Reports - Mississippi Renewal

144 | FINANCEexcise or other specified non-ad valoremtaxes. Generally, voter approvalis not required prior to issuance ofsuch obligations. The rating and costof capital varies greatly on the qualityof the revenue source and the level ofprojected debt service coverage.■ General Obligation Bonds. Generalobligation bonds are secured by thefull faith, credit, and taxing power ofan issuer. General obligation bonds issuedby local units of government aretypically secured by a pledge of the issuer’sad valorem taxing power. Ad valoremtaxes necessary to pay debt serviceon general obligation bonds arenot often subject to the constitutionalproperty tax millage limits (an “unlimitedtax bond”), although in somecases such limit may exist (a “limitedtax general obligation bond”). Suchbonds constitute debts of the issuerand often require approval by electionprior to issuance. In the event of default,the holders of general obligationbonds have the right to compel a taxlevy or legislative appropriation. Thisgenerally is the lowest borrowing costfor local governments.■ State Moral Obligation Bonds (MississippiDevelopment Bank). Moralobligation bonds are issued by a stateagency or authority that is securedby a non-binding covenant that anyamount necessary to make up anydeficiency in pledged revenues availablefor debt service will be includedin the budget recommendation madeto the state legislature or other legislativebody, which may appropriatemoneys to make up the shortfall. TheMississippi Development Banks issuessuch debt in the state. The legislatureor other legislative body, however,is not legally obligated to makesuch an appropriation.Mississippi’sCurrentFinancialSituationWhile the state faces noliquidity concerns in thenear term, it expects tolose approximately $300million in revenue overfour months. The Bureauof Buildings has reportedlosses at state universitiesand community collegesto be approximately$176 million. Damage toother state-owned buildingsis estimated to be$345 million. Even afterreimbursement from theFEMA, the state expectsto require $400 million forinfrastructure repairs.Source:Mississippi Department of Finance andAdministration. Bureau of Buildings, 2005.■ State General Obligation Bonds. Issuedby states, these bonds are generallybased upon appropriations madeby the state legislature for the purposesspecified. The state’s generalobligation credit, rated in the “AA”category, is very attractive to creditsensitiveinvestors and can be soldwith a very low cost of capital.Public Entity PossibilitiesPost-Katrina■ Mississippi Development Bank HurricaneKatrina Relief Program. Localgovernmental units affected by HurricaneKatrina—such as counties,municipalities, school districts, utilitydistricts, public hospitals—may beeligible to participate in the MississippiDevelopment Bank HurricaneKatrina Relief Program. Currentlythis Program has approximately $100million in available funds to offer inloans. These loans offer a variable interestrate with no principal or interestpayment for two years (capitalizedinterest), and loans may be prepaid atany time with 30-days notice. Thereis a mandatory redemption for suchloans at the end of two years. Theloan proceeds may be used to financecapital projects, equipment, workingor operating capital, and debt serviceneeds. There is no requirement for abond issue at the local level, but thelocal governmental unit executes theloan agreement pursuant to a resolutionadopted by the governmentalentity approving the loan and taxintercept agreement. This program isdesigned to take one week to completethe process from the local actionto the closing of the loan and deliveryof proceeds.■ Advance Refunding. Congress haspassed legislation that will in part al-