CC AGENDA 12221970 - Laserfiche WebLink

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' Comments on Proposed Policy Additions State Guarantee of Local Bond Issueso The irst proposal is a recommendation that the state place the full faith and credit of its taxing powers behind the general obligation bond issues of local government units. In the past year and a half, some municipalities both outstate and in the Twin Cities area have found that money for their capital needs has been both difficult and expensive to obtain. It seems probable that the state guarantee would improve substantially the bond ratings for these municipalities, resulting both in improved marketability of their bonds and in considerable interest rate savings. While there is no history of defaults on Minnesota municipal general obligation issues, the insurance fund included in the proposal will serve as an additional safeguard against delinquencies or defaults, so that the credit of the state in no case would be impaired. An important feature of this proposal is its voluntary nature, Participation in the state guarantee program would be at the discretion of the municipality. Each local unit would continue to have, within its statutory limit, the freedom to undertake its own financing, and in no case would review by a state agency be made under this proposal. Short-term Financing, The second proposal would give municipalities additional flexibility in short-term financing, allowing them to establish limited lines of credit with banks. Apart from the discretion which a prospective lender may be expected to exercise, the proposed authority would be restricted in two ways. First, a three-year time limit is proposed. Second, instead of specifying a dollar limitation, the proposal includes an alternative which allows for the differing financial conditions of municipalities. Similar safeguards have proved very workable, as in M.S.A, 412.221 Subd. 2 (conditional sale contracts, contracts for deed) and M.S,A, 412.301 (certificates for indebtedness for purchase of emergency equipment) . Both statutes provide that where the amounts involved exceed one per cent of the assessed valuation, the municipality must publish a resolution determining to proceed with the proposal and an election is required if within 10 days after publication a petition signed by voters equal to 10 per cent of the number of votes at the last regular municipal election is filed with the clerk, Of course, if the voters then reject the proposal, the community cannot proceed, On the other hand, if no such petition is filed, the municipality is free to make the contract, etc. As you are probably aware, the practice of issuing warrants - the one really useful short-term financing alternative available to most municipalities - has been criticized in recent years by the Public Examiner and the Minnesota Bankers Association. In 1969, a bill was introduced in the legislature to prohibit the issuance of warrants and it is possible that a similar bill will be introduced in 1971. If warrants are to be outlawed, then a satisfactory substitute must be provided. Discussions with the above groups have indicated that they would favor the proposed short-term borrowing authority. ral 11/18/70 40