I recently asked on JJ if the bond payments made by Madison County on behalf of two public improvement districts in 2011 were legal. Madison County made two bond payments in 2011 of $258,328 on May 11 for the Parkway South and $374,021 on October 24 for the Parkway East Public Improvement Districts. This is an important issue as the Madison County Journal and others have charged the supervisors are raising taxes to cover the bond payments. Earlier post
The gentleman from Clarksdale (and he was indeed a gentleman on the phone) said the payments (my term) were legal. He said they were not payments as the county loaned the money to the reserve funds of the PIDs. The PIDs then made payments out of the reserve funds. Mr. Espy said the law did indeed ban the county from directly paying the bonds but it did not prohibit loans as the law said the PID could receive money from all sources. Section 19-31-23 of the Mississippi Code states:
"(2) ...... all obligations issued by the district shall be negotiable instruments and payable solely from the levy of any special assessment by the district or from any other sources whatsoever that may be available to the district but shall not be secured by the full faith and credit of the state or the county or municipality that created the district..."
Mr. Espy also said if the PIDs do not repay the loans, then the county can take action to foreclose on assets held by the PIDs. The board minutes do state the county will obtain first position on tax patents in the district. He stressed the full faith and credit of the county were not supporting the bonds.
However, I must respectfully disagree with this explanation. The contribution agreements between the county and the PIDs do not say anything about loans. What they do say is
"The contribution agreement provides that in the event the District fails, for any reason, to levy and/or collect (or have collected) a sufficient amount of Special Assessments from the owners of land within the district in order to satisfy any debt service payment, the county shall advance to the trustee the outstanding amount required to satisfy the deficient debt service payment." (P.21 of the Issuing statement.) Parkway East Contribution agreement
Trustee and paying agent both mean Hancock Bank. That means if the county follows the agreement, it must make the payment directly to the bank which sold the bonds. There is also one further problem with the loan defense. The statute and Attorney General opinions agree on one fundamental point: the county can not make bond payments for a public improvement district. However, there is the question about a "loan". While the law does say the district can receive money from any source, the law does specify what the county can't do with its money. Section 19-31-29 states:
"Bonds issued under the provisions of this chapter shall be limited obligations of the district payable solely from the sources pledged for the payment thereof. All such bonds shall contain a statement on their face substantially to the effect that neither the full faith and credit of the state nor the full faith and credit of any governmental unit of the state are pledged to the payment of the principal of or the interest on such bonds. The issuance of bonds under the provisions of this chapter shall not directly, indirectly or contingently obligate the state or any governmental unit of the state to levy any taxes or to make any appropriation for their payment arising out of contracts authorized under this chapter."
Appropriation. That means money directed to a specific purpose. Grants. Expenditures. Spending. Rebates. Refunds. Awards. and yes, loans. Doesn't matter. its money directed by the county for a specific purpose. That is an appropriation. Period. Parkway East sent a notice of default to the county. The board of supervisors authorized payment made to the PID to cover the bonds. The PID sure didn't call it a loan in its default notice. Does this language below sound like a loan to you?
"In summary, several landowners in the District failed to pay Special Assessments resulting in a substantial shortfall in the Pledged Revenues which secure the Bonds. The Trustee notified the Board of Supervisors of Madison County (the “County”) of the shortfall in the Pledged Revenues sufficient to pay Interest and Principal on the Series 2005 Bonds on the May 1st Payment Date and requested payment under the Contribution Agreement which provides for the County’s contribution to fulfill any underfunded debt service payment due on the Series 2005 Bonds. The County has provided funds to cover the shortfall on the Series 2005 Bonds. Therefore, the principal default has occurred only on the 2008A Bonds. There is no default on the Series 2005 Bonds..."
Just to make sure you get the point, here are the minutes from the April 25, 2012 meeting of the Madison County Board of Supervisors:
"Board Attorney Eric Hamer appeared before the Board and reported that the Parkway East Public Improvement District has advised the county through correspondence addressed to the Chancery Clerk that it has failed to collect special assessments sufficient to make its debt service payment due November 1, 2011 and that, consequently, the county has been called upon to make up the shortfall under and pursuant to that certain Contribution Agreement between the PID and the county....
(5) to further find, determine and declare that the payment contemplated and authorized herein is being made pursuant to the aforesaid Contribution Agreement in full reliance on the advice of special counsel, Butler Snow...."
Let me see, the contribution agreement states the county will pay the deficiency to Hancock Bank. The default notice states the county paid the amount of the deficiency. Hancock Bank demanded payment of the bonds from Madison County. The board minutes state the purpose is to make up the bond payments for the PID under the same contribution agreement. They can call it what they want but these payments were appropriations to help Parkway East and South make their bond payments. The law banned these appropriations for one clear purpose: to prevent these "improvement" districts from selling bonds and sticking the taxpayers with them if the PIDs fail.
