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Draft: 4/1/03 <br /> <br />Minnesota Institute of Public Finance, Inc. <br /> <br />MEMORANDUM <br /> <br />To: <br /> <br />CC: <br /> <br />FROM: <br /> <br />DATE: <br /> <br />SUBJECT: <br /> <br />Minnesota House of Representatives <br />c/o Representative Ron Abrams <br /> <br />Governor's Office <br />Department of Revenue <br />Minnesota League of Cities <br /> <br />Minnesota Institute of Public Finance <br /> <br />April __, 2003 <br /> <br />Impact of House File No. 751 on Municipal Finance <br /> <br />Introduction <br /> <br /> This Memorandum is submitted by the Minnesota Institute of Public Finance to describe <br />how HF 751, if enacted in its present form, will radically alter the nature of debt obligations <br />issued by Minnesota cities and counties and increase the cost of local government. <br /> <br />Minnesota General Obligation Bonds <br /> <br /> General obligation bonds are the most common debt instrument issued by Minnesota <br />cities and counties. Such bonds pledge the full faith, credit and taxing powers of the city or <br />county. The promise by the city or county to levy property taxes without limit as to rate or <br />amount, if necessary to pay principal and interest when due, is fundamental to the credit <br />strength of these bonds. By virtue of Minnesota's special levy exemption for bonded <br />indebtedness the taxes levied to pay debt service are exempt from levy limits. <br /> <br /> Based on this statutory framework, Minnesota general obligation bonds command the <br />highest credit rating and the lowest interest rate that can be obtained in the marketplace. <br /> <br />House File No. 751 <br /> <br /> HF 751 would eliminate the issuance of general obligation bonds by Minnesota counties <br />and cities and, in contravention of the pledge to bondholders, convert outstanding bonds into <br />limited tax bonds. <br /> <br /> First, Article 5, Section 3 of HF 751 would eliminate bonded indebtedness as a special <br />levy for future bond issues. As a result, any levies for bonded indebtedness would have to be <br /> <br />2200 First National Bank Building · Saint Paul, MN 55101 · (651) 223-6404 · Fax (651) 223-6450 <br /> kganley~briggs.com website: mnipf, org <br /> <br /> <br />