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Rules for Missouri Fourth-Class Cities

XVII. Bond Issues

Parenthetical numbers in the text refer to sections of the current Revised Statutes of Missouri, abbreviated as RSMo.

What are bonds?

When the city needs long-term financing, it may issue a bond to raise funds. There are two types of bonds: general obligation and revenue. General obligation bonds put up all taxable real estate and personal property in the city as security — borrowing against all property in the city. Revenue bonds put up only the future revenue generated by what the borrowing buys.

General obligation

Since general obligation bonds put a lien against every taxable property in the city, they are more tightly controlled. Commonly called GO bonds, they can be issued only after voters approve by an exceptional majority. A majority equals four-sevenths or 57.1 percent at high-turnout elections (August and November in even-numbered years and April). Majority must reach two-thirds or 66.7 percent at low-turnout elections (August and November in odd-numbered years and February, March or June). The bond is redeemed through an annual property tax levy. Should a city default on general obligation bonds, every taxable property in the city would have a proportional lien for its share placed against it. Property could be sold at auction for non-payment (Const., art. VI, sec. 26).

Revenue

Revenue bonds are issued to pay for revenue-producing operations. For example, building a toll bridge. The amount borrowed to build the bridge commits only the tolls collected to loan payments. Common uses of revenue bonds include water and sewer infrastructure. A simple majority of voters can authorize most revenue bonds and a majority vote of the board can authorize industrial development revenue bonds.

Interest rates

As political subdivisions, cities can issue bonds that are exempt from both state and federal income taxes. This makes both types of bonds attractive to investors and enables borrowing at lower interest rates.

Loan term

Generally, Missouri laws permit borrowing for no more than a 20-year term. When borrowing is from federal sources, their rules may be different and allow longer terms. In any case, the reserves laid by for repaying bonds can be no more than amounts necessary to make the current year's payments, plus one year more. With GO bonds, each year's assessed valuation is calculated against payment amounts needed (the dollar value of annual bond payments) to establish the levy amount necessary that year.

DM4003, new November 2008

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