meets a basic allotment that moved 0.89%, and in which one district’s recapture obligation consumes 20.12% of its budget while a larger neighbor’s consumes 1.83%. Plano and Frisco sit eleven miles apart under identical law, with a 6.48-point difference in fiscal outcome and a 44-day versus 124-day gap in usable reserves. That is a structural design problem, and a basic allotment increase alone will not solve it.
The 2027 session will decide two things: whether the basic allotment gets indexed to anything, and whether the education savings account program expands from $1 billion toward the $3.3 billion the Legislative Budget Board projects for 2028. More than 274,000 families applied for roughly 90,000 available accounts, leaving a waitlist above 180,000 students — now the most potent political argument in the building.
Districts should expect both dollars to be argued over at once, and expect the basic allotment to lose that argument again unless someone makes the recapture case with numbers this specific.
Note on data and method
Fiscal 2025 general fund figures for all five districts are audited, drawn from each district’s annual comprehensive financial report for the year ended June 30, 2025. All five received unmodified opinions — Weaver and Tidwell for Plano and Richardson, Hankins Eastup Deaton Tonn & Seay for Allen, Eide Bailly for McKinney. Fiscal 2026-27 figures are budgets as adopted in June 2026 and are projections, not actuals.
Percentage changes spanning more than one year are stated as compound annual growth rates; single-year changes are stated as simple percentage change. Days of operations are computed as fund balance divided by total general fund expenditures divided by 365. Recapture is function 91, contracted instructional services between public schools; per-student recapture uses each district’s most recent reported enrollment. McKinney and Frisco enrollment and cost-per-pupil figures are from ACFR statistical schedules and are fiscal-year figures on those districts’ own operating-expenditure definitions, which differ slightly — McKinney excludes debt service and most capital, Frisco excludes intergovernmental charges — so the cost-per-pupil CAGRs are comparable in direction but not to the decimal. Other districts’ enrollment is school-year data from board presentations.
One caution on the reserve comparison. The cash flow assignment — $170,000,000 at Plano — is technically available but functionally is not, because Texas districts collect the bulk of ad valorem revenue between December and February and need working capital to cover July through November payroll. Frisco’s audit describes the same four-to-five month cash flow deficit but carries the equivalent cushion as unassigned rather than assigned, and McKinney does likewise. Part of the 44-day versus 127-day gap is a real difference in liquidity and part is a difference in classification convention. The direction of the finding survives the adjustment, but the precise day counts should be treated as indicative rather than exact, and anyone using this comparison in testimony should say so.
Five Districts, One Formula
What the audited numbers show in Collin and Dallas Counties
The core assertions in the original post hold up. Texas school districts are adopting deficit budgets in large numbers, campuses are closing, and the funding formula has not kept pace with cost growth. But “the system is broken” is a conclusion, not a diagnosis. Five districts within a thirty-mile radius — Plano, Frisco, Richardson, McKinney, and Allen — all operate under the identical state formula, and their 2026-27 outcomes range from a balanced budget to a $44,800,000 shortfall. That spread is where the real explanation lives.
Every figure below for fiscal year 2025 is audited. All five districts received unmodified opinions.
Two corrections before going further
The average teacher salary figure of $63,749 is one year stale. That was the Texas Education Agency’s calculation before last year’s statewide raises took effect. The current TEA figure is $68,001, against an NEA-computed national average of $76,552. Texas ranks 29th nationally in average teacher pay — the third consecutive year at that position. Adjusted for inflation, Texas teachers earn 3.67% less than in 2017, a compound annual real decline of 0.47% over eight years. That is the more durable number, and the one worth citing.
Second, the post’s framing implies inaction. The 89th Legislature appropriated $8.5 billion in new public education funding through House Bill 2 in June 2025. What it did not do is raise the basic allotment meaningfully — the per-student allotment moved from $6,160 to $6,215, an increase of 0.89%, with most of the $8.5 billion routed into teacher pay mandates and program-specific allotments rather than the base amount districts can deploy against inflation. That distinction separates “the state spent nothing” (false) from “the state spent a great deal in ways that do not close operating deficits” (demonstrably true, as the five districts below prove).
District
County
Revenue
Expenditures
Deficit
Deficit as % of expenditures
Plano ISD
Collin
$634,600,000
$691,600,000
$44,800,000
6.48%
Richardson ISD
Dallas
$403,800,000
$427,700,000
$20,800,000
4.86%
Allen ISD
Collin
$220,700,000
$226,000,000
$5,314,470
2.35%
McKinney ISD
Collin
$276,000,000
$282,000,000
$5,800,000
2.06%
Frisco ISD
Collin
$751,900,000
$751,900,000
$0
0.00%
Every one of these boards adopted in June 2026. Every one operates under the same basic allotment, the same tax compression schedule, the same special education and transportation mandates, and the same House Bill 2 allotments. Four of the five are in the same appraisal district. The 6.48-point spread between Plano and Frisco is not a difference in state treatment.
The audited picture: fiscal year ended June 30, 2025
Adopted budgets are projections. The annual comprehensive financial reports are the ground truth, and they change the story materially.
District
Revenues
Expenditures
Net change in fund balance
Ending fund balance
Frisco ISD
$754,569,861
$733,947,380
+$22,494,543
$263,799,633
Plano ISD
$686,920,617
$677,146,430
+$3,386,247
$276,399,468
Allen ISD
$214,896,617
$216,790,527
−$916,685
$73,258,476
McKinney ISD
$256,206,330
$267,673,202
−$10,711,346
$99,861,556
Richardson ISD
$414,279,418
$430,319,383
−$16,993,327
$166,520,684
Note McKinney. Its adopted 2025-26 budget anticipated a $7,500,000 draw. The audited fiscal 2025 result was a $10,711,346 decline — 9.69% of beginning fund balance in a single year, the steepest proportional drawdown of the five. Richardson’s larger dollar decline was 9.26% of its beginning balance.
District
Total fund balance
Unassigned
Total FB as % of expenditures
Unassigned as % of expenditures
Unassigned as % of total FB
Plano ISD
$276,399,468
$82,118,880
40.82%
12.13%
29.71%
Richardson ISD
$166,520,684
$108,523,219
38.70%
25.22%
65.17%
McKinney ISD
$99,861,556
$93,080,833
37.31%
34.77%
93.21%
Frisco ISD
$263,799,633
$248,420,281
35.94%
33.85%
94.17%
Allen ISD
$73,258,476
$50,220,294
33.79%
23.17%
68.55%
This is the finding that only the audits produce. Rank the districts by total fund balance and Plano leads at 40.82%. Rank them by usable reserves and Plano finishes last, at 12.13% — less than half the next-lowest and roughly a third of McKinney’s and Frisco’s.
Only 29.71% of Plano’s general fund balance is unassigned. McKinney’s is 93.21% unassigned and Frisco’s is 94.17% — essentially unencumbered. The difference is that Plano’s board has pre-committed the balance: $170,000,000 assigned to cash flow requirements, $10,000,000 to insurance deductible, $7,800,000 to the following year’s budgeted deficit, and $4,577,161 to purchases on order — $192,377,161 in total assignments. McKinney carries $2,550,000. Frisco carries $14,388,186.
District
Days of operations, total FB
Days of operations, unassigned
Unassigned ÷ adopted FY27 deficit
Plano ISD
149.0
44.3
1.83 years
Richardson ISD
141.2
92.1
5.22 years
McKinney ISD
136.2
126.9
16.05 years
Frisco ISD
131.2
123.5
Not applicable — balanced
Allen ISD
123.3
84.6
9.45 years
Plano holds 44 days of unassigned reserves. McKinney holds 127 — nearly triple, on a district roughly 40% Plano’s size. The district running the largest deficit in absolute dollars and the highest deficit as a share of expenditures also has the least discretionary cushion behind it.
McKinney’s board policy sets a floor at three months of operating expenses, or 25%. At $267,673,202 in fiscal 2025 general fund expenditures, that floor is $66,918,301 — leaving $26,162,532 of headroom above policy, or 4.51 years at the adopted $5,800,000 deficit. That is materially better than the estimate available from board presentations alone, which suggested roughly 2.6 years.
Frisco’s audit states the reserve convention explicitly: the standard practice is roughly 25% of annual expenditures, and Frisco has deliberately raised its own target to about 30% to absorb enrollment decline without leaning on additional state aid. Its unassigned balance at June 30, 2025 equals 32.6% of the fiscal 2026 adopted budget.
Variable one: recapture exposure
Chapter 49 recapture does more work in this comparison than any other single line item, and the audited figures make the disparity unmistakable.
District
Amount
% of GF expenditures
Per student
Plano ISD
$136,249,803
20.12%
$3,110
Frisco ISD
$13,398,645
1.83%
$205
McKinney ISD
$7,041,655
2.63%
$302
Richardson ISD
$5,452,555
1.27%
$147
Allen ISD
$3,423,716
1.58%
$170
Plano remitted 20.12% of its total general fund expenditures to the state in fiscal 2025 — more than one dollar in five, before a single teacher was paid. Frisco, a district with a larger budget, remitted 1.83%. Per student, Plano’s recapture burden is roughly fifteen times Frisco’s and twenty-one times Richardson’s.
The mechanism deserves stating plainly, because it is counterintuitive and it is the heart of the problem. Recapture is calculated on taxable value per student in weighted average daily attendance. When a district loses students but retains its property wealth, value-per-student rises, and the recapture obligation rises with it. Plano’s certified net taxable value grew from $61,900,000,000 in tax year 2021 to $74,400,000,000 in tax year 2025 — 20.09% cumulative, a compound annual growth rate of 4.71% across four growth periods — while enrollment fell at a compound annual rate of 5.21%.
So Plano loses formula revenue on the way out and pays more recapture on the way in. Each departing student subtracts state entitlement and simultaneously increases the share of local collections classified as excess wealth. The district is penalized twice for the same demographic event, and it has no policy lever that touches either side. Richardson’s audit documents the inverse: the September 2025 amendment reflecting House Bill 2, Senate Bill 4, and Senate Bill 23 reduced its recapture, because the enlarged homestead exemptions cut taxable value 5% against a budget built on 5% growth.
McKinney’s audit isolates the same pressure at smaller scale. Its $10,711,346 general fund decline is attributed in part to a $1,610,473 increase in recapture — a 29.65% jump in one year — alongside a $14,300,000 drop in state program revenue.
This is the single most important specific to add to the original post. Underfunding and recapture are different problems requiring different legislative fixes. A basic allotment increase helps Richardson, McKinney, and Allen considerably. It helps Plano far less, because a meaningful share of any increase is recaptured back. Districts on Plano’s side of the line need the wealth-per-student threshold indexed, not just the allotment raised.
Variable two: enrollment and cost per pupil
District
Prior
Current
One-year change
Multi-year CAGR
Plano ISD
43,808 (2025-26)
41,830 (2026-27 proj.)
−4.52%
−5.21% (2024-25 to 2026-27)
Allen ISD
20,140 (2025-26)
19,575 (2026-27 proj.)
−2.81%
−3.15% (Oct. 2024 to 2026-27)
Frisco ISD
66,698 (FY2024)
65,289 (FY2025)
−2.11%
−1.22% from 2023 peak
Richardson ISD
36,970 (2024-25)
36,247 (2025-26)
−1.96%
−0.44% over five years
McKinney ISD
23,306 (FY2024)
23,296 (FY2025)
−0.04%
−0.68% over nine years
District
Enrollment CAGR, 2016–2025
Operating cost per pupil, 2016
2025
Cost per pupil CAGR
Frisco ISD
+2.28%
$7,276.48
$10,297.80
+3.93%
McKinney ISD
−0.68%
$9,112
$13,527
+4.49%
Both districts’ own statistical schedules tell the same story from opposite demographic positions. Frisco grew enrollment 2.28% annually for a decade; McKinney shrank 0.68% annually. Cost per pupil rose 3.93% and 4.49% respectively. Growth did not protect Frisco and stability did not protect McKinney, because in both cases per-pupil cost outran the basic allotment, which rose 0.89% in the same period that these districts absorbed compounding increases in salary, utilities, insurance, and mandated services.
