CHICAGO — Ohio would restrict the ability of national bond authorities to issue bonds for local projects under a bill introduced by a pair of Summit County state senators.
The legislation is part of a larger debate over the use of out-of-state bond conduits by local borrowers to access the bond market for economic development projects.
At least two states, Washington and Illinois, have also passed bills aimed at restricting out-of-state conduits from competing with local issuers.
"In certain places, such as issuing for one company that's doing multi-state projects, they probably have a real role to fill," said Chris Burnham, president of the Development Finance Authority of Summit County, formerly the Summit County Port Authority, which has taken a lead role in pushing for the state legislation. "But from our perspective, it's about community-based economic development."
Senate Bill 134 would require out-of-state bond issuers, or "foreign entities," to submit an application to the local financing arm, outlining the project and providing the contact information of the borrower. The local issuer then will have 45 days to make its own bid to the borrower.
If the local financing arm denies the application, the national issuer could appeal to the Ohio Department of Development Services Agency. If the state approves the deal, the out-of-state issuer would then be required to pay fees to the local authority.
"The simple notion is that these are entities that are formed by and operated by members of the local community, and we thought it was better to try to keep that money in state with a level of discretion and oversight here in Ohio," said state Sen. Frank LaRose, R-Summit County, one of two senators that crafted the legislation. "When an out-of-state authority wants to come in and try to bid a project, we want to give the in-state entities a chance to compete. It's the right of first refusal."
While a handful of state-based authorities have the statutory power to issue bonds for projects outside their borders, the Wisconsin-based Public Finance Authority is the first issuer created for the primary purpose of supporting projects across the country.
Since its creation by the Wisconsin Legislature in 2010, the PFA has ruffled the features of existing local and state-based conduits that question the need for a national issuer and worry about the competition.
"We're a choice, and we've always been a choice," James Hamill, program manager for the PFA, said. "If a state wants to restrict that in certain ways, that's their right to do that."
Hamill said the authority views the Ohio legislation as a "discussion point" that will be taken up by all parties once hearings are held, likely in late summer or fall. "It's for everyone, including the individuals in Ohio, who want to get together and find a solution here," he said.
LaRose said he was open to changes as long as they stuck to the "spirit" of the bill.
Since 2010, the PFA has issued debt on behalf of dozens of borrowers across the country, including one in Ohio. That deal, in 2011, helped finance housing development at Cleveland State University. It was done at about the same time that the Summit County authority was doing a similar deal for the University of Akron, Burnham said.
Burnham said the Port Authority can snag better benefits for borrowers, such as additional state financing programs and a sales tax exemption on building materials.
"It's a value proposition, plus it's a community thing," Burnham said. "I don't intend to go up to Wisconsin to do projects, so what value are they providing here?"
Fees generally make up more than half of the Summit County authority's annual revenue. The authority's revenue totaled $740,000 in fiscal 2012, and of that $405,000 came from transaction-based financing fees, according to Burnham. "We generate the fee income here, and we keep it here," he said. "We try to find a way to reinvest it."
Local counties are signing on to support the state legislation. The Summit County Council Monday unanimously approved a resolution to support the state legislation.
"I think you'll see more public entities doing that," Burnham said.