Title
Transportation Benefit District (TBD) Debt Financing
Body
Issue:
Review and evaluate the issuance of debt using Transportation Benefit District funds
y
Treasurer's Recommendation:
Discuss the legal and practical concerns surrounding the issuance of debt by a Transportation Benefit District (TBD) and/or the City of Olympia issuing revenue debt with the TBD revenues as the sole revenue stream.
Staff Contact:
Jane Kirkemo, TBD Treasurer, 360.753.8499
Presenter(s):
Jane Kirkemo, TBD Treasurer
Background and Analysis:
At the January meeting of the Olympia TBD, the Board asked staff to evaluate two debt proposals: 1) Can the TBD issue its own debt? 2) Can the City of Olympia issue revenue debt by pledging TBD revenues? The questions have to be looked at from both a legal and a practical aspect. I contacted Foster Pepper, the City's bond counsel, as well as the State Auditor's office. Currently there are approximately 50 TBDs in Washington State (no county TBDs) established with a $20 fee and none have issued bonds.
The TBD statute states that a TBD is a "quasi-municipal corporation, an independent taxing authority and a taxing district." TBDs are statutorily authorized to issue general obligation bonds within a statutory limit as well as revenue bonds. A Washington State Supreme Court case, however, analyzed a library district and whether it was truly an independent entity. The case is Granite Falls Library Capital Facility Area v. Taxpayers, 134 Wn.2d 825. Based on this and other cases, the concern is that courts may look to the facts and circumstances to determine whether the TBD acts sufficiently independently of the City, and if it does not, the TBD debt could be determined to be debt of the City. A court would look at whether there are sufficient guidelines and safeguards to ensure the TBD Board acts solely in their capacity as members of a governing board separate from the City Council, that the TBD funds were not commingled, that the TBD and not the City conducts the TBD affairs, and that the City received consideration for services and funds provided to the TBD. Currently the Olympia TBD (OTBD) does not act independently. The OTBD does not have any employees, they do not independently contract for services, and the funds are used to pay for City of Olympia projects.
If the TBD issues bonds, the City's credit could not be pledged to secure those bonds. This is the practical aspect of issuing debt. If the City of Olympia did not pledge its full faith and credit to back the bonds, the TBD would not receive a high rating and thus not receive a favorable interest rate or even potential bidders for the bonds.
Can the City of Olympia issue revenue debt and pledge the TBD revenues as repayment? Again the answer is legally, yes but practically, no. Cities build parking garages and municipal golf courses and pledge the revenues against debt service. In order to issue revenue debt the City could not pledge its "full faith and credit" or any general fund revenue. In the examples of a parking garage or golf course, the City has the ability to raise the rates/fees pledged for debt services. However, state law prohibits the TBD from increasing the $20 fee without voter approval. In addition, with revenue debt there is a coverage requirement of at least 1.25 times annual debt service and a reserve account must be established. The reserve account further secures the bonds.
If the City issues revenue bonds, I recommend a short bond - 10 years or less. The TBD fee is on automobiles. Who knows what the future holds for that industry? The price of gas could get so high that people get by with only one vehicle. Or public transit may be readily available and people choose that option instead. And, because no one has done this before the bonds become "story bonds," meaning we have to tell the story to investors in order to gain interest in the bonds.
For all these reasons, I do not recommend either the TBD or the City of Olympia issue bonds with the TBD receipts pledged as the sole source of repayment.
Neighborhood/Community Interests (if known):
N/A
Options:
This item is for discussion only. Any action would have to be taken by the TBD.
Financial Impact:
None