McKinney is the cleanest proof available that this is not an enrollment story. Its enrollment fell 10 students last year — 0.04%. It still drew $10,711,346 out of fund balance.
Richardson supplies the second control case. Its five-year decline is 2.2%, a 0.44% compound annual rate, and it still adopted a $20,800,000 deficit and drew $16,993,327 in fiscal 2025.
The state demographer attributes the broader regional decline to out-migration toward the outer ring counties — Rockwall, Wise, Parker, Johnson, Ellis — and to falling birth rates. Neither originates in Austin. Any honest version of this argument concedes that some North Texas district distress is demographic. But McKinney and Richardson demonstrate that demographics are not the binding constraint.
District
Primary approach
Documented actions
Result
Frisco ISD
Revenue generation
Renegotiated TIRZ agreement with City of Frisco permitting operating use (+$29,000,000 GF revenue in FY2025); Access Frisco open enrollment (870 students, $8,400,000); tuition pre-K (600 students); fare-based busing; $20 Chromebook fee; $21,800,000 personnel savings via attrition
FY2025 closed +$22,494,543 against a budgeted −$30,800,000; FY2027 balanced with 2% raises, rate held at $1.0194
Richardson ISD
Expenditure reduction
$25,700,000 in cuts this cycle; nearly $42,000,000 over three years; four elementary consolidations plus Dobie Pre-K Center
$20,800,000 deficit remains; another $20,000,000 sought in August
McKinney ISD
Facility consolidation
Three elementary closures (Eddins, McNeil, Wolford) effective fall 2026; position eliminations cut the budgeted FY26 draw from $17,000,000 to $7,500,000
$5,800,000 deficit; audited FY25 draw $10,711,346
Allen ISD
Administrative attrition
More than $8,000,000 reduced in a single year, primarily administrative positions
$5,314,470 deficit; FY2025 draw only $916,685
Plano ISD
Not yet restructured
Four campus closures approved June 2024; $5,200,000 annual savings, $20,100,000 one-time capital savings, $340,000,000 avoided future replacement cost
$44,800,000 deficit; leadership states structural change now required
The TIRZ finding reframes the Frisco story. The commonly cited elements — open-enrollment transfers, tuition pre-K, bus fares, device fees — total roughly $10,000,000. The renegotiated tax increment reinvestment zone agreement with the City of Frisco, which permitted the district to apply TIRZ proceeds to operating costs rather than only construction, added $29,000,000 to general fund revenue in a single year. That is nearly three times the fee-and-transfer package.
Frisco balanced its budget primarily by finding a municipal partner willing to redirect an existing revenue stream. That is a genuine achievement and a replicable strategy only where a city has an active TIRZ and a cooperative council. It is not available to Plano, Richardson, McKinney, or Allen on comparable scale, and it should not be presented as evidence that better management alone closes these gaps.
The transfer program does carry a second-order consequence worth naming. Those 870 students came from somewhere, and in Collin County the somewhere is Plano, McKinney, Allen, and Prosper. In a county where every district is shrinking, one district has begun competing directly for average daily attendance — a rational response by a single board and a destructive equilibrium if all of them adopt it.
The non-recurring revenue problem, across all five
Two districts posted fiscal 2025 gains. Neither is repeatable.
Plano’s fund balance grew $3,386,247, from $273,013,221 to $276,399,468 — 1.23%. The growth came from a $22,600,000 initial Chapter 313 payment from Texas Instruments and a $31,400,000 state aid increase driven by an Available School Fund per-capita rate that rose from $423.747 to $619.868 per average daily attendance. The unassigned balance also rose partly for a mechanical reason: the assignment for budget deficit dropped from $35,000,000 to $7,800,000 as the prior-year deficit failed to materialize.
Frisco’s $22,494,543 gain came against a budgeted $30,800,000 deficit — a favorable swing of $53,294,543 — attributed by its audit largely to the TIRZ reallocation. A revenue stream can only be reallocated once. Frisco’s fiscal 2027 revenue of $751,900,000 is already down $19,790,000, or 2.56%, from the $771,690,000 budgeted for fiscal 2026.
McKinney shows what the year looks like without a one-time item: state program revenue fell $14,300,000, or 25%, expenditures rose 5%, and the fund balance absorbed $10,711,346.
Every one of these districts is one non-recurring item away from the structural gap becoming fully visible. Plano arrives there first because its recapture obligation compounds against it.
What this adds up to
The original post’s underlying claims survive scrutiny. Deficit budgets are widespread. Campuses are closing. Teacher compensation trails inflation in real terms. Mandated programs are underfunded — Plano projects six required programs costing $141,300,000 in 2026-27 against $66,900,000 in state funding, a $74,400,000 local subsidy for services no district may legally decline.
What the audited specifics add is precision about the mechanism. This is not uniform starvation. It is a formula in which per-pupil cost growth of roughly 4% annually meets a basic allotment that moved 0.89%, and in which one district’s recapture obligation consumes 20.12% of its budget while a larger neighbor’s consumes 1.83%. Plano and Frisco sit eleven miles apart under identical law, with a 6.48-point difference in fiscal outcome and a 44-day versus 124-day gap in usable reserves. That is a structural design problem, and a basic allotment increase alone will not solve it.
The 2027 session will decide two things: whether the basic allotment gets indexed to anything, and whether the education savings account program expands from $1 billion toward the $3.3 billion the Legislative Budget Board projects for 2028. More than 274,000 families applied for roughly 90,000 available accounts, leaving a waitlist above 180,000 students — now the most potent political argument in the building.
Districts should expect both dollars to be argued over at once, and expect the basic allotment to lose that argument again unless someone makes the recapture case with numbers this specific.
Note on data and method
Fiscal 2025 general fund figures for all five districts are audited, drawn from each district’s annual comprehensive financial report for the year ended June 30, 2025. All five received unmodified opinions — Weaver and Tidwell for Plano and Richardson, Hankins Eastup Deaton Tonn & Seay for Allen, Eide Bailly for McKinney. Fiscal 2026-27 figures are budgets as adopted in June 2026 and are projections, not actuals.
Percentage changes spanning more than one year are stated as compound annual growth rates; single-year changes are stated as simple percentage change. Days of operations are computed as fund balance divided by total general fund expenditures divided by 365. Recapture is function 91, contracted instructional services between public schools; per-student recapture uses each district’s most recent reported enrollment. McKinney and Frisco enrollment and cost-per-pupil figures are from ACFR statistical schedules and are fiscal-year figures on those districts’ own operating-expenditure definitions, which differ slightly — McKinney excludes debt service and most capital, Frisco excludes intergovernmental charges — so the cost-per-pupil CAGRs are comparable in direction but not to the decimal. Other districts’ enrollment is school-year data from board presentations.
One caution on the reserve comparison. The cash flow assignment — $170,000,000 at Plano — is technically available but functionally is not, because Texas districts collect the bulk of ad valorem revenue between December and February and need working capital to cover July through November payroll. Frisco’s audit describes the same four-to-five month cash flow deficit but carries the equivalent cushion as unassigned rather than assigned, and McKinney does likewise. Part of the 44-day versus 127-day gap is a real difference in liquidity and part is a difference in classification convention. The direction of the finding survives the adjustment, but the precise day counts should be treated as indicative rather than exact, and anyone using this comparison in testimony should say so.
I started in Texas municipal finance in 1972, as budget director for the City of Garland. By the time this story started, I was the Dallas County Budget Officer, the first in Texas. I watched Dallas City Hall open in 1977 — I.M. Pei’s inverted wedge, the most confident building any Texas city put up in that decade. I have now read roughly fifty budget seasons’ worth of editorials explaining that a Texas city faces hard choices, that the city manager has produced a serious proposal, and that more must be done.
The editorials are almost always right in the sense that nothing in them is false. They are almost always useless in the sense that nothing in them is checkable. “More must be done” is not an analytical claim. It has no denominator, no date, and no way to be wrong.
So let me try to write the version with numbers in it.
The claim I’m making
Dallas is not just experiencing a budget shortfall. Dallas is experiencing the arrival of obligations it created in prior decades, on a schedule that was published, disclosed, and available to anyone who wanted to read it. The city’s own documents have shown for twenty years+ that the fixed claims on the General Fund were growing faster than the General Fund itself, and that the gap would have to be closed eventually by someone who was not in the room when the promises were made.
That structure has specific mechanical features in common with a Ponzi arrangement. I want to be precise about which features, because the analogy is useful exactly to the degree that it is disciplined — and misleading past that point. I’ll do the honest version of both halves below.
Part One: The Cycle, Documented
Set the current numbers down first. The budget under discussion is FY 2027 — the fiscal year beginning October 1, 2026, which the city labels FY 2026-27.
City Manager Kimberly Bizor Tolbert’s recommended FY 2027 budget totals $5.6 billion, built after the city identified a projected General Fund shortfall of $50.9 million. The preliminary General Fund revenue estimate was reduced in a June 18 memorandum to approximately $2.02 billion. The recommendation eliminates 296 budgeted positions, of which roughly 108 are currently occupied. It holds the property tax rate essentially flat — a symbolic tenth-of-a-cent reduction. Council takes a final vote September 16.
Getting to that point required the city to work through FY 2026 with a projected gap that opened at roughly $34 million in May. The drivers were specific and are worth naming rather than summarizing as “rising costs”: employee health benefits ran $13.8 million over budget, other General Fund expenditures ran $16.4 million over, and sales tax came in about $3.8 million short. The city responded with an April hiring freeze on non-public-safety positions, overtime restrictions, a travel and non-essential purchase freeze, and then three mandatory unpaid furlough days for General Fund non-uniform employees on July 10, September 4, and September 28 — with police, fire, EMS, 911, and self-funded enterprise operations exempt.
Now the part that makes it a cycle rather than an event.
In 2011, Dallas held budget hearings on projected deficits that ranged between $41 million and $96 million before settling at roughly $32 million. City Manager Mary Suhm told the public that things were getting slightly better because sales tax was improving a little, while warning that state and federal cuts could undo it. Libraries were, as always, the first thing on the table.
In 2020, city revenues came in $49.6 million below budget. Nearly 500 employees were furloughed. The projected shortfall for the following year ran between $61 million and $101 million. Mayor Eric Johnson said publicly that City Hall carried bloat and fat that could be trimmed and that the bureaucracy needed to share in the pain.
In 2026, the shortfall is $50.9 million, employees are furloughed, libraries have already absorbed layoffs, recreation centers have closed on individual Fridays to save money, and the mayor has issued a July 24 memorandum asking for reduced City Hall spending, more non-tax revenue, and another rate reduction.
Same script. Same vocabulary. Three different city managers, two different mayors, one unchanged structure.
The editorial writers are correct that the song is on repeat. What they never do is ask why the recording keeps playing, or who put it in the machine?
Part Two: The Four Senior Claims
A city budget is not a list of priorities. It is a waterfall. Certain claims are satisfied before anyone gets to decide anything, and the discretionary layer — the part that gets debated in council chambers and covered in the paper — is whatever is left after the senior claims are paid.
Dallas has at least four senior claims, and every one of them is growing faster than the revenue base that services them.
Claim one: the police and fire pension.
The Dallas Police and Fire Pension System carries a total accrued liability of about $5.3 billion against assets of roughly $1.8 billion, leaving an unfunded liability near $3.2 billion and a funded ratio in the low forties. The city contributes 34.5% of pay plus an additional $13 million annually; employees contribute 13.5%. Under the funding structure that prevailed before the most recent revisions, full funding was projected for the year 2105. Read that again. The amortization horizon ran to a date at which no one now living in Dallas will be paying taxes.
The origin story is well documented and is not in dispute: real estate investments made between 2005 and 2009 — ultra-luxury residential in Hawaii, Aspen, and California, and the Museum Tower downtown — went badly, and the Deferred Retirement Option Plan (DROP) credited returns the fund was not earning, which produced a run on the fund in 2016. House Bill 3158 in 2017 reduced the unfunded liability by about $1 billion and reformed governance. It did not solve the problem. It rescheduled it.
