PUBLIC FINANCE HANDBOOK FOR TEXAS COUNTIES PREPARED BY THOMAS M. POLLAN BICKERSTAFF HEATH DELGADO ACOSTA LLP 3711 S. MoPac Expressway Building One, Suite 300 Austin, Texas 78746 (512) 472‐8021 (512) 320‐5638 [Fax] FOR THE TEXAS ASSOCIATION OF COUNTIES 1210 SAN ANTONIO AUSTIN, TEXAS 78701 THE HONORABLE CONNIE HICKMAN, ASSOCIATION PRESIDENT ASSOCIATION STAFF MEMBERS SERVING YOU AND YOUR COUNTY’S NEEDS Gene Terry, Executive Director Rex Hall, Assistant Executive Director Karen Gladney, General Counsel David Hodges, Director of Education Nancy Lyter, Finance Director Randy Plyler, Director of Risk Management Services Stan Reid, Chief Information Officer Paul Sugg, Director of Governmental Relations TAC Phone: (512) 478‐8753 TAC Fax: (512)478‐3573 Legal Research Toll Free “Hot Line”: (888) 275‐8224 Or visit us online at: www.county.org Copyright © 2012 by Thomas M. Pollan PAGE i Introduction to the Author Tom Pollan is an Austin attorney in private practice who has served as a willing and able external resource for the Legal Department of the Texas Association of Counties for many years. In fact he provided much of the early organizational guidance for the Association before there was a staff legal department at TAC. The Association will always be in his debt for the counsel he has provided through the years. The user of this publication will easily perceive Pollan’s gift for insightful and practical guidance through a maze of a very technical field of law and practice. We believe that this publication is unique and will become an essential tool for county officials. Thank you, Tom Pollan. Karen Gladney General Counsel Texas Association of Counties PAGE ii The materials contained herein represent the opinions and views of the author and should not be construed to be the views or opinions of the Texas Association of Counties. Nothing contained in this book is to be considered as the rendering of legal advice for specific cases, and readers are responsible for obtaining such advice from their own legal counsel. This book is intended for educational and informational purposes only. Copyright © 2012 by Thomas M. Pollan PAGE iii About the Author Tom Pollan is a partner in the Austin law firm Bickerstaff Heath Delgado Acosta LLP. Prior to joining the firm, he was Chief of the Insurance, Banking and Securities Division of the Office of the Attorney General of Texas. He has represented numerous counties, cities and special districts throughout the State of Texas in the issuance of general obligation bonds, revenue bonds, certificates of obligation and tax notes. He is a frequent speaker at public finance seminars and training programs, including those sponsored by the Texas Association of Counties, the V.G. Young Institute, and the Texas Leadership Institute. In addition to serving as bond counsel, underwriter’s counsel and issuer’s counsel, he also has successfully tried several bond validation lawsuits. He is a member of the National Association of Bond Lawyers and is listed in the Bond Buyer’s Municipal Marketplace (the “Red Book”). He serves as bond counsel, underwriter’s counsel and special counsel in connection with local government financings. He has personally served as bond counsel to over fifty Texas counties. Tom is always willing to consult with county officials concerning public finance issues. He can be reached at the following address: Tom Pollan Bickerstaff Heath Delgado Acosta LLP 3711 S. MoPac Expressway Building One, Suite 300 Austin, Texas 78746 Telephone: 512-472-8021 Fax: 512-320-5648 Email: [email protected] PAGE iv TABLE OF CONTENTS Page Chapter 1 A County Must Have Express Authority to Create Debt ............................. 2 Chapter 2 Consultants and Persons Involved ............................................................ 5 Chapter 3 The Entire Project Should be Considered in Issuing Bonds ....................... 9 Reimbursement Resolution .................................................................. 9 Chapter 4 The Issuance Process for Ad Valorem Tax-Backed Obligations .............. 11 Reimbursement Resolution ................................................................ 12 Determination of Financing Vehicle .................................................... 12 Pre-Sale Issues .................................................................................. 13 Post Sale – What to Do with the Money ............................................. 14 Chapter 5 Documents Used in a County Bond Issue ............................................... 16 Chapter 6 Types of Financing Commonly Used in County Debt Financing .............. 19 General Obligation Bonds .................................................................. 19 Bid Requirements .......................................................................... 19 Revenue Bonds .................................................................................. 20 Certificates of Obligation .................................................................... 20 No Election Required Unless Valid Petition Presented ................. 21 CO’s Sold for Cash ....................................................................... 21 Competitive Bidding ...................................................................... 22 Purposes Combined ...................................................................... 23 Tax Notes ........................................................................................... 24 Contractual Obligations ...................................................................... 26 Time Warrants .................................................................................... 26 Refunding Bonds ................................................................................ 28 Lease Purchase Obligations ............................................................... 29 Equipment Financing .................................................................... 29 Real Property ................................................................................ 30 Lease Purchase Transaction Must be Properly Structured ........... 30 Lease Documents Need to be Reviewed and Negotiated ............. 31 The County Must Be Prepared to Terminate ................................. 31 Summary Table .................................................................................. 32 Chapter 7 Bond Elections ......................................................................................... 33 PAGE v Timeline .............................................................................................. 34 Federal Voting Rights Act ................................................................... 37 Canvass ............................................................................................. 38 Elected Officials Need to Affirmatively Support the Bond Election ..... 38 No Political Advertising ....................................................................... 38 Follow the Law and Avoid Sanctions .................................................. 39 Establishing Citizen Support ............................................................... 40 Chapter 8 Federal Income Tax Exemption ............................................................... 41 Chapter 9 Securities Issues ...................................................................................... 46 Continuing Disclosure Requirements ................................................. 46 Chapter 10 Financing a County Jail ............................................................................ 49 Chapter 11 Energy Savings Performance Contracts .................................................. 52 Chapter 12 Pass-Through Toll Bonds ........................................................................ 53 Chapter 13 Public Finance for Economic Development ............................................. 55 Economic Development Corporations ................................................ 55 Public Improvement Districts .............................................................. 56 County Development Districts ............................................................ 58 Chapter 14 Interlocal Contracts .................................................................................. 59 Conclusion .................................................................................................................... 60 PAGE vi TEXAS ASSOCIATION OF COUNTIES PUBLIC FINANCE HANDBOOK FOR TEXAS COUNTIES By: THOMAS M. POLLAN This handbook is designed to explain the bond issuance process, especially for counties that do not issue bonds on a frequent basis. A county that is not familiar with the process may feel that a financial advisor and bond counsel will come with stacks of documents to be approved with the instruction to “sign here.” The documents are signed with little or no explanation of what is being done or opportunity for questions. Then, in about a month, the county receives funds from the sale of its bonds. A Texas county can finance projects in several ways. The most common are the issuance of General Obligation Bonds, Certificates of Obligation, Tax Notes, and Contractual Obligations. Generically, all of these methods can be called bonds. Other financing methods used by counties are Time Warrants and Lease Purchase Obligations. A county issues bonds in order to finance something over a period of time. A county cannot simply go to a bank and take out a loan, unless the loan is to be repaid within the current fiscal year. To borrow money