Capital Finance for Local Governments: General Obligation Bonds

Transcription

1 Capital Finance for Local Governments: General Obligation Bonds Kara Millonzi January 2015 General Obligation (GO) Bonds Security Legal Projects Voter Approval LGC Approval Bond Counsel Public or Private Sale Method of Sale Limit on Amount Taxing power of the unit (full faith and credit) All capital projects unit has authority to undertake (G.S ) Usually Yes Yes Public Competitive Net Debt Limitation 1

2 Voter Approval of GO Debt NC Const. Art. V, Sec on 4(2): The General Assembly shall have no power to authorize any county, city or town, special district, or other unit of local government to contract debts secured by a pledge of its faith and credit, unless approved by a majority of the qualified voters of the unit who vote thereon.. EXCEPT No Vote Required for GO Bonds if Issued: 1. To suppress riots, insurrections, or any extraordinary breach of law and order. 2. To supply an unforeseen deficiency in the revenue when taxes actually received or collected during the fiscal year fall below collection estimates made in the annual budget ordinance within the limits prescribed in G.S To meet emergencies threatening the public health or safety, as conclusively determined in writing by the Governor. 4. To refund outstanding general obligation bonds or general obligation bond anticipation notes. 5. To issue two-thirds bonds 2

3 Voter Approval Excep on: Refunding Bonds Refunding bonds may be issued at any time proper to the final maturity of the GO bond or GO bond anticipation note Proceeds may be applied to immediate payment and retirement of obligations or deposited in trust to provide for the payment and retirement of the obligation being refunded and to pay any expenses incurred in connection with such refunding Voter Approval Excep on: Advanced Refundings Pay interest on initial bonds and refunding bonds Year 1 Year 4 Year 10 Initial GO Bond Issue $10m Interest Rate Falls Second GO Bond Issue (Refunding) $11.4m Pay Off Initial Bond Issue Sinking Fund 3

4 Voter Approval Exception: Advanced Refundings Proceeds may be invested in: US treasuries Obligations that are fully guaranteed by US government Certificates of Deposit issued by bank or trust company located in NC if secured by a pledge of direct obligation or guaranteed obligation of US government Amount borrowed for refunding may not exceed the sum of: Principal amount of obligations being refinanced Applicable redemption premiums Unpaid interest on such obligations to the date of delivery or exchange of the refunding bonds Interest on refunding bonds Expenses, including bond discount, deemed by the governing body to be necessary for the issuance of the refunding bonds Voter Approval Excep on: 2/3 Bonds A unit may issue new bonds in an amount up to two- thirds of the amount by which unit s outstanding general obliga on indebtedness was reduced (net reduc on, principal only) in the preceding fiscal year 4

5 Voter Approval Excep on: 2/3 Bonds Can expend 2/3 bonds on almost any capital expenditure, including refundings But proceeds may not be used to fund auditoriums, coliseums, stadiums, conven on centers, art galleries, museums, historic proper es, urban redevelopment, public transporta on, or cable tv systems No accumula on of 2/3 capacity from year to year Ci zens can force a referendum if file pe on signed by at least 10 percent of unit s registered voters within 30 days of publica on of bond order Net Debt Limit 8% The net debt of a unit may not exceed 8 percent of the appraised value of property subject to taxation by the unit. Applies to GO debt, installment financings, and capital leases, with certain exceptions 5

6 Net Debt Limit 8% Restricts the net debt of a unit of a local government to 8% of the appraised value of property subject to taxation of the unit General Obligation Debt + Installment Finance Debt + Capital Leases The amount of this debt that in most units is repaid from sources other than the property tax Net Debt Bond Order ü Authorizes issuance of bonds States the purpose for which proceeds will be spent States maximum amount ü Describes security for bonds ü Publicizes bond issue States that sworn statement of debt has been filed Declares circumstances under which bond order will take effect 6

7 G.O. Bond Issue Timeline Notice to Study Commission Introduce Bond Order Set Date for Public Hearing Apply for LGC Approval File Sworn Statement of Debt Hold Public Hearing Publish Bond Order and Notice of Hearing (at least 6 days before hearing) Publish Bond Order Adopt Bond Order Set Date and Call for Referendum Hold Referendum Public Notice of Referendum (twice) Certify and Publish Referendum Results Adopt Resolution Setting Details of Bond Issue Public Funds in GO Bond Referendum A [municipality or county] shall not use public funds to endorse or oppose a referendum, election or a particular candidate for elective office. G.S. 160A-499.3; G.S. 153A-456 7

8 Reimbursements A unit must adopt a reimbursement resolution to use bond proceeds to repay expenditures made before the bond issuance Not necessary for : Expenses not exceeding the lesser of $100,000 or 5% of bond proceeds preliminary expenditures (up to 20% of aggregate issue price) Reimbursements Resolution generally must be adopted within 60 days after the expenditure is made The resolution must: Describe project State maximum principal expected to be issued Describe the fund from which expenditures are made Be reasonable Bonds generally should be issued within 18 months after the expenditure is made 8

9 Bond An cipa on Notes (BANs) Issued for a shorter period of me, usually 1 year or less Must go through process for debt issuance (revenue bonds, general obliga on bonds, special obliga on bonds, project development financing bonds) Must be separately approved and sold by LGC May be used for bridge construc on loans 9