Claim two: Proposition U.
In November 2024, Dallas voters approved, by 50.5%, a charter amendment requiring the city to appropriate no less than 50% of any year-over-year revenue increase to the police and fire pension, with the remainder going to police starting pay, and requiring a sworn force of at least 4,000 officers — roughly 900 more than the city had — with that officer-to-population ratio maintained going forward.
Here is the number that should have been the entire editorial.
In FY 2026, the city’s contribution to the pension system was $225.67 million. The year-over-year growth in unrestricted revenue was $30.8 million. The pension contribution was 7.3 times the entire increase in unrestricted revenue. Even measured against total General Fund growth of $61.6 million, the pension contribution was 3.7 times larger.
Proposition U did not create a funding mechanism. It created a mandatory lien on growth in an environment where growth is capped by state law at 3.5% for property tax revenue without voter approval. The Texas Attorney General is now suing the city over the calculation, asserting that projected excess revenue was approximately $220 million while the CFO reported roughly $61 million — which tells you that the mandate’s own denominator is contested, in court, two years after adoption.
Claim three: deferred maintenance.
This is the one I want to spend the most time on, because it is where “more must be done” does its worst work. I started pointing this out in articles I wrote in 1987.
Dallas City Hall — the building I watched open in 1977 — carries approximately $345 million in deferred maintenance. A study this year put the urgent tier at $329 million for the failing roof, outdated electrical, and plumbing, with a full repair-and-update figure of at least $906 million and up to $1 billion over twenty years.
Now trace how it got there:
The 2012 bond program set aside $400 million for city facilities. City Hall received none of it. Flood control, economic development, and streets took priority.
The 2017 bond program allocated $7 million to City Hall.
The 2024 bond program initially requested $61 million for the building. $28 million was advanced and then reallocated to other priorities.
In May 2026, a council majority declined to support a $1.2 million budget amendment for ADA accessibility compliance in the building.
Four consecutive opportunities. Four deferrals. And the reported number moved from an implied low-single-digit-millions per year of maintenance to $906 million of accumulated need.
This is the mechanism the editorials describe as “the city needs billions for neglected maintenance that will take ten years to resolve.” What they never say — and this is the observation I’ve been making to clients since the Carter administration — is that the ten-year horizon resets every year. It has been ten years away since it was ten years away.
Claim four: debt service on growth-chasing.
The Kay Bailey Hutchison Convention Center rebuild was estimated at $1.9 billion in 2021. It is now $3.3 billion to $3.5 billion. The city took a $1 billion bridge loan from JP Morgan to keep the project moving while it waited to issue $1.5 billion in revenue bonds — an issuance that slipped to fall 2026. The original debt estimate at the time voters approved the 2% hotel occupancy tax increase in November 2022 was up to $2.1 billion. The opening date has moved from 2029 to 2030.
The convention center debt is hotel-tax-secured, not General Fund-secured, and defenders will say correctly that residents don’t pay it. That is true of the debt service and false of the institutional bandwidth, the staff attention, the bridge-loan risk, and the opportunity cost of the city’s borrowing capacity and political capital. It is also false of the assumption underneath it, which is that visitor volume grows forever.
Part Three: The Velocity Problem
The editorials say the problem is getting worse. They are right, and it is measurable. Deferral is not free storage — it accrues at a rate.
Item
Earlier estimate
Current estimate
Elapsed
Compound annual escalation
Police training academy
$140 million (2021)
$227 million (2026)
5 years
10.15%
Convention center rebuild
$1.9 billion (2021)
$3.5 billion (2026)
5 years
13.00%
City Hall (bond request → assessed urgent need)
$61 million (2024)
$329 million (2026)
2 years
scope discovery, not inflation
Two of these are honest escalation measurements. The third is different in kind and worse: the City Hall figure did not grow at an inflation rate, it grew because nobody had actually assessed the building until the number became unavoidable. That is not a cost increase. That is the discovery that the cost was always there and had never been recognized.
Note the police academy specifically. The 2024 bond designated $50 million for it against a project now estimated at $227 million, leaving a funding gap of $82 million — for a facility whose 2021 estimate was $140 million. Groundbreaking is expected in September 2026, opening in June 2028. The gap is a proposed line item in the very bond package now being debated.
So, 10.5% per year is the number that answers the velocity question. As long as the city’s main revenue growth is capped near 3.5% and its deferral inventory escalates above 10%, the gap between what is owed and what can be paid widens every single year by simple arithmetic, regardless of who is city manager and regardless of how many positions get cut.
You cannot manage your way out of a compounding differential with a hiring freeze.
Part Four: The Number Nobody Reads — Percent Depreciated
Everything in Part Three came from press coverage and council briefings. The most important asset-condition evidence in Dallas is not in either place. It is in Note 8 of the Annual Comprehensive Financial Report, it has been published every year since GASB 34 took effect 27 years ago, and I have never once seen a Dallas editorial reference it. Can anybody tell me if the external auditors or anyone in Accounting/Finance has ever briefed the Council, Commissioners Court or School Board Trustees?
The metric. Take accumulated depreciation and divide it by gross capital assets being depreciated. That is the percent depreciated — the share of the city’s recorded asset base already consumed on the books. In the credit work I’ve done for four decades the working thresholds are roughly: under 40% is a young asset base; 40% to 55% is normal for a mature city; above 60% means reinvestment has fallen behind consumption; above 70% means the capital program is not keeping up and the failures are coming whether or not they’re budgeted.
Here is what the FY 2025 ACFR, audited by Weaver and issued March 24, 2026, actually reports.
Gross depreciable
Accumulated depreciation
Percent depreciated
Governmental activities, FY 2025
$7,760.2 million
$3,415.0 million
44.01%
Governmental activities, FY 2024
$7,328.2 million
$3,222.2 million
43.97%
Business-type activities, FY 2025
$10,756.0 million
$4,481.3 million
41.66%
Business-type activities, FY 2024
$10,372.2 million
$4,252.9 million
41.00%
Combined, FY 2025
$18,516.1 million
$7,896.4 million
42.65%
FY 2025 depreciation and amortization expense was $235.6 million for governmental activities — $184.0 million of actual depreciation plus $51.6 million of amortization — and $241.1 million for business-type activities, of which $160.9 million was Dallas Water Utilities and $43.4 million was Airport Revenues. Total: $476.8 million of capital consumed in one year.
Now the uncomfortable part, and I am going to report it against my own expectation.
I went into this analysis expecting the governmental ratio to be alarming and to find reinvestment running below depreciation. It isn’t, and it doesn’t. Both ratios sit in the normal band for a mature city. Governmental moved four one-hundredths of a point in a year. And on the aggregate reinvestment test — additions to depreciable capital assets against depreciation and amortization expense — Dallas passes comfortably:
Governmental: $476.1 million of additions against $235.6 million of expense, a ratio of 2.02
Business-type: $398.0 million against $241.1 million, a ratio of 1.65
By the headline numbers, Dallas has a mid-life asset base and is reinvesting at roughly twice the rate it is consuming. Net capital assets grew from $13.59 billion to $14.46 billion during FY 2025.
That is the finding. And it is exactly the problem.
Because the same city that posts those numbers and ratios cannot afford its own city hall.
Look at what the governmental buildings line actually says:
Gross historical cost of every building the governmental side of Dallas owns: $1,692.9 million
Accumulated depreciation: $791.9 million
Net book value of the entire governmental building portfolio: $901.0 million
The low-end engineering estimate to restore one building — City Hall — is $906 million.
Restoring a single structure costs 100.6% of the recorded net book value of every library, fire station, police station, recreation center, service center, and office the general side of this city owns. Even the urgent-only tier of $329 million is 36.5% of the whole portfolio’s book value.
Those two numbers cannot both be describing the same reality, and the reason they can coexist on the same set of audited statements is the thing I most want readers to understand: historical cost accounting is not a condition assessment. City Hall went into service in 1977 and sits on the books at 1977 construction dollars. The engineering estimate is in 2026 replacement dollars. The ratio between them is not a measure of deterioration. It is a measure of forty-nine years of construction inflation, and no line on any financial statement discloses it.
Where the audited numbers do sound the alarm.
The aggregate hides it; the components do not. Disaggregate governmental activities by class:
Class
Gross
Accumulated
Percent depreciated
Equipment
$1,186.7 million
$733.9 million
61.84%
Buildings
$1,692.9 million
$791.9 million
46.78%
Infrastructure
$3,538.9 million
$1,411.8 million
39.89%
Improvements other than buildings
$1,027.1 million
$368.2 million
35.85%
And on the business-type side, equipment stands at 71.74% depreciated — $747.2 million consumed against $1,041.5 million gross — while utility property, the rate-supported core, sits at a healthy 33.43%.
Then run the reinvestment test on buildings alone rather than on the aggregate:
Governmental buildings received $17.5 million in additions during FY 2025 against $34.0 million in depreciation. A ratio of 0.52. The city consumed its building stock at roughly twice the rate it replenished it, in a single year, in book dollars — and book dollars understate replacement cost by whatever inflation has run since the buildings went up. The real shortfall is a multiple of the $16.5 million nominal gap.
That is the number the editorial should have printed. Not “more must be done.” Zero point five two.
Three reasons the aggregate looks better than the city is.
Construction in progress inflates the picture. Land, artwork, water rights, and CIP are excluded from the depreciation calculation but counted in total capital assets. Business-type CIP stands at $2,194.7 million — 24.9% of net business-type capital assets — and $645.3 million of the $692.7 million in non-depreciable additions during FY 2025 went into it. A convention center under demolition does not make a 1968 water main any younger. Governmental CIP is $614.3 million.
Software is masquerading as capital reinvestment. Governmental amortization was $51.6 million in FY 2025, 21.9% of all governmental depreciation and amortization. Subscription-based IT arrangements grew from $57.1 million to $153.8 million gross in one year — a 169.5% increase. General government amortization alone, at $49.9 million, exceeded depreciation on every building the city owns ($34.0 million). Software subscriptions are being capitalized and amortized on a five-year clock while the roof on Marilla Street goes another year. Both are “additions to capital assets.” Only one keeps the rain out.
Fully depreciated assets in service go silent. An asset past its estimated useful life stops generating depreciation expense. It sits at 100% and contributes nothing further to the trend. Note the implied average useful life embedded in the governmental infrastructure line: $3,538.9 million gross against $64.0 million of annual depreciation implies 55.3 years — longer than the top of the 10-to-50-year range the city’s own Note 1K discloses for governmental infrastructure. That gap is the signature of a stock carrying assets past book life.
The deeper objection: the line isn’t straight.
Everything above accepts the city’s numbers on their own terms. Now I want to attack the method itself, because this is the part that no editorial I can find has ever raised and it is the part that matters most.
Note 1K of the ACFR states the convention plainly: depreciation is computed using the straight-line method over estimated useful lives. Equal cost, allocated equally to every year. Governmental buildings get 10 to 50 years; infrastructure 10 to 50; equipment 3 to 20. Business-type infrastructure gets 50 to 100 years, utility property 33 to 75, water rights 100.
Straight-line is a cost-allocation convention. GASB does not claim it measures condition, and it doesn’t. Physical deterioration is not linear. It is convex — slow, then fast, then catastrophic.
Take a thirty-year building. Here is what the two curves say.
Year
Straight-line, book
Condition-based, illustrative
5
16.7%
2.8%
10
33.3%
11.1%
15
50.0%
25.0%
20
66.7%
44.4%
25
83.3%
69.4%
30
100.0%
100.0%
Read it by decade instead. Straight-line consumes 33.3% in each of the three decades — by construction. The condition curve consumes 11.1% in the first decade, 33.3% in the second, and 55.6% in the third. The last ten years of a thirty-year building deteriorate at five times the rate of the first ten.
