CHICAGO – Michigan Gov. Rick Snyder has doubts about the need for a bill that would attach a statutory lien and trust to local unlimited-tax general obligation bonds.
A spokesman for the Republican governor said Snyder does not yet have a public position, but is not sure a statutory lien or trust on local ULTGOs is necessary.
The comments came days after the Senate Finance Committee unanimously approved the legislation and sent it to the full Senate floor. The House passed it in June. The Senate is expected to take it up in the next two weeks.
House Bill 4495 would provide for a statutory first lien on bonds that are subject to an unlimited tax pledge, and require a portion of the taxes collected to be held in trust for the owners of the municipal securities.
The statutory lien would apply to any ULTGOs, even those issued before the bill became law.
The bill is part of a larger national debate over statutory liens for GO bonds to strengthen bondholders’ positions in a municipal workout. California and Rhode Island, where local bankruptcies rattled bondholders, passed similar laws.
Detroit in 2013 became the largest city to default on its ULTGOs, when it treated the bonds as unsecured, a move that Snyder supported at the time.
Supporters of a statutory lien say the state’s local governments continue to pay a market penalty for Detroit’s move, and that a statutory lien would mean savings for taxpayers.
The Michigan Treasury is strongly opposed to the legislation for various reasons, testifying against its passage during legislative hearings.
The governor’s position has been less clear.
“What I would say is that there isn't an official position yet, but our administration raised issues about value and need for/implications of doing [a statutory lien] for general obligation bonds,” Snyder spokesman Sara Wurfel said in an email to The Bond Buyer after repeated requests for comment. “We look forward to working with lawmakers on it.”
The bill’s sponsor, state Rep. Anthony Forlini, R-Harrison Township, said he’s confident the bill will pass despite treasury’s opposition.
“I heard their testimony and none of it makes sense to me,” Forlini said in a telephone interview. “I don’t know if there’s something they’re not saying, but their arguments hold no water.” Treasury officials told lawmakers that the statutory lien would not mean significant interest savings, and that local governments and school districts would face costs to set up bond trusts, as the law would apply retroactively to all outstanding debt. The law would also pit pensioners against bondholders in a restructuring, the state officials said.
“That’s not true,” said Forlini of the pensioners versus bondholders argument.
“It’s about the taxpayers, not the bondholders,” he said. “Face it, if you’re paying more money for bonds, that’s taking away from the pensioners, so it’s a flawed argument. Pensioners get general fund money and there will be more general fund money if this bill is passed.”
The House passed the legislation 248-108. The Senate Finance Committee approved it 6-0. Those margins suggest it will pass the Senate as well despite opposition from top state officials, Forlini said.
“The governor is a pretty thoughtful person and he knows this stuff better than I do,” he said. “But I believe this is the right thing to do, regardless of what treasury thinks and regardless of what even the governor thinks.”
