1/13/15 Capital Finance for Local Governments:
General Obligation Bonds
Kara Millonzi
[email protected]
January 2015
General Obligation (GO) Bonds
Security
Legal Projects
Voter Approval
Taxing power of the unit (full faith and credit)
All capital projects unit has authority to
undertake (G.S. 159-48)
Usually
LGC Approval
Yes
Bond Counsel
Yes
Public or
Private Sale
Method of Sale
Limit on
Amount
Public
Competitive
Net Debt Limitation
1 1/13/15 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. 159-13.
3.  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 1/13/15 Voter Approval Excep�on: Refunding Bonds G  Refunding bonds may be issued
at any time proper to the final
maturity of the GO bond or GO
bond anticipation note
G  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
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3 1/13/15 Voter Approval Exception:
Advanced Refundings
G  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
G  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 1/13/15 Voter Approval Excep�on: 2/3 Bonds G  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 G  No accumula�on of 2/3 capacity from year to year G  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%
G  The net debt of a unit may not exceed 8 percent of the
appraised value of property subject to taxation by the unit.
G  Applies to GO debt, installment financings, and capital
leases, with certain exceptions
5 1/13/15 Net Debt Limit – 8% G  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 In
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1/13/15 G.O. Bond Issue Timeline Notice to Study Commission
Public Funds in GO Bond Referendum G  “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 1/13/15 Reimbursements
G  A unit must adopt a reimbursement resolution to
use bond proceeds to repay expenditures made
before the bond issuance
G  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
G  Resolution generally must be adopted within 60
days after the expenditure is made
G  The resolution must:
–  Describe project
–  State maximum principal expected to be issued
–  Describe the fund from which expenditures are made
–  Be “reasonable”
G  Bonds generally should be issued within 18 months
after the expenditure is made
8 1/13/15 Bond An�cipa�on Notes (BANs) G  Issued for a shorter period of �me, usually 1 year or less G  Must go through process for debt issuance (revenue bonds, general obliga�on bonds, special obliga�on bonds, project development financing bonds) G  Must be separately approved and sold by LGC G  May be used for “bridge” construc�on loans 9