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There is a lot of confusion about the use of bond issues in Oro Valley. Perhaps this will offer some clarification.
A municipal bond is a bond issued by a state, city, or local governments for their day-to-day and for specific projects that they might be undertaking (usually pertaining to development of local infrastructure such as roads, sewerage, government buildings, etc.)There is no voter (taxpayer) approval to issue this type of bond
Municipal bonds are sold to the investing public. Municipal bonds pay interest to the bondholder over 25 or 30 years. The bonds appeal is that the interest is exempt from federal taxes and in some cases state or local taxes. The interest is usually recorded as annual debt costs by the municipality (such as the Town of Oro Valley (TOV) and is paid by taxpayer money out of the general budget. This means other priority capital projects such as roads, water development, etc. may not occur since there is not enough taxpayer money in the budget to go around for all projects (perhaps even for day-to-day town operations).
The other danger is that in bad economic times, the TOV could default on these municipal bonds because of insufficient funds to go around (such as receiving less state shared tax revenue). As of June 30, 2007 there are 12 outstanding bonds issued by TOV for many projects for an outstanding principal total of $75,755,000. This is reported on the Report. There is an additional bond issue that is estimated to occur for $26,365,000 for the Municipal Operations Center in 2010 to bring the total to $102,120,000.
These type of bond issues could be manipulated. For example, if money somehow got diverted for other uses, then the TOV could simply issue some additional bond issues (called excise tax revenue refunding bonds) to pay off the shorted (diverted) bond issues with new bond issues without voter approval.
General obligation bonds are also a type of municipal bond. This is the kind of bond that TOV has on the ballot for November 4, 2008. The major difference is that general obligation bonds are issued with the belief that a municipality (TOV) will be able to repay its obligation through direct taxation (such as a property tax). There is little danger in default on these bonds since property taxes can be increased. Municipal bond investors like this added security.
The TOV is seeking voter approval to create a secondary property tax to fund the general obligation bonds for the Naranja Town Site. There is no absolute guarantee that these direct tax monies could not be manipulated but the risk is somewhat less. However, don't forget the capability of the TOV to issue other types of municipal bonds for rescues without voter approval still exists. Also, since this is projected to be only the first of many phases for the Naranja Town Site expect some more taxes. Also, this does not take in to account other opportunities [ed note: and may preclude], such as a branch of the Tucson Art Museum or bringing CAP water to Oro Valley for bond issues!
Originally, the TOV Council wanted to spend close to $150 million dollars for general obligation bonds for the entire proposed NTS. This would not have been possible! Under Arizona Law, municipalities may issue general obligation bonds for specific purposes such as water, waste water, artificial light, open space preserves, parks and recreational facilities up to an amount not exceeding 20% of the secondary assessed value. This would allow the Town of Oro Valley to bond for an amount of $92,642,349 (not $150 million) based upon the most recent secondary assessed value of $463,211,743.
John Musolf
