6.1. & 6.2. SR 04-14-2003 - Laserfiche WebLink

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made within the confines of the generally applicable levy limit. It also follows that bonds issued in the future by cities and counties will be limited tax bonds subject to a single overall levy limit along with operating levies. Second, Article 5, Section 1 of HF 751 would subject any increase in the amount of taxes levied in 2004 and thereafter, including a tax increase occasioned by the need to levy for bonds, to a reverse referendum procedure. This provision applies to both new and existing bonds. As to existing bonds, it has the effect of converting general obligation bonds to limited tax bonds and potentially abrogates the contractual obligations of the issuer. With respect to new bonds, the uncertainty of the reverse referendum process inhibits decision making because the city or county can never be sure whether the added burden of a bond issue will be sustained by the voters until such time as the new taxes are levied. Credit Concerns The basic credit concern with a limited tax bond is that the need to levy for debt service could put a squeeze on the issuer's ability to levy taxes for essential operating and other purposes. Particularly in a time of stress, there is a concern that the city will not be able to meet its debt obligations due to budgetary stress. Rating Agency Reaction In the words of Standard & Poor's, limited obligation bonds "lack the strong inherent protection of an unlimited-tax obligation". The rating agency consensus is that some limited obligations will be rated lower than general obligations of the same issuer, thereby increasing the borrowing costs of many issuers. In general, the rating agencies evaluating limited tax obligations focus on the stability of non-tax revenue sources and the size of available reserves. This focus is likely to encourage cities and counties to maintain reserves that otherwise would not be necessary and to increase fees for services. Policy Considerations If limits are to be placed on the amount of taxes which cities and counties can levy, we believe those limits should continue to exclude levies for general obligation bonds. Cities and counties cannot issue debt for operating purposes (except in anticipation of taxes which they can otherwise levy) and the debt service levy is only a part of the overall levy. Accordingly, preservation of the special levy concept will not significantly affect the overall amount of taxes which can be levied. I-IF 751 in its current form would discourage borrowing for capital purposes at a time when the economy is slow and interest rates are at historically, thereby impeding economic recovery and increasing future costs. Further, it will degrade the quality of bonds previously issued by Minnesota cities and counties and Minnesota's reputation in the marketplace. M1:979180.01