Cost of Issuance Expenses of CY 2000 Local and State Bond Issues
Executive Summary
In response to a legislative request, PEER surveyed seventy-six local entities regarding ninety-nine bond issues validated by the State Bond Attorney for issue and also obtained information from the Department of Finance and Administration’s Bond Advisory Division’s Annual Report of Bond Issuance Expenses for Calendar Year 2000. The purpose of this collection of data was to determine the costs associated with the issuance of local and state bonds in the state.
According to the self-reported and unaudited data obtained from these sources, local and state entities spent a total of $15.1 million to issue $2.8 billion in bonds during CY 2000 ($5.40 per $1,000 of bonds issued).
Reporting local entities issued $249 million in bonds in CY 2000 at a cost of $4.8 million. The largest component of cost was the cost of bond counsel (approximately $1.8 million). Issuance costs per $1,000 of bonds issued ranged from $3.32 to $116.44 for local issues.
Reporting state entities issued $2.6 billion in bonds in CY 2000 at a cost of $10.4 million. The largest component of cost was the combined cost of underwriter and placement agent fees (approximately $2.7 million). Issuance costs per $1,000 of bonds issued ranged from $0.17 to $40.12 for state issues.
One of the largest components of bond issuance costs is the cost of bond counsel (38% of local bond issuance costs and 21% of state bond issuance costs in CY 2000). State law limits compensation that counties and municipalities can pay to attorneys associated with the issuance of bonds. However, state law is not clear as to whether the limits apply individually to each attorney involved in an issue or collectively to all attorneys involved in an issue. Further, Attorney General’s opinions state that these limitations do not apply to bond counsel of “national repute” whose opinion is required by bond buyers (which in CY 2000 included all lead bond counsel), or obtained to promote the marketability of a bond issue. The opinions also state that the limitations do not apply to the professional fees of the State’s Bond Attorney or to all legal work associated with a bond issue. Thus, many bond issuers exceed the amounts specifically provided for in the MISSISSIPPI CODE for compensating counsel.
The report also includes a brief discussion of ways that other states are lowering their issuance costs and ways that issuers could lower costs through greater oversight.
Recommendations
The Senate Finance and House Ways and Means committees should study the limits on attorney fees established in state law for reasonableness, including for those counsel of “national repute” whose opinions are required by bond buyers, or who are obtained to promote the marketability of bond issues. If they find that the fee percentage payment restrictions are realistic, then the Legislature should amend the law to include a statement of policy stating that specific fees provided for shall be the only fees authorized under state law.
Because the statutory language regarding the fee limitation is ambiguous as to whether it applies to attorneys associated with bond issuance individually or collectively, the Legislature should add clarifying language to the statutes specifying the nature of the fee limitation.
Also, because the Attorney General has narrowed the scope of legal services included in the law, the Legislature should determine the scope of legal services to be covered by the fee limitation provision and add clarifying language to the statutes if necessary.
The Legislature should require that all local and state governmental issuers of bonds draft legal contracts with all professionals who deliver legal, financial, or any other professional advisory services associated with the issuance of bonds. These contracts should describe in detail the services to be provided. The Legislature should also require that these professionals provide detailed billings to all local and state governmental entities issuing bonds, itemizing specific services rendered and number of hours charged to each type of service.
The Legislature should amend MISS. CODE. ANN. § 31-13-1 (1972) et seq. to transfer the duties of the State Bond Attorney to the Attorney General, if the Attorney General can perform the duties at a lower cost than the State Bond Attorney.
The Legislature should consider creating a state bond bank in Mississippi as a way of reducing costs of debt and debt issuance to units of local government.