Anyone who has ever owned a roof knows this. A membrane at year eight needs inspection. The same membrane at year twenty-two needs replacement, and if it isn’t replaced it stops being a roof problem — water reaches the decking, then the electrical, then the finishes, and a $2 million roof becomes a $20 million restoration. That is not deferred maintenance compounding at an interest rate. That is a physical cascade, and it is why the police academy went from $140 million to $227 million and City Hall’s assessed urgent need went from a $61 million bond request to $329 million in two years. The escalation rates I computed in Part Three are this curve, expressed in dollars.
Three consequences, and they are severe.
Percent depreciated is a lagging indicator that is most wrong precisely when accuracy matters. In the front half of an asset’s life, straight-line overstates consumption — the book says 33% at year ten when physical loss is nearer 11%. That’s conservative and harmless. In the back half, the relationship reverses in the dimension that counts: book says 83% consumed at year twenty-five, but the cost to restore, measured in current dollars against a historical-cost denominator, is a multiple of the remaining book value. The metric is comforting when you don’t need comfort and misleading when you do.
Straight-line implies a level funding need. The real need is a wave. This is the practical failure. A city reading its own depreciation schedule sees a smooth $235.6 million annual signal for governmental activities and reasonably concludes that steady reinvestment at that rate keeps it whole. The actual requirement is lumpy and back-loaded. A city that funds to the straight-line signal is structurally under-reserved at exactly the moment the wave arrives, and it will experience that shortfall as a surprise — which is precisely how Dallas has experienced every one of the last five budget cycles.
And Dallas built its civic stock in a compressed window, so the waves are correlated. City Hall opened in 1977. Much of the library, recreation center, fire station, and service center inventory dates from the same postwar-through-1980s expansion, as do large portions of the 11,656 paved lane miles and 9,121 miles of water and wastewater mains. Assets built together reach the steep part of the curve together. Straight-line depreciation smooths that correlation into a flat line and hides the single most important fact about the portfolio: the bills do not arrive evenly, they arrive in cohorts.
That is how you get 44.01% depreciated and a $906 million bill for one building in the same audited document. The aggregate ratio is a weighted average of assets sitting at very different points on very different curves. The $476.1 million of FY 2025 additions pulled that average down and made the portfolio look younger — while the buildings that are on the steep part of the curve received $17.5 million.
What the engineers publish instead.
The facilities discipline has a counterpart metric and it has existed for decades: the Facility Condition Index, deferred maintenance divided by current replacement value. Under 5% is good, 5 to 10% fair, 10 to 30% poor, and above 30% is generally treated as past the point where restoration beats replacement. It is denominated in current dollars on both sides, which is exactly what percent depreciated is not.
Dallas does not publish an FCI. It does not publish a facility condition assessment inventory. It commissioned one building’s assessment, got a number with a comma and three groups of digits, and the council responded by declining a $1.2 million ADA amendment.
And the accounting fact underneath all of it.
Depreciation is recognized only in the government-wide statements, on the full accrual basis. It never appears in the governmental fund statements, and it is never appropriated. The FY 2027 budget the council adopts in September, and that the newspaper covers, does not contain a line for the $235.6 million of governmental capital the city consumed last year.
That is how a city posts a balanced budget every year for fifty consecutive years — as Texas law requires — while its building stock is replaced at half the rate it wears out. The balanced budget is a cash statement. The consumption is an accrual fact. They are reported in different documents, on different bases, and nobody is required to reconcile them in public.
The percent depreciated ratio is the only routinely published number that connects them. It is on three pages of a document the city posts every March. It has a clean opinion on it. Nobody reads it — and when someone finally does, the aggregate is reassuring enough to end the inquiry before it reaches the buildings line.
Part Five: Where the Ponzi Analogy Holds — and Where It Doesn’t
I use the comparison deliberately, and I want to be disciplined about it, because a sloppy version invites easy dismissal.
Features Dallas genuinely shares with a Ponzi structure:
Obligations to earlier participants are satisfied from later inflows rather than from returns on the underlying asset. The DROP program is the cleanest case: it credited returns to participants that the fund was not earning, which is definitionally paying earlier participants from the contributions of later ones. When participants recognized this in 2016, they did what participants in such arrangements always do — they ran.
The structure requires continuous growth in the inflow base to remain solvent. Dallas is landlocked. It cannot annex its way to a larger base. It is therefore dependent on appraisal growth and new development for the “new money” the structure requires — which is precisely why the editorial ends on a plea for growth and against NIMBYism. That plea is correct and also revealing: it is an acknowledgment that the arrangement cannot service itself from its existing base.
Solvency is maintained by rolling obligations forward rather than amortizing them. Bridge loans in place of bond issuance. Deferral in place of maintenance. $235.6 million of governmental capital consumed in FY 2025 and never appropriated. And now the proposal to issue $500 million in pension obligation bonds — which the Government Finance Officers Association classifies as high risk precisely because it wagers that investment returns will exceed the interest owed, and which can leave a city carrying both the taxable debt service and the unfunded liability.
The redemption date lies outside every decision-maker’s horizon. Full funding projected for 2105. No council member, no city manager, no editorial writer, and no taxpayer voting today will be present for the settlement.
The disclosure is technically complete and functionally useless. This is the feature I find most damning, and it is the one that distinguishes municipal finance from actual fraud. Nothing here is hidden. It is all in the ACFR, in Pension Review Board filings, in bond official statements, in council briefing decks. But it is never consolidated. There is no single document that says: here is the total fixed claim on the general fund, here is the growth rate of that claim, here is the growth rate of the revenue that services it, and here is the year they cross. Every individual number is public. The aggregate has no owner.
Features it does not share, and I won’t pretend otherwise:
There is no fraud and no intent to deceive. The disclosure is real, the audits are real, the actuaries are real. Dallas has received a clean opinion and a GFOA certificate every year for decades. The people running this system are, in my direct experience, competent and mostly candid.
There is a genuine underlying asset: the taxing power of a large and productive city, which a Ponzi scheme categorically lacks. Dallas has a real claim on real future income.
The participants receive real services, not paper returns. Police respond. Water runs. That is not nothing.
And critically: the failure mode is different. A Ponzi collapses when redemptions exceed inflows and the whole thing stops at once. Dallas will not stop. Texas cities do not default on general obligation debt and do not, as a practical matter, enter bankruptcy.
So what does failure actually look like here?
Not a crash. A hollowing.
The General Fund does not disappear. It converts. It becomes a pass-through for pension contributions, debt service, and a police department, with a thin residue of everything else. Libraries close a branch at a time. Recreation centers shut on Fridays. Pools go from seven days to five to three. Street resurfacing slips from a maintenance program to a bond program to a bond program that doesn’t fund it. Percent depreciated climbs one or two points a year, published every March, unread. The budget stays balanced every single year, as state law requires, and the city that the budget purports to fund quietly ceases to exist as a service organization.
That is already visible in this budget. It is not a forecast.
Part Six: The Business Community Question
I want to be careful and fair here, because this is where I most disagree with how these editorials assign responsibility.
The consistent editorial posture is that councils lack the courage to make hard choices and residents lack the civic maturity to accept development. Both contain truth. Neither is the whole ledger.
Consider where organized civic energy in Dallas actually went over the past decade:
It went into passing a 2% hotel occupancy tax increase for a convention center whose cost estimate has since risen 84.2%.
It went into the 2024 bond campaign — $1.25 billion, ten propositions, 850 projects, endorsed by the sitting mayor and four living former mayors — which allocated $50 million to a police academy needing $227 million and reallocated City Hall’s $28 million elsewhere.
And it went, through Dallas HERO — funded in part by a hotelier and Republican donor — into Proposition U, which constitutionalized a spending mandate that in its first full year required a pension contribution 7.3 times the growth in unrestricted revenue.
Each of those was defended, at the time, as fiscal responsibility. Each of them tightened the structural vise. The convention center added leverage. The bond added debt service while underfunding the thing it was ostensibly for. Proposition U removed the council’s discretion over the marginal dollar precisely when marginal dollars became scarce.
I do not think the people behind these efforts were acting in bad faith. I think they were doing what civic leadership in Texas cities has done for fifty years: funding the visible and assuming the invisible would keep. The pension is invisible. The roof is invisible. A 0.52 reinvestment ratio on buildings is invisible. The academy was invisible until it was 62.1% more expensive.
And now the irony arrives on schedule. The city spent a decade and $3.5 billion building convention and entertainment capacity downtown — and the Mavericks have signed option agreements on 104 acres at the old Valley View Mall site, more than $50 million for land, leaving the American Airlines Center when the lease expires in 2031. The Stars have signed a nonbinding letter of intent with Plano for an arena at the Shops at Willow Bend, reportedly around $1 billion. Both anchors of the downtown entertainment district are leaving downtown.
The Mavericks’ CEO has said publicly that the city manager approached the team over a year ago about the City Hall site — because, in his account, she told them she could not afford to operate the building going forward for the taxpayers.
That is where we are. The city cannot afford to maintain its own seat of government, and its proposed solution was to see whether a basketball team wanted the land.
Part Seven: What an Editorial Could Have Asked
I do not object to newspapers taking positions. I object to positions that cannot be checked. Here is what specificity would look like — questions with answers, on which someone could later be shown to have been right or wrong.
On the aggregate. What is the total annual fixed claim on the General Fund — pension ADC, debt service, Proposition U mandate, and contractual escalators — expressed as a percentage of General Fund revenue, for each of the past ten years and projected ten forward? What year does that percentage reach 100%? The city has every input. It has never published the ratio.
On percent depreciated. I have run FY 2025 above; the city should publish the ten-year trend by asset class, not in aggregate, for both governmental and business-type activities — and set additions beside depreciation for each class. The aggregate is uninformative by construction. The buildings line at 0.52 is the whole story, and it took twenty minutes with Note 8 to find. Every number in that chart is already audited.
On the pension bonds. Proposition C would issue $500 million in pension obligation bonds with estimated repayment exceeding $1 billion. What is the assumed spread between the taxable borrowing rate and the fund’s 6.5% assumed return? At what realized return does the transaction lose money? What happens to the city’s position if the fund earns its actual trailing ten-year return rather than its assumed one?
On the bond package generally. Propositions A and B would issue $460 million in general obligation debt against estimated repayment exceeding $653 million. One council member notes the 2024 program is not a third complete. What is the completion percentage, the cost variance to date on completed projects, and the projected variance on the remainder? Asking voters for new money while the prior program runs over is a specific, answerable claim — not a matter of tone.
On condition, not book value. Commission and publish a Facility Condition Index for the governmental building portfolio — deferred maintenance over current replacement value, both sides in current dollars. Percent depreciated will never answer the question because straight-line depreciation is a cost convention, not a condition measurement. Ask the city what share of its facilities exceeds an FCI of 30%, the threshold past which restoration stops beating replacement.
On deferred maintenance. Publish a register. Every asset, current condition assessment, cost to restore, cost to restore in five years at observed escalation, and the year of assessment. Dallas has never had one. Until it does, “billions in neglected maintenance” is a rhetorical figure, not a management document, and it will still be ten years away in 2036.
On the fire department. The editorial gestures at this and then leaves. The specific question: what is fire department overtime as a percentage of fire salaries, in each of the past ten years, against authorized strength and actual staffed strength by shift? If overtime has not fallen as headcount rose, that is a schedule and minimum-staffing question, and it is answerable in a week from the payroll system.
On the civilian pension. The editorial calls for reform of defined benefit plans. Which plan, which tier, which benefit multiplier, which effective date, and what is the projected liability reduction? “Someone has to have the courage” is not a proposal. A tier change with an actuarial note is a proposal.
Part Eight: The Thing Nobody Says
Here is my actual conclusion, and it is not the one the editorial reaches.
Tolbert’s FY 2027 budget is a competent piece of work. Cutting 296 positions, roughly 108 of them occupied, in a political environment that punishes exactly that, is a real act. She deserves the credit she’s getting.
It also does not matter very much.
If the fixed claims on the general fund compound at 10% and the revenue that services them is capped near 3.5%, the annual exercise of finding $50.9 million is not a solution. It is a payment. Every year the payment gets larger and the thing being paid for gets smaller, and the budget balances every single time, and the newspaper writes that the city manager has produced a serious proposal and more must be done.
