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league of minnesota oities <br /> <br />March 17, 1980 <br /> <br />TO' <br /> <br />FROM: <br /> <br />RE: <br /> <br />City Mayors, Managers/Administrators, Clerks <br />Donald Slater, Executive Director <br /> <br />Municipal Bond Interest Rate Bill <br /> <br />Cities can't sell municipal bonds today because state law prohibits them from paying <br />more than 7% interest on bonds and no municipal security will sell today for that rate. <br />The League is working for legislation which would eliminate, at best, or raise, at <br />least, the 7% ceiling. <br /> <br />Unfortunately, the crisis in the sale of municipal bonds has attracted other proposals <br />which various legislators want to see passed as a part of the legislation which would <br />provide relief from the 7% ceiling. <br /> <br />One such proposal is that the Attorney General of the State of Minnesota be designated <br />as bond counsel to all political subdivisions. While at first glance, the idea may <br />sound economical and appealing, it would force cities under the control of the Attorney <br />General for bonding with no guarantee that he would have the necessary expertise on his <br />staff in local government bonding. This could result in chaos with an extended period <br />during which local bonds couldn't be sold. The Attorney General, moreover, hasn't sought <br />this authority nor is it certain that investors would accept the Attorney General's op- <br />inion. <br /> <br />Another proposal is that the State Investment Board be mandatorily designated as the <br />marketing agent for municipal bonds. This idea would, if enacted, hamstring cities <br />also. There are a number of problems with this proposal. These include: state control <br />of the marketability of municipal bonds; availability of services; competency of ser- <br />vices; and the question of the desire of the agency to embrace these new services. <br />This proposal is, therefore, very difficult for cities. <br /> <br />These two proposals have no city support and must be defeated at all costs because they <br />constitute a real threat to municipal bonding. <br /> <br /> Another set of proposals, while calling for an increased municipal bond interest ceiling, <br /> propose other restrictions. One is that, even though the legislation provides for a new <br /> 10% interest ceiling, it would "sunset" the raise in the ceiling, ioe., return the interest <br /> ceiling set for municipal bonds to 7% as of the "sunset" date, namely July I, 1981. The <br /> <br />300 hanover building, 480 oedar street, saint paul, minnesota 55101 [812] 22~2-2881 <br /> <br /> <br />