A press release from Congressman Randy Hultgren:
Hultgren Cosponsors Legislation to Boost Community Infrastructure through Expanded Municipal Finance
Washington, DC – U.S. Representative Randy Hultgren (IL-14) is an original sponsor of H.R. 2229, the Municipal Bond Market Support Act of 2015, a bill which would expand the use of local bank qualified bonds and allow local municipal governments and school districts to increase their use from $10 million to $30 million a year. He cosponsored a similar bill in the 113th Congress.
Randy Hultgren
“Municipal bonds are a lifeline to Illinois communities looking to expand a high school or repair their infrastructure,” said Rep. Hultgren.
“These tools of ‘fiscal federalism’ allow municipalities to raise their own funds tax-free, using their own expertise and avoiding the heavy bureaucracy of the federal government.
“If passed, H.R. 2229 would help a school investing in an infrastructure project in the range of $30 million save nearly $4 million in interest costs.
“We should expand this Main Street financing tool for municipalities intimately connected to the needs of their communities.”
Rep. Hultgren has made protecting municipal bonds a priority while in Congress.
This year, Rep. Hultgren worked with Rep. Dutch Ruppersberger (D-MD) to lead an effort along with 122 of their colleagues (63 Democrats, 61 Republicans in total) to protect tax-exempt municipal bonds by sending a letter to House leadership asking them to reject any proposal to cap or eliminate the deduction on tax-exempt municipal bonds.
Previously, he held a Municipal Finance Roundtable at the University of Illinois at Chicago to convene expert panel of issuers, investors, credit analysts, and other market participants to discuss the most pressing issues facing the municipal finance market.
Woodstock CUSD had complete palette of creative bond financing available, allowing the Board to borrow up to the statutory cap while deferring interest payments.
Now, CUSD 200 has about $118 of principal debt, another $15-$30 million of unpaid accrued interest ( interest which is owed for past years of debt, but doesn’t have to be paid until later due to terms of the bonds.
Interest just builds up and earns more interest– further indebtedness of the taxpayers).
The incentive to defer interest payments: only principal debt is counted toward statutory debt limits.
This debt accounts for 6.5% of the taxable total vale of all homes and property in the District.
(The statutory maximum debt cap is 13.8% of EAV, and since EAV is 1/3 of total property value, statutory maximum borrowing is meant to be capped at 4.6% of total home value.)
This school district taxes over 8% of EAV, so it taxes 2.7% of total home value.
In Woodstock, property tax rate is 4.6% of total home value.
This school district board has long expressed the opinion that falling property values are the source of funding problems.
No board member has publicly expressed, to my knowledge, any comprehension or acknowledgement that 4.6% property tax rates and plummeting real estate prices are correlated.
And you want to give THESE people more borrowing ability?
No Randy, gov agencies borrow to much already.
There are no protections for property taxpayers facing hiked property tax bills from the issuance of more bonds in this bill.
While on the one hand supporters of the bill state the cost to issue bonds could be reduced, on the other hand can we afford the bonds irregardless of the costs to issue the bonds.
Especially since bond principal and interest payments by property taxpayers to the school district (via the county) are outside the property tax cap.
One purpose of the bill is attempting to level the playing field between the middle level players and the big players in the bond market.
But another lense which should be considered is overall education and school district spending which includes Federal, State (General State Aid, Mandated Categoricals, Pensions, etc.), and Local.
Spending on education is higher than the per pupil numbers being reported by the Illinois Interactive Report card and other sources for the above reasons and others.
Other numbers that can be included in the cost to educate a child would include the US Department of Education, Illinois Department of Education, Regional Offices of Education, and more.
This bill does not increase the authority of local governments to sell bonds.
Not by one penny.
Period.
End of story.
This bill only creates an incentive for banks to buy bonds of small municipal issuers.
The increased incentive should reduce the interest cost to taxpayers, based on the current interest rate differential between bank eligible bonds and non-bank eligible bonds.
Now, there is no such thing as a free lunch.
The offset to the lower interest rates for small local borrowers is an increased federal income tax subsidy for the banks.
The point was there needs to be increased protection for taxpayers for bond debt, especially in the event that more bonds are issued by a taxing district going forward.
The existing transparency and protections are not good enough.
Just lowering taxpayer interest costs isn’t good enough.
Plenty of taxing districts are in poor financial condition due to bond debt and unfunded pension and healthcare liabilities.
Plenty of taxpayers do not have a good handle on what that means to them personally.
Something more needs to be done.
So any bond bill no matter what its for should have some sort of additional transparency and disclosure protections for taxpayers until we figure out how taxpayers can understand what this debt could mean to their pocketbooks.
Thanks to Mark for articulating my point more clearly.
If the exertion of power is focused on enabling schools to raise more money more easily/cheaply, there is a distraction away from the unresolved problems:
*Crushing (school) debt burdens destroying property values and raising tax rates alarmingly.
*Statutory debt limits are ineffective when they do not include accrued/unpaid interest in the debt calculation.
There is an incentive for schools to borrow under terms which extrude debt over longer time periods and defer interest payments so as to get principal debt back under statutory cap.