The recognition event — the moment the structure is priced honestly — does not arrive as a bankruptcy. It arrives as a bond rating action, or a pension board demanding contributions the council cannot appropriate, or a court reading Proposition U the way the Attorney General reads it, or a fifty-year-old water main under Ross Avenue deciding the question on its own schedule. Or simply the day residents notice that they are paying near-peak Texas municipal tax rates for a library system that is open four days a week.
We are closer to that day than the editorial suggests, and the reason is not a lack of courage in the council chamber. It is that the arithmetic was published, was audited, was true, and was ignored by everyone including the people who write about it — for fifty years, in language calibrated to sound authoritative and commit to nothing.
I was there in 1972. I watched the building go up in 1977. It is still on the books at what it cost to build then — and the net book value of every building this city owns, all of them together, is $901.0 million against a $906 million estimate to fix that one.
The numbers were legible all along. They are legible now. They are on page 72 of the ACFR.
Sources: City of Dallas FY 2026-27 recommended budget materials and council briefings; City of Dallas Annual Comprehensive Financial Report, Note 8 (Capital Assets) and Management’s Discussion and Analysis; City of Dallas Government Affairs pension funding materials; Texas Pension Review Board plan data; KERA News reporting on the proposed 2026 bond election and City Hall deferred maintenance; Dallas Observer, D Magazine, WFAA, NBC 5, CBS Texas, and Bond Buyer reporting; Dallas city charter Chapter XI as amended November 5, 2024.
Jeff Lipton argues that ratios are the starting point of municipal credit analysis, not the end of it. Texas has spent the last decade proving him right — repeatedly, expensively, and in public.
A field guide for Texas issuers, municipal advisors, bond counsel and underwriters · August 2026
In an August 4 Bond Buyer Market Intelligence piece, Jeff Lipton makes a deceptively simple argument: an overreliance on financial ratios “can create a false sense of certainty, obscuring the qualitative factors, structural risks, governance and political issues, and emerging trends that ultimately shape long-term credit performance.” His accompanying illustration is an iceberg. Above the waterline sit the metrics everyone quotes — debt service coverage, debt per capita, days cash on hand, fund balance as a percentage of expenditures, unfunded pension liability. Below it sit governance, legal framework, cyber-threat preparedness, regulatory shifts and political will.
Those five submerged labels come from the article’s illustration; Lipton’s text names others too — climate and physical risk, demographic shifts, pension and OPEB management. This piece organizes around the five, and folds physical risk and demographics into the Texas cases where they actually bit. It is a good metaphor, but metaphors do not move ratings. Cases do. And if you want cases, Texas is the richest laboratory in the country — not because Texas credits are weak (in aggregate they are not), but because Texas runs an unusual number of natural experiments. It has 1,200-odd cities, more than 1,000 school districts, thousands of special districts, a biennial legislature that legislates aggressively into local finance, an Attorney General with a statutory chokepoint on every bond closing, a deregulated power market, a contested water supply, and an electorate that votes on tax rates and bond authorizations several times a year.
Every one of the five factors below Lipton’s waterline has, in Texas, produced a documented, dated, dollar-denominated credit outcome in the last ten years. What follows is an inventory — organized by factor — with what each episode should change about how Texas issuers and their advisors prepare disclosure, rating presentations and investor materials.
Above the waterline — what the ratios measure
Debt service coverage
Debt per capita
Days cash on hand
Fund balance as % of expenditures
Unfunded pension liability
Below the waterline — what moved Texas credits
Governance — Dallas Police & Fire; the Houston corridor
Legal framework — charter revenue caps; drainage litigation; bond covenants
Cyber-threat preparedness — 23 entities in one morning; Royal; Play
Political will — ballot language; VATRE failures; Proposition U
Factor One Governance: Dallas Police & Fire, and the three notches that never came back
The Dallas Police and Fire Pension System is the cleanest available demonstration that a plan’s governance architecture is a leading indicator and its funded ratio is a lagging one.
By the time the funded ratio told the story, the story was over. DPFP’s funded ratio fell from 72% in January 2011 to 45% in January 2016. But the qualitative tells were visible years earlier, and they were not subtle:
An investment mandate no ratio captures. Beginning in 2005–06 the board deployed over $1 billion into direct, illiquid, exotic real estate — ultra-luxury homes in Hawaii, Aspen and California, raw land in Idaho and Colorado, and roughly $200 million into Museum Tower in downtown Dallas.
Counterparty and control failure. The FBI executed a search warrant at the offices of external manager CDK Realty Advisors on April 4, 2016. CDK managed up to $750 million at peak. DPFP later alleged write-downs and losses exceeding $320 million. One Arizona land parcel bought for $27 million in 2006 sold for $7.5 million in 2014. The fund eventually marked its entire real estate book down 32%.
Assumption drift. DPFP carried an 8.50% assumed return through 2014 against actual market returns of −5.35% (2014) and −8.47% (2015).
A structural liquidity bomb. DROP balances reached 56% of total plan assets, all available for immediate withdrawal, and had been credited with above-market guaranteed interest.
That last item is the one that matters most, and it is the one least visible in conventional analysis. “Days cash on hand” is a utility metric; nobody computes it for a pension plan. Yet DPFP had, sitting on its balance sheet, a demand liability equal to more than half of assets — held by a participant population that talks to each other, in a city where the funding debate was public.
The run arrived on schedule. After DPFP publicly stated in August 2016 that the shortfall would require benefit cuts, roughly $500 million was withdrawn between August and early December, leaving about $729 million in liquid assets against a stated minimum near $600 million. Mayor Mike Rawlings sued the fund in his personal capacity as a taxpayer. On December 8, 2016, the board voted to suspend all DROP withdrawals.
Date
Agency
Action
Stated rationale
Nov. 2015
Moody’s
Aa1 → Aa2
P&F unfunded liability plus roughly $1B of deferred infrastructure
Oct. 24, 2016
Moody’s
Aa2 → Aa3; Dallas Water Utilities outlook to negative
DWU’s “direct and possibly indirect exposure to unfunded pension liabilities” — despite the charter’s “separate and sacred fund” language
Dec. 9, 2016
Moody’s
Aa3 → A1
The reform plan “has significant implementation risk because it relies heavily on actions of the state legislature and includes only modest increases in cash contributions”
Jan. 11, 2017
S&P
AA → AA−, negative
“The continued deterioration in the funded status of the Dallas Police and Fire Pension negatively affects the City’s creditworthiness”
Note the October 2016 action on Dallas Water Utilities. The DWU indenture is a closed-lien revenue pledge; the charter calls it a separate and sacred fund; the coverage ratios were fine. Moody’s revised the outlook anyway, on the theory that a distressed general government eventually reaches for whatever is nearby. No covenant test captured that. It was a judgment about sponsor behavior.
The durable lesson
Moody’s has never restored Dallas’s pre-crisis rating. As of the last verified action the city’s GO stood at A1 against Aa1 in 2015 — a three-notch impairment that has now outlived the crisis by nearly a decade. Governance failures do not mean-revert on the same schedule as ratios do.
What actually fixed it was a governance change, not a contribution number
HB 3158, signed May 31, 2017, is usually described in terms of its benefit and contribution provisions — DROP capped at ten years, no interest credited in Active DROP, employee contributions at 13.50%, COLAs suspended until 70% market-value funding. Those matter. But the decisive provision was structural: the board was restructured to give the Mayor six of eleven appointments, with two active police and fire trustees and three citizen trustees selected through a nominations committee. Benefit or contribution changes now require a two-thirds vote of all trustees. Sponsor-government control replaced member control.
The unfinished business is instructive too. DPFP’s January 1, 2023 valuation showed 39.1% funding and a projected full-funding year of 2105. That triggered a Funding Soundness Restoration Plan requirement under Texas Government Code §802.2015, due September 1, 2025. The negotiated Funding Agreement was not approved until December 10–11, 2025 — after the statutory deadline — and the Pension Review Board’s February 25, 2026 board packet still annotated the plan “agreement in place, no submission.” As of that packet, Dallas P&F was the only Texas plan immediately subject to a mandatory FSRP.
And the plan’s own actuary put the residual risk in writing. Segal, in the January 1, 2026 valuation:
The Funding Agreement with the City set maximum contribution amounts, which may be less than the actuarially determined contributions, through the Fiscal Year ending September 30, 2054… This methodology contains minimal allowance for future adverse experience through September 30, 2029. If future experience does not match the assumptions used to set the contributions, the unfunded actuarial accrued liability may not be paid off within 30 years.Segal, DPFP Combined Plan Actuarial Valuation as of January 1, 2026
The arithmetic behind that warning: actual city contributions for the fiscal year ended September 30, 2025 were $204.9 million, or 79.3% of the ADC. The 2025 market return was +15.49%. And the UAAL still grew year over year, to $3.73 billion on an actuarial basis. A 15% return year in which the unfunded liability increases is a governance fact, not a market fact.
The Houston counterexample — and its limits
Houston’s SB 2190, signed the same day as HB 3158, is the design most worth studying because it embedded a self-executing governance mechanism rather than relying on future political appetite. Each of the three systems produces an annual Risk Sharing Valuation Study, prepared separately by the system actuary and the city actuary, with a reconciliation protocol when they diverge by more than two percentage points. Contribution rates float within a ±5 percentage point corridor around a fixed midpoint schedule.
The critical clause is what happens above the corridor. If the city rate exceeds the “third quarter line rate,” the city and the board must agree to increase member contributions and make plan changes — and if no agreement is reached by April 30, the pension board must act unilaterally to increase member contributions, cut COLAs, and/or raise the normal retirement age. Boards are prohibited from unilaterally amending or terminating that machinery, and final RSVSs are jointly filed with the PRB.
The outcome, on funded ratios (actuarial basis, FY2016 → FY2024): Municipal 56% → 73%; Police 78% → 92%; Fire 81% → 93%. On market value at FY2024, the fire fund is at 100%. Contribution growth decelerated from double digits pre-reform to 1–4%.
A finding worth internalizing before your next rating presentation
The 2017 Houston reform produced no upgrades — only outlook restorations. Moody’s moved the Aa3 outlook to stable in November 2017; S&P moved the AA outlook to stable in January 2018. Houston has been Moody’s Aa3 / S&P AA / Fitch AA continuously from 2016 to today. Structural reform of this magnitude bought stability, not elevation. Set expectations accordingly.
Factor Two Legal framework: the covenants, charters and court dockets that ratios never see
Lipton observes that “compliance with all legal covenants does not necessarily mean the credit is in good financial health.” The Texas corollary is broader: some of the most consequential constraints on Texas issuers are not in the indenture at all. They are in city charters, in the Election Code, and in appellate opinions.
Houston’s charter cap: $2.9 billion that appears in no ratio
Houston’s revenue cap is frequently misdated. It is not a 2015 measure; it is Proposition 1 (2004), limiting revenue to the lower of prior cap plus population and inflation, or prior revenue plus 4.5%, softened by Proposition H (2006), which permitted an additional $90 million for public safety. FY2015 is simply the first year the cap bound. Cumulative foregone revenue since then: $2.9 billion. On October 15, 2025 the council voted 11–3 to hold the rate at $0.519190; Controller Chris Hollins called it a “self-inflicted shortfall of $53 million.”
S&P named it directly when it moved Houston’s AA outlook to negative in July 2024, citing “limited capacity to raise revenue due to a city charter that restricts property tax increases” — and putting the probability of downgrade at one in three or better. Fitch followed in September 2024, citing the diminished margin of general fund reserves above 15% of spending. S&P restored its stable outlook on June 25, 2026, crediting “substantial progress in materially reducing” the FY2027 gap. Fitch’s negative outlook, however, has now run roughly two years — an unusually long tenure.
A single appellate opinion, $100 million a year
The ReBuild Houston line of cases is the best available illustration of legal-framework risk crystallizing into a hard budget number. In April 2024 the Fourteenth Court of Appeals held the city had unlawfully misallocated funds, requiring no less than 11.8 cents per $100 of valuation less debt service to the dedicated drainage and street renewal fund — an allocation not reducible by the revenue cap. On January 31, 2025, the Texas Supreme Court declined to hear Houston’s appeal. The city had said it would be forced to allocate at least $100 million annually.