Monday, September 24, 2012
More on the Parkway bond payments
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14 comments:
Is this all based on current law? Was legislation passed at some point that allows the county to make the payment? An AG opinion? I heard that the notations above are the old rules and that new rules had been put in place prior to the 2011 payments.
No. The law was not retroactive. Waiting for someone to show me where it is. It wasn't passed and signed until this year.
I see that the county is not obligated to make the payment, but I don't see anything that prevents them from making a payment.
That being said, I can't understand what would compel the county to make a payment on something that they were not obligated to do. PIDs pay for themselves, or don't, but they are absolutely not General Obligations and if they fail, the bondholders are the ones that are stuck. They would've been made aware of these risks prior to purchase, not that PIDs are anything too complex.
I'd be asking who owns these bonds and is there a connection between the bond owners and the county. It's highly unlikely that I'll be making my neighbors house payment anytime soon, even if his bank asks me to do so...
OK, state law says that issuance of PID bonds shall not directly, indirectly, or contingently obligate the county, and the agreement between the PID and the county says that the county is guaranteeing (directly or indirectly obligating itself to) the bonds. It's my understanding that in order for a contract to be binding, it has to be legal. Wouldn't this guaranty be illegal and therefore void as it appears to violate this section of the statute?
3:32,
Common sense would say so, but who knows what Hamer et al will think up to make sure the payment goes through. And I have yet to hear anything from the landowners and why payments have not been made. Nor have we heard a peep from the bondholders. Perhaps both are by design.
Don't the landowners lose their land if they do not pay their PID accessments and taxes? Now someone do their homework and find out why the supervisors had the county back these bonds. Keep looking you might find out the landowners were miss lead.
Is the Boa constrictor anywhere in this mix?????
Madison County now owns a large portion of the adjacent PID property parcels because of failure of the owners to pay taxes... Does Madison County incur the responsibility of making PID payments on it's property? Or, will those costs be rolled over to the other PID property owners? This would be the "doomsday snowball" scenario with the entire charade collapsing.
The amount of money borrowed was much higher than what was originally estimated for construction of the parkway. Warnock originally estimated the cost of the parkway at approximately $10M... but some how nearly $42M in bonds were issued. So, all the land owners got socked with much higher "special assessments" than they had been told. One small example... Just look at the MCEDA minutes and what their board approved vs their actual annual "special assessment." The actual assessments are 3 to 4 times higher than the amount the MCEDA Board had been told and what they approved in their minutes. It has been rumored that MCEDA has seriously considered giving their Parkway East property away to get out from under the stagering annual "special assessment" payments.
And, the reason we haven't heard from the PID years ago is that the first two years of Bond Debt Service payments were made with principal from the bond issue.
Also, the PID parcels aren't worth as much as they should be because money that should have been spent for promised "infrastructure" such as water and sewer, has now been used to make bond debt payments. So, some of the parcels don't have utilities!
So, it looks like the Madison County Tax Payers, or possibly some of the bond attorneys, may be making payments for many years.
What does Standard and Poor's have to say about these bonds?
Why do the words "General Obligation" appear, for example, in two abstracts for Parkway East PID bonds?
Published March 01, 2010
Published Dec 07, 2011
ATTENTION MADISON COUNTY SUPERVISORS! DO NOT RAISE MY TAXES TO PAY PID BONDS! THAT IS AGAINT THE LAW! Just saying!
Can somebody tell me what happened on The Voice tonight? I was gonna watch it, but I had all these Honey Boo Boo reruns DVR'd that I had to get through.
Thanks in advance,
Everyone in America
This is a bad deal for everyone. Another Highland Colony Parkway, they said. Bondholders were only too happy to put up the money once the county guaranteed the loan. The downturn hit, the development went south and here we are. The only way out of this is for everyone involved to take a haircut and move on. Bondholders, developers, attorneys, taxpayers - need to realize this is a workout situation and not one where the taxpayers should be left with a $40 million bill and some swamp land while everyone else gets out whole. Bill Billingsley
Bill, I agree with 99% of what you say. My question is: why should the taxpayers take a haircut on this? Other than having elected the supervisors that hired the attorney, voted to approve the bonds, etc, the taxpayers had nothing to do with this. (And I might note, many of the people who "voted to elect" the board may not in fact be taxpayers.)
This was a business deal. It went bad. The business owners and lenders should take the hit. But not the taxpayers.
If an individual owns a business (i.e. a restaurant, an office building, a retail store) and it goes south, the taxpayers don't bail it out.
"If an individual owns a business (i.e. a restaurant, an office building, a retail store) and it goes south, the taxpayers don't bail it out."
You have a rude surprise coming. These deals are everywhere.
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