In times gone by, I worked for many years as outside counsel to a bank that made dozens of loans each year to local governments across North Carolina. Big loans, small loans, real estate loans, equipment loans, you name it. The wide majority of those loans were done without the participation of separate bond counsel or financial advisors to the borrowers.
It was a different time. Bank lenders and local government finance officers had close, personal relationships that spanned many years and many loans. The federal law at that time allowed lenders to work directly with local government officials on structuring loans – rates, payment structure, prepayment rules, collateral, you name it. There was a very high level of trust between borrowers and lenders that reduced the need for participation by additional professionals.
The law changed, and bank lenders really can’t have those kinds of conversations anymore. So we end up in a world where local government officials try to get by without an FA or a separate bond counsel to save money, or sometimes out of hubris, and mistakes get made.
In just the last few months, we’ve seen, for example,
- Local governments have to reschedule projects because they didn’t realize the rules for installment financing public hearings were different from the rules for LGC approval.
- Local governments putting out RFPs for “bank qualified” loans that clearly can’t be done bank-qualified.
- And as the LGC staff has pointed out, all sorts of loans to UAL localities that required LGC approval, but didn’t get it.
If a local government looks silly, suffers delay from its own mistakes or leaves significant money on the table because it didn’t understand its financing options, well, likely no one will be held responsible and usually, neither the governing board nor the local newspaper is ever going to hear about it.
If I as a bond lawyer can’t convince a locality that I bring value to their transaction, that’s ultimately a “me” problem. But a local government’s lack of willingness to seek advice can sometimes become a “them” problem, and that’s too bad because it’s so avoidable.
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