Sunday, July 1, 2018

STPAC bonds safety save

"An installment finance contract must include a non-appropriation clause. The clause makes all loan repayment obligations subject to yearly appropriation decisions by the unit’s governing board. The non-appropriation clause is necessary to avoid an inadvertent pledge of the unit’s taxing power. Such a pledge, even a limited pledge, likely would violate the North Carolina Constitution’s prohibition against contracting debts secured by a pledge of its faith and credit without obtaining voter approval. See Generally Wayne County Citizens Ass’n v. Wayne County Bd. of Comm’rs, 328 N.C. 24, 399 S.E.2d 311 (1991). Note that G.S. 160A-20 further provides that “no deficiency judgment may be rendered against any unit of local government in any action for breach of an [installment purchase] contractual obligation . . . .”

"...a local government may not borrow money that is secured by a pledge of its faith and credit unless approved pursuant to voter referendum. Pledging a unit’s “faith and credit” is defined as pledging its taxing power.

...The constitutional limitation only is triggered if the security pledged for a loan is the unit’s taxing power."

"What capital financing options are available to the local government?

...Borrow proceeds from a lending institution and pledge the soccer arena as security for the installment purchase financing. (Note that if the project (or more precisely the local government’s aggregate borrowing) exceeds a certain dollar threshold—currently $30 million—the unit likely would have to issue certificates of participation, pledging the soccer arena as security.)"

The City of Greensboro borrowed $43,450,000, 'financing" more than $30 million without a referendum;


"only approved by a vote of the qualified voters"

and "except that voter approval shall not be required for"

Bonds issues by "(except purposes authorized by 159-48(b)(3)...two thirds...";

It looks like there should have been a referendum, and there wasn't.

The City lied to the Local Government Commission to get the bonds approved. The "sums to fall due under the proposed financing are" not "not excessive for the local government", because the application counts 142 events per year selling out 330 VIP parking spots at each and every show, and counts more than all the other expected cars to park in City owned parking decks, instead of 488 free parking spots and a couple of thousand privately owned parking within 1,200 feet.

From the bond issue securities filing;



"The taxing power of a unit of local government is not and may not be pledged directly or indirectly to secure any moneys due under a contract authorized by this section."

From the bond issue securities filing;

And General Fund Revenues, which doesn't appear to be allowed under 160a-20

"State law specifies the types of capital projects that a county or municipality may fund with GO bonds. See G.S. 159-48. Although the legal authority to issue GO bonds is very broad, practically it is much more limited. That is because the North Carolina Constitution generally requires that a unit hold a successful voter referendum before pledging its full faith and credit. See NC Const. Art. 5, Sect. 4(2); G.S. 159-49. (There are some exceptions to the voter approval requirement–the most significant of which are for refunding bonds and two-thirds bonds.)"

Problem is, the City refunded and "financed" $30 million more;

But a vote was required for "auditoriums";

§ 159-8. Annual balanced budget ordinance.

(a) Each local government and public authority shall operate under an annual balanced
budget ordinance adopted and administered in accordance with this Article. A budget ordinance is balanced when the sum of estimated net revenues and appropriated fund balances is equal to appropriations. Appropriated fund balance in any fund shall not exceed the sum of cash and investments minus the sum of liabilities, encumbrances, and deferred revenues arising from cash receipts, as those figures stand at the close of the fiscal year next preceding the budget year. It is the intent of this Article that, except for moneys expended pursuant to a project ordinance or accounted for in an intragovernmental service fund or a trust and agency fund excluded from the budget ordinance under G.S. 159-13(a), all moneys received and expended by a local government or public authority should be included in the budget ordinance.

Therefore, notwithstanding any other provision of law, no local government or public authority may expend any moneys, regardless of their source (including moneys derived from bond proceeds, federal, state, or private grants or loans, or special assessments), except in accordance with a budget ordinance or project ordinance adopted under this Article or through an intragovernmental service fund or trust and agency fund properly excluded from the budget ordinance.

(b) The budget ordinance of a unit of local government shall cover a fiscal year beginning July 1 and ending June 30. The budget ordinance of a public authority shall cover a fiscal year beginning July 1 and ending June 30, except that the Local Government Commission, if it determines that a different fiscal year would facilitate the authority's financial operations, may enter an order permitting an authority to operate under a fiscal year other than from July 1 to June 30. If the Commission does permit an authority to operate under an altered
fiscal year, the Commission's order shall also modify the budget calendar set forth in G.S.
159-10 through 159-13 so as to provide a new budget calendar for the altered fiscal year that will clearly enable the authority to comply with the intent of this Part. (1971, c. 780, s. 1; 1973, c. 474, s. 5; 1975, c. 514, s. 3; 1979, c. 402, s. 1; 1981, c. 685, s. 2.)

Gibson promised that the debt on the bond would be paid from the savings found in closing the five old schools and through restricted sales tax revenue.

there is no need for a referendum, according to County Manager Kevin Patterson.

Patterson said that Block is applying the wrong state statue to the situation.

Block has cited NCGS 159-60 which states: “A petition demanding that a bond order be submitted to the voters may be filed with the clerk within 30 days after the date of publication of the bond order as introduced…The residence address of each signer shall be written after his signature…The clerk shall investigate the sufficiency of the petition and present it to the governing board, with a certificate stating the results of his investigation. The governing board, after hearing any taxpayer who may request to be heard, shall thereupon determine the sufficiency of the petition, and its determination shall be conclusive.”

That statute does not apply, according to Patterson, because the county is not taking on a general obligation bond.

A general obligation bond is a municipal bond backed by the credit and taxing power of the issuing jurisdiction rather than the revenue from a given project.

General obligation bonds are issued with the belief that a municipality will be able to repay its debt obligation through taxation or revenue from projects. No assets are used as collateral.”

A county can reissue general obligation debt without referendum if up to two thirds of GO debt have been retired. Otherwise, a referendum must be held before taxing authority can be pledged through a general obligation bond.

The key word in that description is collateral, according to Patterson.

“If we do it as a general obligation bond; then we have to do it as a referendum. You’re doing that through the taxing authority of the county. If the commissioners don’t budget for the debt, the bank can raise taxes” Patterson said. “We’re not pledging tax authority. We’re putting a mortgage on the property, so this doesn’t dovetail with any prior project.”

Patterson said that there is no statute that regulates having a referendum on a mortgage.

“A referendum is not about the project. A referendum poses one question and that is: do we want to give the tax authority to the bank,” Patterson said.

In hopes of clarifying the issue, the board asked Patterson to have someone from the UNC School of Government conduct a public forum to help explain the issue.

By Beth Lawrence

Staff reporter

Reach Beth Lawrence 910-506-3169