An April 2025 phase-in settlement stepped the allocation from 57% to 67% (FY2026), 77% (FY2027) and 100% (FY2028), saving roughly $180 million in the following year and unblocking the FY2026 budget. No coverage ratio computed on January 30, 2025 anticipated any of this.
Preemption, charter amendments and a $650 million judgment
Houston’s firefighter pay dispute is a case study in legal hierarchy determining a dollar figure. Proposition B, a citizen-initiated charter amendment approved by roughly 59% of voters in November 2018, required firefighter compensation “at least equal and comparable by rank and seniority” with police. A district court voided it in 2019; the Fourteenth Court of Appeals upheld it in 2021.
On March 31, 2023, the Texas Supreme Court held that Chapter 174 of the Local Government Code preempts Proposition B — because Chapter 174 measures firefighter pay against comparable private-sector employment while Proposition B measures it against police pay, and “the two rules of decision cannot be reconciled.” The court simultaneously affirmed and remanded the parallel Chapter 174 judicial-enforcement suit. The charter amendment lost; the collective bargaining statute won; the underlying claim survived.
Item
Figure
Back pay (July 1, 2017 – March 1, 2024)
$650,000,000 — $633.24M to the 2024 Refunded Judgment Fund, $16.76M to the Local 341 Medical Trust
All-in cost including 30 years of debt service
~$1.5 billion
Recurring annual cost
~$72 million
Collective bargaining agreement
5 years, FY2025–FY2029; base increases totaling 24%, up to 34% with escalators contingent on new public-safety revenue
Financing
$612.125M GO Refunding Series 2024A, closed July 18, 2024 (issued alongside $122.125M Series 2024B)
Voter approval required?
No. Texas law does not require a vote for judgment bonds
That last row deserves emphasis. Council Member Mary Nan Huffman pushed to place the $650 million on the November 2024 ballot. Mayor John Whitmire defeated the effort, warning it “would likely kill the proposed settlement, rekindle litigation, and result in a much more expensive resolution.” The City Attorney added that failure to pay a court-ordered judgment within a short window would constitute an event of default under covenants on some outstanding city bonds. The legal framework did not merely size the obligation — it dictated the financing structure and removed the political-will variable entirely.
The live covenant question: Houston’s FY2027 utility transfer
Houston closed its FY2027 gap — $209.3 million initial, $25.3 million final — substantially by imposing a new 5%-of-gross-revenue right-of-way fee on the Combined Utility System, worth roughly $104 million. The Finance Director stated the transfer “is subordinate to all debt service paid and, as such, is allowable under the master ordinance.” She also conceded that amendments to the 20-plus-year-old CUS master bond ordinance — to explicitly permit the fee in the flow of funds and to cap the transfer — would form part of a fall 2026 refunding. The Controller has characterized the second phase as requiring bondholder approval.
For municipal advisors and bond counsel
This is exactly the fact pattern Lipton describes: full covenant compliance today, an unresolved documentary question tomorrow, and nothing in the coverage ratio to signal it. If your issuer is solving a general fund problem with an enterprise fund transfer, the master ordinance analysis belongs in the rating presentation — not in the footnotes of a refunding six months later.
Factor Three Political will: Texas votes, and Texas voters have opinions
Lipton’s sharpest line is about the limits of automation: “I would not expect AI to assess the likelihood of political leaders approving future utility rate increases or an electorate voting to approve a school budget.” Texas holds those elections constantly, which means we have a large sample.
Ballot language is a credit variable
HB 3 (2019) added Texas Education Code §45.003(b-1), which requires every school bond proposition to include the statement “THIS IS A PROPERTY TAX INCREASE” — with no exception, even where the tax rate does not change. The Attorney General confirmed on July 30, 2025 that the language is “strictly construed; therefore, school districts may not modify, supplement, or qualify this mandatory ballot language.” Separately, SB 30 (2019) forced stadium seating over 1,000, natatoriums, other recreational facilities, performing arts facilities, teacher housing and technology equipment into standalone propositions.
The inflection arrived on November 2, 2021: 65 of 174 school propositions defeated (38%), and $3.8 billion of $12.1 billion rejected (32%). Fort Worth ISD’s $1.2 billion Proposition A passed by 57 votes, while three FWISD arts and athletics propositions worth roughly $300 million failed — against a 2017 FWISD bond that had passed with over 70%. Temple ISD’s $178 million failed by two votes.
BRB FY
On ballot ($M)
Approved ($M)
Approved %
2016
11,105.2
10,560.9
95.1%
2017
8,605.3
7,042.1
81.8%
2018
13,508.2
11,897.1
88.1%
2021
16,111.0
14,043.3
87.2%
2022
25,345.7
15,692.0
61.9%
2023
40,164.5
33,603.3
83.7%
2024
28,287.5
22,659.1
80.1%
2025
23,558.6
14,853.7
63.0%
A methodological caveat worth stating in any disclosure that cites this series: SB 30 changed the denominator. Forcing severable items into standalone propositions mechanically raises proposition counts and concentrates failures in the newly-severed items. Proposition-count pass rates therefore overstate the deterioration. Dollar-weighted rates are the cleaner series — and they still show two of the last four years below 64%.
The operating-side picture is harder. On November 5, 2024 Texas voters rejected 30 of 52 VATRE propositions, and Houston ISD’s $4.4 billion bond failed. Moody’s, writing on that cycle in February 2025, put the consequence plainly: “Without a main revenue-generating tool, districts will struggle to address key priorities… without relying on financial reserves or cutting expenses.” In November 2025, more than half of VATREs failed again; Magnolia ISD lost all three propositions ($516.9 million), Friendswood ISD all four ($165 million).
And yet — in May 2026, Dallas ISD’s $6.2 billion package, the largest school bond in Texas history, passed all four propositions with over 70% support (Proposition A at 74.6%), amid a statewide cycle that authorized $76.4 billion of new principal. Political will is not a constant. It is a variable that moves with local campaign quality, project mix, and whether the district severed the stadium.
When voters create fixed costs
Political will cuts both ways, and Dallas provides the clearest example. On November 5, 2024, Dallas voters narrowly approved Proposition U — 50.47% — requiring that at least 50% of annual revenue growth go to public safety pensions and police pay, and mandating a force of 4,000 sworn officers against roughly 3,100 at the time. Within about ten days, Moody’s revised the city’s outlook to negative, affirming A1, and noted that the increased contributions “are not expected to meet the tread water level and the plans’ cash flow remains very weak.” Kroll had already revised its AA+ outlook to stable from positive two weeks earlier.
An electorate can impose a permanent claim on revenue growth in a single afternoon. No ratio computed on November 4 contained it.
Statewide propositions reallocate the base
The November 4, 2025 constitutional amendment election passed all 17 measures on turnout just under 16% of registered voters. Three matter for local credit:
Proposition 13 (79.4%) — ISD homestead exemption to $140,000 from $100,000, with state hold-harmless for districts.
Proposition 11 (77.7%) — additional 65-plus and disabled exemption to $60,000 from $10,000.
Proposition 9 (65.0%) — business personal property exemption to $125,000. This one carries an unreimbursed hit to city, county and special district tax bases. The House’s own amendment guide records the objection that “Counties, municipalities, and special districts could have to raise tax rates to cover the loss.”
Also on that ballot: Proposition 4, which dedicates to the Texas Water Fund the first $1 billion of state sales and use tax revenue collected in a fiscal year above a $46.5 billion floor, from FY2027 through FY2047 — up to $20 billion over 20 years, contingent each year on collections clearing that floor. In July 2026 the Texas Water Development Board approved a 2027 State Water Plan estimating $174 billion of investment over the next 50 years. Twenty billion dollars of dedicated funding against that number is a start, not a solution — and the gap is a political-will question that will be re-litigated for two decades.
Factor Four Regulatory shifts: market access is not a ratio
Lipton notes that “at times, demand and market access matter more” than the numbers. Texas has run the most direct experiment in the country on that proposition.
SB 13, SB 19, and the standing letter
SB 13 (fossil fuel “boycott”) and SB 19 (firearm entity discrimination) took effect September 1, 2021. The enforcement mechanism is not the statutes themselves — it is Government Code Chapter 1202, under which the Attorney General’s Public Finance Division must approve every public security issued by any Texas political subdivision before closing. Compliance runs through “standing letters” filed by each bank. The AG can place a standing letter under review and then rescind it, after which the office simply declines to approve any transcript in which that bank is a party. There is no adjudication and no appeal.
The market effect was immediate. Five of the largest muni underwriters exited Texas on the effective date. JPMorgan fell from a top-five Texas underwriter in 2021 to 22nd in 2022; Bank of America fell out of the top 25 entirely. Citigroup underwrote four Texas deals totaling $216 million in the first seven months under the law.
$300–500MEstimated additional interest borne by Texas issuers on $31.8 billion borrowed in the first eight months (Garrett & Ivanov)
~40 bp Borrowing cost increase for jurisdictions that had previously relied on the exiting underwriters for a majority of issues
3Banks ever formally excluded by state action — Citigroup, UBS and Barclays. The rest withdrew or paused voluntarily
That third figure is worth stating precisely, because the record is routinely overstated. Only Citigroup (SB 19, AG rejection, January 2023), UBS (SB 13, Comptroller list, August 2022) and Barclays (SB 13, AG rescission, January 2024) were ever formally excluded. Goldman Sachs, JPMorgan, Bank of America and Wells Fargo were never banned — they withdrew or paused during review, and JPMorgan, Bank of America, Morgan Stanley and Wells Fargo have all since been affirmatively cleared. The chilling effect was real; the ban was narrow. Both facts belong in the analysis.
The regime is also unstable, which is itself the point. In American Sustainable Business Council v. Hegar, Judge Alan Albright granted partial summary judgment on February 3, 2026, declaring SB 13 facially overbroad under the First Amendment and impermissibly vague under the Fourteenth. Three days later the AG advised bond counsel: “Unless and until the order is stayed, we will not be enforcing or implementing SB 13” — while cautioning that the order did not touch SB 19 and that issuers should not remove SB 13 language from bond documents. On May 29, 2026, the Fifth Circuit stayed the injunction pending appeal. On June 3, the AG resumed enforcement. As of August 2026, SB 13 is back in force with the merits appeal pending.
For issuers timing a transaction
Between February 3 and June 3, 2026, the enforceability of a statute governing your underwriter’s eligibility changed twice. That is not a credit metric. It is a market-access variable with a four-month half-life, and it belongs in your transaction timeline discussion.
The revenue cap, and the sleeper that binds harder
SB 2 (2019) lowered the M&O revenue-growth trigger from 8% to 3.5% for cities and counties and replaced petition-triggered rollback elections with automatic November elections. Fitch’s contemporaneous assessment was that it “could negatively impact Fitch’s assessment of certain local governments’ independent revenue raising ability — a component of one of Fitch’s four key rating drivers in its U.S. public finance tax supported rating criteria.” Moody’s called it credit negative. S&P warned that the constraint “could reduce financial flexibility and stress Texas municipalities’ creditworthiness.”
The constraint compounds, and there is no symmetric recovery mechanism after a downturn. The Legislative Budget Board’s own framing of a proposed further tightening — SB 10 in the 2025 second called session, which would have cut the multiplier to 2.5% — captures it: “Tax reductions relative to current law baseline escalate markedly, as tax levy growth compounds more slowly when limited by the reduced voter-approval tax rate multiplier.” SB 10 did not pass; the Senate Research Center analysis states the motivation plainly (“From 2019 to 2025, municipal and county property tax levies increased at faster rates than ISD property tax levies”). Expect it back in 2027.
