CHICAGO — Griggs County, N.D. is suing its own public building authority over a controversial bond issue that financed a vacant courthouse and sparked a recall election that ousted the county's commissioners.
The Griggs County state's attorney filed the
The $2.285 million of bonds, issued in 2013, are supported by the county's lease payments, which the county board has continued to make, despite threats to renege. The county levies a property tax for the lease.
The original financing was controversial because the county board opted to float the debt even though voters rejected the bonds in three consecutive referendums.
After the third rejection, the commissioners created the building authority to issue the bonds. North Dakota law allows issuers to enter into lease obligations for public safety projects without a referendum.
"We put up the vote three times, and the last time it was 50% (approval) instead of 60%, and we needed 60%, but we didn't need that to do the financing under state law," said Ron Halvorson, one of the five commissioners who were voted out of office in 2013, though they all continue to sit on the building authority board.
The situation is a rare example of government being unwilling to pay debt for political reasons, not because of insufficient revenue, Moody's Investors Service said in a recent comment.
"The example of Griggs County introduces a new scenario of a county issuing bonds in direct violation of voters' wishes, albeit for a project — a new county courthouse — that would be essential for county purposes," Moody's said in the report. "The county demonstrated an unwillingness to pay, despite sound credit fundamentals and a dedicated revenue source for payment."
The debt lease revenue bonds feature the county's general obligation pledge to levy a property tax as long as the bonds remain outstanding.
The county did not disclose the voters' rejection in the 2013 bond documents. That's due in part to the structure of the debt, said Chuck Upcraft from Public Financial Management, the county's financial advisor on the deal.
"Had it been a straight annual appropriation deal, then very likely there would have been more disclosure relating to the background," Upcraft said.
The $2.28 million of bonds are the only debt carried by Griggs, a 716-square mile county with a population of 2,372.
The existing courthouse is one of the state's oldest buildings, built in 1884, before North Dakota even became a state, according to current county board chair Troy Olson. Olson is one of the five commissioners who won office in October 2013 after the special recall election.
"The reason I got involved is because I'm against public officials going against the vote of the people," Olson said.
Work on the new courthouse, which is 90% complete, has been halted for a year amid cost overruns and a dispute between the county and the building authority over who should cover the remaining costs. The bond fund is depleted and the project is about $120,000 short, according to Moody's. The lawsuit is the county's effort to settle the dispute.
Last April, the commission told the building authority it would not make the April 25 lease payment, and a notice of payment default notice was filed on the Municipal Securities Rulemaking Board's EMMA website. The county, however, ended up making the payment on April 27, allowing for a timely May 1 payment on the bonds, according to EMMA.
Olson said the board now plans to continue to make lease payments until the dispute is resolved in court.
"We're not going to withhold the lease payment, because that would ensure that we are in breach of the lease, and that doesn't make any sense," said Olson. "The feeling is that if a facility is provided by the building authority, the county would pay the lease, I think," he said. "But right now we're making lease payments on a facility we can't occupy. They're telling us they don't have the money to finish it," he said. "A jury of our peers is going to have to make the decision because we can't come to an agreement."
The building authority has hired an attorney and plans to counter-sue, said Halverson, the building authority chair. They plan to ask for a continuance and then fight the lawsuit.
"Since the five commissioners have got in they've done everything they can to stop the project," Halverson said. "All they're doing is hurting the county. They've lost their credit with the bonding company, which isn't good if they want to borrow some more money."
The former board decided to borrow the money despite the voters' results in part because the current courthouse is in bad shape, said Halverson, adding he had a heart attack after the recall election.
"We had to move some people out of the basement because of black mold, and now some people on the second floor are having problems too," he said. The county at the time had to move the sheriff's department and social services department out of the building into a trailer because of mold.
The ex-commissioners will now sit on the building authority for 20 years, or the life of the bonds, unless someone else is elected. The $2.285 million of bonds mature from 2015 through 2033. The lease is paid by a 10-mill levy for debt service as well as an obligation to levy an unlimited property tax if the 10-mill levy is insufficient. They were sold competitively in April 2013, with Northland Securities Inc. having the winning bid. Arntson Stewart Wegner PC was bond counsel.
Moody's rated the bonds Baa1 at the time of the sale, and in April downgraded them to B3 with a negative outlook, reflecting the county's "expressed intent to default" on the lease payments.
Moody's warned that, after the threat to default last April, it's unclear how the county will proceed.
"While the commission ultimately forwarded sufficient funds to the trustee in time to make the lease payments on May 1, it is unclear what the commission's intentions are moving forward," the ratings agency said in its recent comment. "Griggs County is a unique example of political unwillingness to assume a debt-like obligation for a project that voters had clearly rejected. The lack of voter support in essence negated any consideration of project essentiality."
A chunk of the bonds with a 2033 maturity and 3.3% coupon was yielding 3.86% in March trading, ahead of the April downgrade. Bonds with a 2017 maturity and 1% coupon were yielding 1.28% in February trading, according to EMMA.
