Legislature Should Authorize Money for Local Governments During Special Session Gulf Tax Credit Bonds Would Help Local Entities Make Debt Payments and Avoid Defaults BATON ROUGE, LA – During the upcoming Special Session, the Louisiana Legislature should authorize the issuance of federal Gulf Tax Credit Bonds and appropriate the required state match to help local governments make debt service payments and avoid defaults, according to State Treasurer John Kennedy. “Gulf Tax Credit Bonds are a cheap source of capital that can be used to establish a revolving loan pool with flexible repayment terms to help local governments avoid defaults on their bonds,” said Treasurer Kennedy. “In order for the Bond Commission to move forward with providing local governments with the funding they need, however, we must get legislative approval during the Special Session.” Local governments in hurricane-impacted areas have approximately $8 billion outstanding in bonded indebtedness, and around $4.1 billion of this is credit enhanced with bond insurance. The Gulf Opportunity Zone Act of 2005 would enable the state to issue up to $200 million in Gulf Tax Credit Bonds to help local governments that are struggling to make debt service payments. The state would be responsible for paying the principal on Gulf Tax Credit Bonds, and the U.S. government, in effect, would pay the interest by providing bond purchasers with federal income tax credits. The state would have to come up with a 100 percent state match for the bonds, and there are several options for generating these funds without raising taxes. Treasurer Kennedy recommends that the state refinances and restructures general obligation debt to free up cash flow, dedicating a portion of the proceeds to the required match. Or, the state could refinance outstanding tobacco bonds, and/or sell the remaining 40 percent of its tobacco settlement, and then pay off state debt to free up cash, a portion of which could fund the necessary match (this would require statutory and constitutional changes). “We must move now, because the risk of default at the local level is a serious problem,” said Treasurer Kennedy. “Just one local default could have a detrimental impact on all levels of government in the state. We cannot afford to wait any longer.” ###
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