Agenda - Environmental Policy Board - 06/17/2008

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,"rl<. TRUST "' PU'BLlC LAND ~ RAMSEY CITY, MINNESOTA Feasibility Study General Obligation Bonds Background General Obligation (G.O.) bonds are guaranteed by the full faith and credit of the city and are most frequently backed by property tax revenues. These are the type of bonds discussed in this report. However, it is important to note that some bonds are financed by other revenue sources. For example, the revenues of facilities that charge users for services back revenue bonds. Revenue bonds are widely used for sewer, water and storm sewer utilities.23 The Minnesota statutes list various purposes for which any city may issue G.O. bonds; among these are the acquisition or betterment of parks and the acquisition of development rights in the form of conservation easements.24 When the use of proceeds is the acquisItion or betterment of any land or easements, the proceeds may be used to pay all expenses that are reasonably necessary and incidental. This includes the cost of necessary professional planning studies to determine desirable locations, architectural, engineering, legal, financial advisory, and other professional services, printing and publication, and interest to accrue on obligations prior to the anticipated date of commencement of the collection of taxes or special assessments to be levied (or other funds pledged for the payment of the obligations and interest),.25 Proceeds from a general obligation bond issuance may not be used for ongoing expenses, such as maintenance. G.O. debt for cities is limited by state law to 2 percent of the market value of all taxable property in the county.26 Local governments may set more restrictive debt limits. Improvement assessment bonds, tax increment bonds, utility revenue bonds, pure revenue bonds, capital improvement bonds under an approved capital improvement plan, judgment bonds and similar bonds may be issued without regard to the statutory debt limit. (There may be other requirements for bonds that are exempt from the debt limit: for example capital improvement bonds must be approved by an affirmative vote of three-fifths of the members of a five-member governing body.) The result is that, with only a few exceptions, the only obligations subject to the debt limit are general obligation bonds payable solely from ad valorem property taxes.27 Typically, general obligation bonds may be issued only upon majority approval of voters. As is the case with the debt limit, a number of exceptions limits this rule to a very few bond issues. Among those exceptions are: . Improvement bonds or tax increment bonds where special assessments or tax increments pay at least 20 percent of the cost of the project financed. . Revenue bonds 23 Segments of this section have been excerpted from: League of Minnesota Cities, "Handbook for Minnesota Cities," htt:p: / /www.lmnc.org/librarv/handbook.cfm 24 Minn. Stat. 475.52, Subds. 1 & 2. TIlls statute references G.O. bonds, plus other types of bonds. 25 Minn. Stat. 475.65. 26 Minn. Stat. 475.53 27 League of Minnesota Cities, 2007 Handbook - Chapter 24-IV-b: Debt Limit 16