But the more instructive 2025 enactment is SB 1851, which bars a city from adopting a rate above the no-new-revenue rate if it is not current on its Local Government Code Chapter 103 annual audit. On May 14, 2026, the Attorney General sent letters to more than 130 cities prohibiting them from exceeding the NNR rate; his office had earlier demanded documents from nearly 1,000 of the state’s roughly 1,200 cities. Manvel, at about 20,000 residents, estimated a revenue loss near $485,000, or 3.5%.
This is a revenue constraint triggered by an administrative failure. For a small city, a late audit is now more binding than the 3.5% cap. Nothing in fund balance, days cash or debt per capita signals it.
Odessa learned the same lesson from the other direction. S&P withdrew its rating on June 6, 2024 and Moody’s on June 18, 2024, citing “insufficient or otherwise inadequate information” because the city had not completed its FY2022 and FY2023 audits. Odessa was assigned a new Moody’s Aa2 issuer rating on June 4, 2026 after completing four years of audits; it has said it will not seek reinstatement from S&P. Two years without a rating — and it was never an oil-price event. Disclosure discipline is credit quality.
School districts: flat funding, falling enrollment, and a guarantee that masks it
Texas ISDs are experiencing the most significant qualitative deterioration in the state, and it is nearly invisible in secondary market pricing because virtually all Texas ISD GO paper trades on the Permanent School Fund’s triple-A guarantee rather than the underlying rating.
The underlying picture, from the agencies:
Fitch, July 2026: approximately 26% of the Texas public schools Fitch rates have had outlooks revised or underlying ratings downgraded — some by multiple notches — since January 2025. The stated driver is “limited and infrequent increases in the state’s basic allotment… that has often failed to keep pace with rising labor, benefits, and other operating costs.” Fitch adds: “Even districts with a longstanding strong fiscal track record are reporting weaker-than-expected results.”
S&P, February 2025: negative actions on Texas ISD underlying ratings outpaced positive over the trailing year; median reserves fell to 36.8% of general fund revenue in 2024 from 40.7% in 2023.
Fitch, March 2026 (national): K-12 districts accounted for 70% of all Fitch downgrades and negative outlook revisions over the trailing twelve months.
The structural cause is a funding formula that has not moved. The basic allotment has been $6,160 since HB 3 in 2019. HB 2 (2025) delivered $8.5 billion — but did not raise the basic allotment; it added a guaranteed yield adjustment fixed at $55 per student through 2027, a sub-1% increase, delivered alongside roughly ten new restricted allotments. Core discretionary per-student operating revenue is effectively flat in nominal terms since 2019 and sharply negative in real terms.
Layered on top: enrollment. TEA reported 5,467,642 students in 2025-26, down 76,613 or 1.4% — only the second year-over-year decline since PEIMS collection began. Eighteen of twenty ESC regions lost enrollment. Texas 2036’s analysis finds 60% of the loss in grades K–5 and projects that under every Texas Demographic Center migration scenario, enrollment shrinks again next year, with roughly 100,000 fewer K-12 students by 2030 under the mid-migration case. Major urban districts have lost 17.3% of students over ten years. And the ESA program — SB 2 (2025), with ~106,660 students awarded from more than 274,000 applicants as of June 2026 — is an additional ADA drain whose magnitude Fitch describes as hard to predict.
The PSF ceiling: a guarantee is only as good as its capacity
The Permanent School Fund Bond Guarantee Program is the largest triple-A rated bond guarantor in the United States, backing more than $143 billion for 900-plus districts at a cost to the district of a $1,500 application fee and no premium. It is also capacity-constrained in a way that is easy to overlook until it binds.
In late 2022 it did. Projected available capacity fell from roughly $3.9 billion at June 30, 2022 to about $26.65 million projected at end-December. TEA rationed rather than closing, prioritizing districts with the lowest property wealth per ADA. Between November 2022 and January 2023 TEA denied $8.4 billion of applications from 56 districts — 92% of the dollar value of all applications in those three months.
The cost was measurable. Austin ISD’s $542 million January 2023 deal, sold unenhanced with underlying Aaa/AAA ratings, priced at a 3.67% TIC — 10 basis points wider than Dallas ISD’s $551 million PSF-guaranteed deal priced the same day, despite Dallas’s lower underlying rating.
Relief came in two steps: an SBOE reserve cut from 5% to 0.25% effective March 1, 2023, and IRS Notice 2023-39 on May 10, 2023, which converted the federal cap from a static $117.3 billion to a dynamic 500% of PSF book value as of each bond’s sale date — raising federal capacity roughly 86% to about $218 billion and flipping the binding constraint from federal back to state.
Metric
Value
PSF cost value
$51.91 billion (unaudited)
IRS limit (5.0x)
$259.57 billion
State capacity limit (3.5x, SBOE rule)
$181.70 billion — binding constraint
Guaranteed bonds outstanding
$143.82 billion
Utilization
79.16% of capacity limit
Projected available capacity
$32.17 billion
Utilization is back to roughly 79%. The good news is that the SBOE retains about 1.5 turns of unused statutory headroom — the multiplier can go to 5.0x by rule, with no federal action required. The qualitative point is that closing that gap is a discretionary act by an elected board, not an automatic one. Against $76.4 billion of new principal authorized in May 2026 alone, that is a governance question worth watching.
Factor Five Cyber-threat preparedness: real risk, no rating action, and why that matters
Texas has been hit harder and more publicly than almost any state, and the honest analytical conclusion is uncomfortable: we could find no Texas issuer that has suffered a rating action attributable to a cyber incident. That is precisely why ratios will never surface this risk — and why it needs separate treatment.
Date
Entity
What happened
Aug. 16, 2019
22–23 Texas local governments
Coordinated REvil/Sodinokibi attack pushed simultaneously through a single managed service provider’s remote-management software. Collective demand $2.5 million; none paid. The state activated its State Operations Center and DIR reported a transition to recovery within a week.
May 3, 2023
City of Dallas
Royal ransomware via a stolen domain service account; intrusion ran April 7 – May 4. Municipal courts closed for weeks; police/fire dispatch support systems, permitting and libraries disrupted. Council approved roughly $8.6 million in recovery spending on Aug. 9. Breach notifications to 30,253 individuals including SSNs and health insurance data. City published a formal after-action review.
Oct. 19, 2023
Dallas County
Play ransomware; county refused to pay and the group leaked stolen documents in November. Notices to 201,404 individuals; two years of credit monitoring offered.
June 2021
Judson ISD
Paid $547,045.61 — among the largest publicly confirmed ransom payments by a U.S. school district. Sheldon ISD paid roughly $207,000 in 2019; Port Neches–Groves ISD paid $35,000.
Three separate Dallas-area entities were compromised by two ransomware crews inside twelve months — the Dallas Central Appraisal District (November 2022, which reportedly paid roughly $170,000), the City (May 2023) and the County (October 2023). A CBS 11 investigation reported that at least 67 Texas school districts suffered a cybersecurity breach over a two-year period.
Moody’s operative framing is liquidity-conditional: “cash-strapped debt issuers with low liquidity and high leverage are more susceptible to the negative credit effects of cyber incidents.” Dallas absorbed $8.6 million against a multi-billion general fund without difficulty. A district or small city with 45 days cash would not. Moody’s also treats the establishment of state cybersecurity commissions — Texas among roughly two dozen states — as a positive credit consideration; Texas transitioned its cybersecurity functions to the new Texas Cyber Command on April 9, 2026.
The disclosure asymmetry
Lipton observes that many audited financial statements show only a footnote line attesting to covenant compliance, and that “Not all financial disclosures, however, include this language.” Cyber is worse: for most Texas issuers there is no line item at all. An issuer with tested backups, segmented networks, cyber insurance and an incident response retainer looks identical, on every published ratio, to one without them. Until that changes, the only way an analyst learns the difference is by asking — which means the only way an issuer gets credit for the investment is by volunteering it.
The Marquee Case Corpus Christi: when a physical constraint becomes a multi-notch downgrade
If you read one Texas case study to internalize Lipton’s argument, make it this one. Corpus Christi is the cleanest example in the U.S. municipal market of a resource constraint producing multi-agency, multi-notch downgrades — with the transmission mechanism running explicitly through customer concentration.
Date
Action
Sept. 2025
Council halts the Inner Harbor desalination campus — Texas’s first seawater desal plant for municipal use — as estimated cost climbs past $1.2 billion; design-build contractor terminated. Moody’s opens review for downgrade.
Oct. 2025
Fitch and S&P revise utility system revenue bond outlooks to negative.
Dec. 11–12, 2025
Moody’s downgrades: GO and sales tax revenue bonds to A1 from Aa2; combined utility enterprise to A1 from Aa3. Negative outlooks. Approximately $2 billion of debt affected.
April 2026
Moody’s opens a second review for further downgrade. Fitch revises the AA issuer rating outlook to negative.
May 2026
S&P downgrades utility system revenue debt two notches to A, CreditWatch negative; revises the AA GO outlook to negative.
June 1–2, 2026
Fitch cuts combined utility system senior lien revenue bonds three notches to A− from AA−, outlook negative.
Moody’s language is worth quoting because it is entirely forward-looking and entirely non-ratio:
The unexpected acceleration of water depletion risk and the narrow window to implement solutions before November 2026, which could trigger a Level 1 Emergency, indicating 180 days until its water supply will be insufficient to meet demand… The magnitude of water stress makes curtailment of industrial operations — a key driver of the regional economy and dependent on the city’s water supply — more likely.Moody’s Ratings, December 2025
Fitch’s framing adds the concentration channel explicitly: uncertainty over potential water curtailments and their revenue impact, “along with industrial customer concentration, could limit the system’s ability to meaningfully improve leverage and coverage metrics.”
Read that carefully. The agencies did not downgrade because coverage had deteriorated. They downgraded because a physical constraint made future coverage deterioration probable, through a customer base that is simultaneously the city’s tax base and its largest water user. This is the definition of a forward-looking qualitative assessment, and no ratio computed in mid-2025 would have flagged it.
The city has since moved — a February 2026 contract negotiation at roughly $978 million, well below prior estimates; 50 MGD secured from the Nueces River Authority’s proposed plant; $1 billion of projects targeting 76 MGD; an $11 million reclaimed water design expansion; and rate increases effective January 1, 2026. Rainfall has pushed the projected Level 1 emergency out to September 2027. But the ratings are where they are.
The Midland–Odessa control group
For a companion lesson in economic concentration, compare Midland and Odessa. Roughly one in five jobs in Midland–Odessa is directly tied to oil and gas — the highest concentration in the country. In the 2016 bust, Moody’s placed eleven Permian-area local governments on review for downgrade — among them Midland, Odessa, Pecos County and seven hospital districts — affecting $477 million of debt.
Same commodity, opposite outcomes. Midland has held AAA/stable through the cycles; Fitch specifically noted that Midland sets aside surplus sales tax receipts into fund balance to avoid dependence on volatile oil revenue. Odessa lost both of its ratings — for late audits. Concentration risk is manageable with countercyclical reserve policy and fatal without administrative discipline. Neither of those is a ratio; both are governance.
Winter Storm Uri: the tail that arrived in four days
One more, because it is the purest demonstration that a February 1, 2021 ratio package contained none of what happened between February 14 and 19.
Denton Municipal Electric spent roughly $207 million on ERCOT power in about four days. Over the previous three years combined, the utility had spent $237 million on electricity. On one day alone it paid out more to buy power than in the entire prior year. The council moved to expand its debt cap on February 23, 2021, and financed the cost over decades.
Brazos Electric Power Cooperative — the largest and oldest Texas generation and transmission cooperative, 16 member co-ops, roughly 660,000 end users — received an ERCOT bill of about $2.1 billion for seven days and filed Chapter 11 on March 1, 2021. The plan went effective December 15, 2022 with ERCOT’s claim settled near $1.89 billion. Brazos wound down its power supply business, sold its generation assets, emerged as a transmission-and-distribution-only cooperative, and senior management was required to depart.
Rayburn Country Electric took the other path, becoming the first utility in Texas to securitize an Uri ERCOT bill — roughly $908 million of senior secured cost recovery bonds priced in early 2022. The securitization allowed Rayburn to avoid bankruptcy.
