Board Questions Cloud Florida Conduit's Authority to Issue Bonds

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BRADENTON, Fla. — A $1.75 billion bond transaction for the All Aboard Florida passenger train project is among those that may face snags created by governance questions at the conduit issuer it selected for the deal.

The Florida Development Finance Corporation did not have a current Senate-confirmed board of directors when the developers of the private passenger train project asked for the federal PABs to be issued last August, according to records provided to The Bond Buyer by the Florida Senate.

The corporation also approved the issuance of $2 billion in bonds for a PACE program validated in court last year. The case is being challenged.

At least one other borrower that planned to use FDFC has been forced to find another conduit issuer.

Legislative records show that the Senate never confirmed at least two appointees on the FDFC's governing board out of the four members serving when All Aboard's bonds received preliminary approval. Some members have also served on the board well past the scheduled end of the term for which they were confirmed.

In January, the FDFC's board problems forced the Miami Country Day School to quickly find another conduit to issue its $30 million in bonds as the deadline loomed to close on its bank placement.

The 77-year-old K-12 college-preparatory school tried to close its deal with the FDFC by the end of December, which was later delayed until the end of January. As a private nonprofit, it must go through a conduit issuer to issue tax-exempt bonds.

The school now faces a deadline to close the deal at the end of this month, Gary Butts, the school's chief operating officer, told The Bond Buyer in an interview.

"All we know is that [FDFC] had a vacancy on their board and they were waiting for the governor to appoint somebody," said Butts, who described the delays as frustrating. "Every time we'd ask about it, they'd say it should happen any day."

The school switched gears late last month, and the Miami-Dade Industrial Development Authority agreed to issue its $30 million in bonds, which will be used to finance the construction of parking and a performing arts center - a project four years in the planning.

The Miami-Dade Strategic Planning and Government Operations Committee approved the school deal Tuesday.

"The FDFC was unable to meet with the necessary quorum and consummate the financing of the project," the committee's resolution approving the bond issue said. The Miami-Dade County Commission is expected to give final approval to the IDA issuance in coming weeks.

Gov. Rick Scott's office and the Florida Development Finance Corp. were asked to comment and provide written information about board appointments. The Bond Buyer made requests by phone and by email on Feb. 3, and on subsequent days.

Those requests were unfulfilled at press time even though Florida has broad public records laws.

The FDFC was created by the Legislature in 1993 as an independent agency authorized to issue bonds for industrial development projects and later for PACE, the property-assessed clean energy program.

The corporation is managed by staff provided by Enterprise Florida, a state and private-sector funded economic development agency chaired by the governor.

FDFC's enabling legislation requires that the governor appoint the five members of the board, each to four-year terms. The appointments must be confirmed by the Senate. A vacancy on the board must be filled for the unexpired term.

"The Senate has not confirmed any appointments or reappointments since Jan 1, 2011," Senate spokeswoman Katherine Betta told The Bond Buyer in an email.

Scott, a Republican, began his first term in office on Jan. 4, 2011. He won a second four-year term in November.

At least two appointees to the FDFC board of directors, who were among four board members last August when All Aboard Florida's bond deal won preliminary approval, were never confirmed by the Senate, according to information provided by Betta and the corporation's minutes of that meeting.

The last two appointments to the board of directors were confirmed by the Senate in April of 2010, Betta said, when Scott's predecessor Charlie Crist was governor.

"Once confirmed by the Senate, board members are eligible to serve as holdovers beyond their initial term of appointment until the governor appoints a replacement," said Betta.

At least one appointee, board chairman Peter Tesch, remained on the board long after his four-year, Senate-confirmed appointment was made in March 2008.

"I have resigned as of Jan. 1," Tesch said in an interview Monday. "I resigned because I've served eight years on the board, and I have two new appointments on the board of directors of other boards."

When asked about the status of other board member appointments, and bond projects approved by the board, Tesch referred questions to FDFC executive director Bill Spivey.

Spivey initially agreed to an interview, then later postponed promising to reschedule. His office had not provided a list of current board members at the time this story was published.

The FDFC's potential board problems have raised questions about whether the agency can issue All Aboard Florida's bonds within the required timeframe, according to two bond attorneys who said they heard about the situation and asked not to be identified.

All Aboard, which is building a passenger train service between Miami and Orlando, was also asked by The Bond Buyer if there could be problems with the FDFC issuing its bonds.

All Aboard referred questions about the deal to FDFC.

The U.S. Department of Transportation's Federal Highway Administration awarded $1.75 billion in private activity bonding authority to All Aboard shortly before Christmas.

The USDOT included a stipulation that the bonds must be issued by July 1.

Before then, one or more public hearings must be held to comply with the Tax Equity and Fiscal Responsibility Act, according to legal experts familiar with federal PAB requirements.

Some local government and special district boards in Florida have provisions in their operating rules that allow their directors to serve after their appointments expire to avoid vacancies.

The FDFC may also have similar rules, an attorney told The Bond Buyer. "That would be a simple way to demonstrate that they don't have a board problem," the attorney said.

The attorney also said that it would be difficult to determine if an improperly constituted board would encounter legal problems, if bond issues were not authorized properly.

"There's certainly potential liability for any attorney delivering an opinion that says they are qualified and have the ability to take the actions they are taking," the attorney said.

If FDFC's bonds are validated in court, the attorney said it could be more difficult to challenge bonds, even if they were authorized by an improperly constituted board of directors.

In addition to All Aboard Florida's bonds, the FDFC has agreed to be the public conduit issuer for $2 billion in PACE bonds for a program sponsored by California-based Renovate America Inc.

Last year, the Florida Development Finance Corp. received court validation of its PACE bonds, though the case is currently being contested before the Florida Supreme Court by the Florida Bankers Association and another litigant.

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