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When is debt not “A Debt”?

By Bill Mulrooney

Originally Published Aug 12, 2011, 9:41pm (Updated Aug 12, 2011, 9:41pm) in CummingHome.com

Cllick here to see the CummingHome.com article, which includes additional comments by readers.

The Forsyth County Board of Commissioners (BOC) is promising its constituents that if SPLOST VII is approved by the voters, construction on projects from the list can begin immediately.   They won’t have to wait for the taxes to be collected.  Even though the only projects that the voters will be asked to approve for bonding is the courthouse, jail expansion and parking deck.

State SPLOST laws are very clear; The County cannot assume any general obligation debt on the projects without voter approval.  General obligation debt being defined as debt based on credit or future tax collections.  It is the right of the voters to decide whether the county should assume debt for SPLOST projects.

To get around this quirk in the SPLOST law that protects the taxpayers from government overspending, the BOC has come up a nifty little side-step using the newly formed Forsyth County Public Facilities Authority.

Facility Authorities have the ability to issue revenue bonds.  A revenue bond can be issued for capital projects that expect to generate future revenue (aka: profit).  A revenue bond is not considered a debt to the county, since it is based on future profits, and not on credit or taxes.

According to an email from the Forsyth County Attorney, if SPLOST VII passes the BOC intends to request that the Forsyth Public Facilities Authority “issue a revenue bond based on future SPLOST VII collections”.  A clever idea that uses the best of two different laws, while ignoring the intent of both.

Just because it will be called a revenue bond, doesn’t change the fact that the bond will be secured with un-collected taxes.  Proponents are openly stating this. And if a bond is secured with future taxes, then it is a ‘General Obligation Debt’.  No matter what semantic tricks are used, the end result is the county will use future SPLOST taxes as a guarantee to acquire more debt.  Authorization to gamble taxpayer money in this way is a right reserved to the citizens, not the Board of Commissioners.

I believe the legality of this creative financing with taxpayer dollars needs to be addressed prior to the SPLOST VII vote.  Otherwise we might see another ruling by the State Attorney General’s office that the BOC has once again failed to follow state law.

Comments

Dave Richard
Aug 13, 2011 9:51am

Bill is onto something here that needs to be addressed.

While the letter of the law is "general obligation bonds", the issuance of "revenue bonds" is problematic at best.

Witness the fiscal irresponsible actions of the Board of Education, which just recently conned voters into approving (via special election yet again) another E-SPLOST, where money from THIS SPLOST will go towards paying off bonds from not only the LAST SPLOST but from 2 SPLOST's ago.

Not to be outdone, this county commission approves a SPLOST with the intent to do the very same thing, for buildings that haven't even been designed yet, with money that won't even be begun to be collected until 2013 if approved.

And they think they are going to build a new courthouse and jail for only $100 million, a number that is virtually guaranteed to jump significantly higher due to lack of design.

So what happens when the jail and courthouse go over budget? They cannot use the Public Facilities Authority to issue new bonds, as the PFA is barred from funding a jail or courthouse. I'm not sure of the wording on the proposed ballot, but if the $100 million is cast in stone or is prefaced by the words "up to", then they can't use more SPOLST funds from other projects.

Where do they get the money?

And all those other projects touted as being able to be bonded and built earlier like the proposed animal shelter? Sorry, but the PFA is also very specific in that you can only bond out 75% of a particular project (a safety measure put in by me and a couple of others to keep from bonding that which cannot be fully funded due to economic issues).

So here is the complicated scenario that needs to be followed before voters try to approve this most recent SPLOST mess.

If you issue bonds early for the construction of the jail and courthouse, those bonds will have to be paid off early as well, which means revenue coming in in late 2013 will likely be going towards bond reimbursement. That means you won't have any revenue to cover the 25% of any projects bonded through the PFA.

And you still don't have a funding mechanism for the jail or courthouse when it goes over budget.
Once again, a rush to judgement is placing a fiscal nightmare in the hands of a select few voters in Forsyth County this November.

SPLOST VII needs to be defeated, reworked, and re-proposed for a vote in November of 2012.