Understanding Local Debt: Certificates of Obligation

The motto of the B/CS Tea Party is Teach. Empower. Act. and we take that seriously. That’s why we bring the best speakers we can find to give presentations at our monthly meetings and special events. Cindy Mallete of Americans for Prosperity – Texas is just one of these speakers. In continuing the research in local debt that Cindy began at our January meeting, we must learn the definitions and intent of the lexicon of municipal spending and borrowing.

A Certificate of Obligation is a form of debt available to governing councils in case of emergency – a God-created catastrophe – that needs immediate action without time for voter referendum. For example, when a hurricane destroys the police and emergency services building, there is no time to go through the process of voter referendum. The local council must be able to borrow the money to set up provisional buildings and necessary equipment for police and emergency services so that the community is served in continuity.

When used as intended, Certificates of Obligation (CO) are necessary in the continuity of civil society. In researching state and local debt, Tea Party groups all across the nation are learning that the intent of Certificates of Obligation have been abused, with state and local officials assuming debt for non-emergency needs without tax payer knowledge.

Using the instructions Cindy presented, we learn these facts about Certificates of Obligation here locally. It will take more research to learn what exactly the taxpayers are paying for, but this is one step toward understanding our local debt.

Bryan, Texas

College Station, Texas

Brazos County

Comments

  1. charles akins says:

    Where can I down load the school tax and pay information presented at the Jan. meeting?

  2. Betty Farrow says:

    I just learned that the city council of Caddo Mills, Texas passed an ordinance for Certificates of Obligation in the amount of $4,000,000. It is my understanding they did this in order to extend the city limits. I don’t see how this classifies as an emergency. They did not inform the citizens of what was about to happen.

  3. May I republish or excerpt this article with complete credit and a link to this website?

    Some of our local government entities are using CO to issue taxpayer debt when they know a bond election would fail.

    Our new website (betterbradynow.org) is trying to teach and inform citizens in Brady, Texas and McCulloch County so they can act to hold local officials accountable.

    As a matter of interest, the citizens of Robstown are acting.
    http://www.recordstar.com/news/local_news/article_bd994ec2-ad01-554b-9a5e-13cc173c4bb2.html

    • Please use any information or blog post that will be helpful to betterbradynow.org. I highly recommend Americans for Prosperity – Texas if you need further assistance or need a speaker to assist you in educating your community regarding local debt. The accumulated local debt in Texas puts us on par with California’s State debt.

      Also, know that our Local Debt Brochure and Texas is Bleeding to Debt graphic are meant for sharing. Please feel free to use the pdf and graphic to create your low local debt brochure. We’ve been so blessed with the talent within our group and we want to offer assistance to other like minded groups in those ways we can.

  4. Just so that you are properly informed with accurate information the Texas code does not speak to the need of an emergency for a city to issue certficates of obligation. In addition, public notice is required over a two week period, notice of the agenda wherein the ordinance is to be passed is required to be posted and the vote occurs in a public meeting. The implication that this is being done in secret is also inaccurate.

    TEX LG. CODE ANN. § 271.045 : Texas Statutes – Section 271.045: PURPOSES FOR WHICH CERTIFICATES MAY BE AUTHORIZED Search TEX LG. CODE ANN. § 271.045 : Texas Statutes – Section 271.045: PURPOSES FOR WHICH CERTIFICATES MAY BE AUTHORIZED (a) The governing body of an issuer may authorize certificates to pay a contractual obligation to be incurred for the:(1) construction of any public work;(2) purchase of materials, supplies, equipment, machinery, buildings, land, and rights-of-way for authorized needs and purposes; or(3) payment of contractual obligations for professional services, including services provided by tax appraisers, engineers, architects, attorneys, map makers, auditors, financial advisors, and fiscal agents.(b) If necessary because of change orders, certificates may be authorized in an amount not to exceed 25 percent of a contractual obligation incurred for the construction of public works, but certificates may be delivered only in the amount necessary to discharge contractual obligations.(c) The governing body of a municipality may issue certificates of obligation to pay all or part of a municipality’s obligations incurred by contract for interests in and rights to water or sewer treatment capacity in connection with a water supply and transmission project or sewer treatment or collection project to be constructed in whole or in part on behalf of the municipality by another governmental entity or political subdivision pursuant to a written agreement expressly authorized under Section 552.014 of this code or Section 791.026, Government Code.(d) In exercising its authority to issue certificates of obligation for the purposes specified in Subsection (c), the municipality must limit the principal amount of certificates to be issued for the purpose of funding its contractual obligations to an amount equal to (i) the aggregate of the contractual payments or the total costs allocated or attributed, under generally accepted accounting principles, to the capital costs of the project, as opposed to any maintenance or operating costs to be paid under the written agreement or (ii) the total cost of the project multiplied by the percentage of the nameplate capacity of the project acquired or conveyed by the written agreement to the municipality, whichever limitation is applicable to the contractual interests or rights being conveyed or identified in the written agreement.(e) Work that is directly attributable under generally accepted accounting principles to the costs of the project and that is performed by employees of the issuer may be allocated or attributed to the capital costs of the project.Acts 1987, 70th Leg., ch. 149, Sec. 1, eff. Sept. 1, 1987. Amended by Acts 1997, 75th Leg., ch. 124, Sec. 1, eff. May 19, 1997; Acts 2001, 77th Leg., ch. 402, Sec. 14, eff. Sept. 1, 2001.Amended by: Acts 2005, 79th Leg., Ch. 554, Sec. 1, eff. June 17, 2005.Acts 2007, 80th Leg., R.S., Ch. 885, Sec. 3.77(4), eff. April 1, 2009. – See more at: http://codes.lp.findlaw.com/txstatutes/LG/8/C/271/C/271.045#sthash.A4PfAueg.dpuf

  5. Michael Morgan says:

    I have not been able to find any documentation that backs up your statement “A Certificate of Obligation is a form of debt available to governing councils in case of emergency – a God-created catastrophe – that needs immediate action without time for voter referendum.” If you know where this can be proved I would surely appreciate it. Thanks!

    • The definition is one of common sense. Under what circumstances would a governing council need to incur debt without voter approval if not in case of some unforeseen calamity? Therefore the ability to do so is a generally accepted conclusion.

      However, the ability “to do” is often abused to become what one “can do”.

      The integrity and character of those serving on any governing council must be judged by the common sense of those neighbors who find themselves obliged to debt; either without their knowledge, or through some semi-transparent method of alert, as well the consideration of the vital necessity and immediacy of the project to be contracted without neighbor consent.

      While each community has its own level of tolerance, however, the Christian command to love our neighbor as ourselves should be a guide to those willing to oblige their neighbor to debt.

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