There’s a new bill in the General Assembly, known as Senate Bill 99 and entitled “bond referendum transparency,” that seeks to provide more information to voters about a bond referendum. It’s a follow-up proposal to legislation we’ve written about before. The bill seeks to provide additional information about total interest that could be paid on bonds, the tax rate effect, and how two-thirds bonds are affected.
Bond lawyers, like anyone else, have different opinions about what constitutes good policy for local government finance. But what all lawyers want are laws that “work:” that tell us and our clients clearly what we need to do to comply. I don’t think SB 99 in its current form meets these tests, and this ambiguity risks providing information that is out of context and, I would say, not actually helpful.
Let’s look at the information about total interest payable that has to be calculated and provided.
Under the bill, the LGC is to determine for the city or town’s application “the total amount of interest estimated to result from the proposed bond using the highest interest rate charged when looking at the immediately preceding years for a term equal to the maximum issue term of the proposed bond.”
The “highest interest rate charged” in the “immediately preceding years”? Which years – does that in any way relate to the “maximum issue term” of the bonds? I think that’s what it says. So we’d have to look back 20 years, because that’s the expected maximum term of an actual bond issue? Or do we look back 40 years because that’s the statutory maximum? But bonds can’t be issued over a term of more than ten years from the referendum date – and that’s only with an LGC extension from the guaranteed seven years, so is seven the number? Why is this better than taking a snapshot today and adding some comfort margin, which is what we do under the current statute and LGC guidelines?
Where do we look for the “highest interest rate?” Across the State? For comparable issuers? It doesn’t say. For that particular issuer? What if that particular issuer hasn’t had a general obligation bond within whatever time period we’ve determined is relevant? The proposed changes to the ballot question suggest we look at “similar debt,” but similar in what way?
[If you’d like to hear my similar
rants thoughts about the tax effect calculation, why you need to use calculus to comply with the provisions on two-thirds bonds, why we shouldn’t clutter up ballot questions and even the ambiguity as to the effective date, give me a call.]
Providing additional public information about local government borrowing is an estimable goal. The law, however, should tell us clearly what information to provide, and that information should be meaningful and in context. SB 99 may not go anywhere in the General Assembly this year but if it is going to move, it needs work to make useful additions to the information mix provided to voters.