CPS Energy sued ERCOT in March 2021 over the $9,000/MWh cap. On June 23, 2023 the Texas Supreme Court held 5–4 that ERCOT is “an organ of government” performing a “uniquely governmental function” and entitled to sovereign immunity, dismissing the suit. San Antonio customers are reported to be recovering at least $418 million through a small monthly rider running roughly 25 years.
The statewide cleanup ran through securitization: roughly $3.5 billion of Customer Rate Relief Bonds issued in March 2023 by the Texas Natural Gas Securitization Finance Corporation under HB 1520 (a proposed state appropriation to retire them was dropped in committee, and the great majority remained outstanding in FY2025), plus $800 million (Subchapter M, November 2021) and $2.116 billion (Subchapter N, June 2022) through ERCOT-sponsored special purpose entities under HB 4492. Press tallies have put total consumer-borne Uri debt near $10 billion.
The stress-testing point
Lipton writes that “even if initial assumptions were valid, perhaps there was a failure to perform appropriate stress testing.” Denton consumed nearly a full year’s power budget in a single day, and close to three years’ worth in four. No days-cash-on-hand calculation anticipates that. The question a Texas public power issuer should be able to answer in a rating presentation is not “what is our coverage?” but “what is our maximum four-day exposure, and what facility covers it?”
The Call to Action: What each stakeholder should do differently
Lipton addresses issuers, municipal advisors, legal counsel, underwriters and investors. Here is the Texas-specific translation.
Issuers
Get current on your audit. SB 1851 and the Odessa episode make this a rating and rate-setting issue, not a compliance chore. More than 130 Texas cities were barred from exceeding the no-new-revenue rate in May 2026 for this reason alone.
Disclose your cyber posture affirmatively. Tested backups, network segmentation, insurance limits, incident response retainer, tabletop cadence. No ratio will ever show it, and no analyst can infer it. If you have made the investment, say so.
Bring your governance changes, not just your numbers. Dallas’s rating cascade stopped when board composition changed. Houston’s reform was rewarded for the automatic backstop, not the contribution schedule.
Stress test to the tail, and bring the answer. Maximum multi-day commodity exposure. Maximum drought curtailment revenue impact. Largest single-customer concentration. Present the number before you are asked for it.
Sever the stadium. If you are a school district, SB 30 has already told you what your voters will vote on separately. Design the package around that reality rather than discovering it on election night.
Municipal advisors
Build the rating presentation around the five submerged factors explicitly, with a slide for each. Agencies are already asking; anticipate rather than react.
Model the compounding effect of the 3.5% cap over the full projection period, not year one — and model the 2.5% scenario, because SB 10 will be back in 2027.
Treat underwriter eligibility as a live timeline risk. The enforceability of SB 13 changed twice in four months in 2026.
Bond counsel and disclosure counsel
Ballot language is now strictly construed. The AG’s July 30, 2025 letter forecloses modifying, supplementing or qualifying the mandatory school bond warning — and SB 1025 (2025) added a parallel “THIS IS A TAX INCREASE” requirement for all tax bond elections.
Where a general fund problem is being solved with an enterprise transfer, run the master ordinance flow-of-funds analysis before the budget vote, not before the refunding.
Track appellate dockets that touch revenue dedication. A single opinion produced Houston’s $100 million annual obligation; Midland ISD’s July 2026 challenge to TEA’s authority to set Tier One M&O rates could be the most significant school finance case since 2016.
Underwriters and investors
For Texas ISD paper, remember what the PSF guarantee is masking. Roughly 26% of Fitch-rated Texas schools have seen negative underlying action since January 2025, with a flat basic allotment and a second consecutive enrollment decline ahead. The guarantee is excellent; the underlying trend is not the same thing.
Monitor PSF capacity utilization directly. At 79% of the state limit, the buffer depends on a discretionary SBOE rule change.
Underwrite water supply as a credit factor, not an ESG factor. Corpus Christi lost two to three notches across three agencies in nine months on a resource constraint, and the mechanism was customer concentration.
Closing
Lipton’s conclusion is that “multiple results for the same metric often reflect how stakeholders measure a multi-dimensional canvas of credit risk,” and that “the availability of data is not the issue, but a lack of standardization in how the data is interpreted can impact the credit dynamics.”
Texas suggests something slightly stronger. In every case above, the data existed. DPFP’s DROP concentration was published. Denton’s power purchase budget was public. The Corpus Christi reservoir levels were on a website. Odessa’s missing audits were conspicuous by absence. The Fifth Circuit’s docket is open to anyone. None of it was hidden — it simply was not in the ratio, and so for a while it was not in the analysis.
The practical implication for a Texas issuer is straightforward and slightly demanding. The information that will determine your credit trajectory over the next five years is information you already possess and are not currently required to disclose. Ratios are the starting point. In Texas, the interesting part starts below the waterline.
This commentary is provided for informational and educational purposes only. It is not investment, legal, tax or accounting advice, and it is not a recommendation to buy, sell or hold any security. Figures, ratings and legal outcomes are current as of August 2026 and are drawn from the public sources linked above; ratings and litigation postures change. Readers should independently verify any figure before relying on it and should consult their own advisors.
A reader’s framework for a serious argument about the Iran war
On August 1, 2026, The New York Times published an analysis reporting that, to America’s allies, the war in Iran — now in its sixth month — appears headed toward a strategic defeat. It is a serious piece about a serious question, and it deserves better than either reflexive agreement or reflexive dismissal.
What follows is an attempt to do something the news cycle rarely does: separate the article’s individual assertions, ask what evidence stands behind each one, and assign each a weight. Some of the claims are close to established fact. Some are reasonable inference. At least two are assertions dressed as findings. Treating them all as a single package is how readers end up either overcorrecting or dismissing the whole thing.
The Scoring Convention
Each assertion gets a confidence weight based on the quality of evidence available in the public record — not on whether the conclusion is congenial.
High (80–95%) — documented by primary sources or independent institutional analysis
Moderate–High (60–79%) — well corroborated by multiple outlets, some interpretive distance
Moderate (40–59%) — plausible, contested, or dependent on definitions
Low–Moderate (20–39%) — asserted with limited supporting evidence
Unscorable — structured so that no near-term evidence could disconfirm it
The Assertions, Weighed
#
Assertion
Weight
Basis
1
U.S. munitions and interceptor stocks are severely depleted
High (90%)
CSIS assesses more than 60% of key Patriot and THAAD interceptors expended; production roughly 20 Patriots and 15 Tomahawks monthly; no THAAD deliveries forecast in 2026; three-plus years to rebuild
2
The administration’s stated war goals remain unmet
High (85%)
No verified end to enrichment capability, no regime change, no durable ceasefire; the June 14-point agreement was declared dead within weeks
3
The U.S. and Israel are diverging and assigning blame
Moderate–High (75%)
Corroborated independently: Netanyahu pressing escalation in the Oval Office one day, the Saudi defense minister pressing de-escalation the next
4
Iran’s nuclear and missile programs are degraded but not destroyed
Moderate–High (70%), with a large caveat
Directionally supported by IAEA reporting and CRS; but the IAEA has near-total loss of access and an unaccounted-for enriched uranium stockpile. This is the most confident claim in the piece resting on the least verifiable ground
5
The Strait of Hormuz is effectively under Iranian control
Moderate (50%)
Iranian leverage is real — insurance costs, mine risk, suppressed transit volumes. But Brent fell from an April high above $188 to roughly $72 by late June. “Control” overstates coercive influence
6
Allied confidence in U.S. reliability has been damaged
Moderate (55%)
Genuinely serious, but sourced entirely to two think-tank analysts with well-known priors. No allied official on record
7
Middle Eastern allies are hedging toward Iran, China, Russia, and Europe
Low–Moderate (30%)
Directly cut against by events in the same week: Saudi Arabia joined U.S. strikes on Iranian proxies in Iraq and announced it would lead a U.S.-aligned maritime coalition. That is deepening dependence, not hedging
8
Iran is resolute under a more radical government
Low–Moderate (30%)
Asserted, not evidenced. No polling, no defection data, no internal reporting offered
9
The Saudi civil nuclear reversal demonstrates a credibility crisis
Fact: High (90%) Interpretation: Moderate (45%)
The 123 agreement was made public July 22; Trump added an Abraham Accords condition the next morning and stated there would be no enrichment. The White House maintains the condition was always understood. The sequence is documented; what it proves is contested
10
The war constitutes a strategic defeat
Unscorable as stated
See below
Why the Headline Claim Is Unscorable
The strongest single objection to the piece is structural rather than factual. Its lead source defines the strategic damage as surviving even the collapse of the Islamic Republic — meaning the thesis holds whether the United States wins outright or loses outright.
An argument that cannot be disconfirmed by the opposite battlefield outcome is not a forecast. It is a frame. Frames can be true and useful, but they should be labeled as interpretive commitments rather than presented with the cadence of a finding.
There is a related problem of definitional drift. The lede promises a military-strategic verdict. The evidence delivered is almost entirely reputational — allies do not trust Washington. That may well be the more important argument. It is not the argument the headline makes.
What the Article Does Not Count
Any honest assessment of a war tallies both ledgers. This one tallies one.
Absent from the piece: Iran’s naval losses, the degradation of its air defenses, the decapitation of its senior command, the cost to its economy, and the fact that Saudi Arabia — reluctant for months — has now entered the conflict on the American side and is organizing a multinational maritime coalition. Whatever those facts add up to, leaving them out is a construction choice, and readers should notice it.
The Strongest Counter-Case, Stated Fairly
Those who reject the “defeat” framing argue roughly this: Iranian conventional military power has been gutted in a way that will take a decade to rebuild; the nuclear program has been set back by years even if not eliminated; regional states that spent two decades hedging between Washington and Tehran have been forced off the fence and onto the American side; and a Gulf security architecture that diplomats failed to build for twenty years is being assembled under fire. On this view, the munitions depletion is a real and serious industrial-base problem — but an industrial-base problem is a budget question, not a strategic defeat.
The counter-counter is equally straightforward: an outcome that requires three or more years of interceptor production to recover from, while China watches, has costs that do not appear on the Middle East ledger at all.
Both of these are arguments. Neither is yet a fact.
Indicators That Would Move the Weights
The discipline that distinguishes analysis from opinion is naming in advance what would change your mind. Some candidates:
Would raise the “defeat” weight:
Sustained Hormuz transit volumes remaining below roughly half of pre-war levels past year-end
A NATO or Gulf partner publicly declining a U.S. request for basing or overflight
IAEA access restored and confirming reconstituted enrichment
Interceptor inventories forcing an announced drawdown in another theater
Would lower it:
A verified ceasefire with a monitoring regime
Saudi normalization proceeding despite the nuclear-deal turbulence
Iranian leadership fracture or negotiated enrichment suspension
Hormuz insurance rates returning to pre-war ranges
The Bottom Line
The New York Times reported something real. The munitions data are hard, sourced, and independently confirmed by CSIS, and they are the most consequential paragraph in the piece — more consequential, arguably, than the thesis they are used to support. The credibility argument is serious and should not be waved away because its sources are predictable; allied perception is a real strategic asset, and it can be spent.
But the article is a hypothesis carrying the cadence of a verdict, resting on two named analysts, with one side’s ledger tallied. The right way to cite it is “some prominent analysts argue” — not “the assessment is.”
That distinction is not pedantry. In municipal finance, we would call an 8% variance a material finding requiring root-cause analysis, not a rounding difference — and we would not call it a structural failure either. Foreign policy deserves the same discipline. Name the variance. Weight it. Say what would change the number.
Sources consulted: The New York Times (Aug. 1, 2026); CSIS interceptor inventory analysis (Cancian and Park, July 2026); CNN and Defense News reporting on stockpile depletion; IAEA June 2026 verification and safeguards reports as analyzed by the Institute for Science and International Security; Congressional Research Service IF12106; CNBC and S&P Global Platts on Strait of Hormuz transit and pricing; Associated Press and CNN on the July 2026 Saudi entry into the conflict and the U.S.–Saudi 123 agreement.
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