Ever since the LGC started its project to write down rules for the allowed maturities on local government financings, I have been highly critical of the proposed rules as they apply when local government units want to refinance debt originally issued to the United States Department of Agriculture – now generally referred to as USDA Rural Development loans, the successor to the old “Farmers Home” federal loan program.
The guidelines apply rules to USDA refinancings that don’t apply to other refinancings. These rules have the effect of cutting off refinancings that have saved North Carolina local governments – and their taxpayers and ratepayers – millions and millions of dollars over the past 30 years.
Just look at the illogical results of applying the proposed guidelines: a unit with 25 years left on a 40-year loan can’t do a 15-year refinancing and capture savings, because the new term – even though ten years shorter (in this example, 40% shorter) than the existing term – will be too long. And in the last half of a 40-year loan, refinancing may be completely prohibited, no matter how much in savings the unit could realize. These kinds of extraordinary results should be backed by extraordinary policy justifications, and those have not been articulated.
You can read the full text of my full comment letter here. You’ll see I have some other issues with the process and some other assorted concerns, but the real substantive issue with these guidelines is the unfair treatment of USDA refinancings.