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  • Public Bond Issues in Missouri – Does Proposed Legislation Provide Safeguards or Limitations?

    Missouri municipalities should be aware that eight separate bills were recently introduced in the Missouri House regarding the issuance of bonds. The proposed legislation is a response to last summer’s failure by the firm Mamtek to make good on its plan to set up and operate an artificial sweetener factory in Moberly, Missouri. Mamtek missed payment on $39 million in bonds issued by Moberly, resulting in the city likely defaulting on the bonds, the project halting, and the factory not opening. The bond rating of Moberly was downgraded by Standard & Poor’s as a result.

     

    The bills were introduced in the Missouri House with sponsorship by both Republicans and Democrats. For reference, the bills are house bills numbered 1304, 1771, 1772, 1773, 1774, 1775, 1776 and 1859. While these bills apply to all political subdivisions or local governments, the primary focus appears to be municipalities, particularly smaller municipalities. Based on initial reaction to these bills, ongoing discussion, debate and perhaps proposed bill amendments, could center on whether the bills in fact constitute needed oversight of, or undue restrictions on, public entities with respect to their development projects.

     

    Two of the bills, which would add sections to Chapter 67 of the Missouri Revised Statutes, bill numbers 1304 and 1771, respectively would require political subdivisions to obtain voter approval for any new bond issuance, unless repayment of the bonds is to be solely from revenue generated by the project, and also would require advance notice, to be published, and a public hearing, to be held at a regularly scheduled meeting of the governing body of the political subdivision. The notice must inform the public that the bond issuance may affect the political subdivision’s bond rating, and that bond default may result in adverse consequences, including reduction in credit rating or increase in cost of future borrowing.

     

    Another two of the bills in turn would add new sections to Chapter 108, Missouri Revised Statutes. Those, bill numbers 1776 and 1773, respectively would require the governing body of any local government issuing any appropriation bonds to provide insurance that repays such bonds in the event of default by the local government, and moreover, would require the underwriter and the rating agency for any bond issued by any municipal or local governing body to investigate the financial status and material business claims of any company or project for which a bond is issued and will benefit.

     

    The other pending bills would impose certain requirements on the Missouri Department of Economic Development when economic development assistance or state or local economic incentives are involved. For example, the Department has to share all information which it may have about a company seeking such assistance or incentives, with all local governments and economic development officials competing for that company’s business, and those local governments and development officials must share any negative information they have about the company with the Department. The Department has to develop a five-star system by which to advise local governments of the Department’s opinion on proposals for economic development incentives. Further, the Department must require applicants for economic development assistance to provide third-party verification of financial information when such information is submitted to the Department. If a company seeking development assistance has been licensed to conduct business in the state less than three years, the Department is to require the key officers of such company to pay fees for any basic criminal and personal financial background check.

     

    Given the publicity and political issues raised by the Mamtek matter, as well as the sponsorship by members of both parties, it appears that these bills at some point will move forward in the House. Assuming that the bills do move forward, political subdivisions and local governments should have a strong interest in tracking the process and being involved in the evaluation, discussion and debate.

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