CHICAGO — Michigan would attach a statutory lien and trust to local unlimited-tax general obligation bonds under a measure advancing in the state Senate despite opposition from top state officials.
The Michigan Senate Finance Committee approved the measure by a 6-to-0 vote in its Oct. 6 meeting.
The bill moves to the full Senate, where a vote will likely come in the next two weeks.
The House already approved the legislation in June.
House Bill 4495 would amend the state’s municipal finance act to provide for a statutory first lien on taxes that are subjected to an unlimited-tax pledge, and require a portion of the taxes collected to be held in trust for the owners of the bonds.
The statutory lien would be retroactive, applying to all outstanding local ULTGOs.
The Michigan bill reflects a debate going on around the nation, with several states, like California and New Jersey, passing similar legislation.
Nebraska is also eyeing such a measure.
Michigan played a key role in the statutory lien debate after unlimited-tax GO bondholders took a haircut in Detroit’s Chapter 9 bankruptcy.
The Senate Finance Committee’s unanimous approval came despite opposition from the Michigan Treasury Department, and reportedly from Gov. Rick Snyder.
The governor’s office did not return repeated requests for comment, but treasury officials said the bill’s a bad idea because, among other things, it would pit pensioners against bondholders in a municipal restructuring.
A spokesman for Sen. Majority Leader Arlan Meekhof, R-West Olive, declined to comment on the legislation.
In testimony last week, the director of the treasury’s legislative affairs division said the state’s analysis shows the bill would not mean significant interest rate savings for local debt issuer.
Supporters of the bill say it would help erase a penalty that’s existed for local Michigan GOs since Detroit decided to treat its bonds as unsecured in its plans to exit Chapter 9.
“Ratings services and investors continue to penalize Michigan for actions taken by the city during the Detroit bankruptcy case,” state Rep. Anthony Forlini, R-Harrison Township, who sponsored the bill, wrote in an Oct. 5 editorial in the Detroit News.
“Governor Snyder and the current Legislature have worked hard to repair Michigan’s long-term financial health, and this legislation is another essential step toward reaching this goal, they wrote. “Michigan needs to send a clear message to the financial markets and ratings agencies that our state is a sound place to invest.”
Snyder’s office declined to comment, though he reportedly opposes the bill.
Detroit eventually settled with ULTGO insurers for a 74% recovery. Limited-tax GO holders saw a 34% recovery.
