Tennessee board revises debt and disclosure requirements

The Tennessee State Funding Board adopted guidelines that will require local governments to obtain approval before issuing “risky” forms of debt and improve their disclosure.

Local governments will need the state comptroller’s approval prior to issuing debt with variable interest rates, put options, and interest rate rest options after the board approved the guidelines Monday.

The guidelines require public entities to report defaults, covenant violations and credit rating reductions for debt obligations to the board. The board also voted to extend the requirements to industrial development boards.

Both revisions stem from laws the legislature passed this year.

The board also approved changes, effective July 1, to the state’s debt manual for local government, including guidance for requesting approval for emergency financing. Local governments need to have an approved budget before issuing debt, except when the state comptroller’s office certifies that emergency financing is needed.

The board added a financial health metric covering municipalities with debt that do not levy property taxes and for utility systems operated by local governments. The board introduced guidance on revenue anticipation notes for emergency cash flow.

Separately, the Tennessee Local Development Authority expressed concern about $987,000 in fees, Tennessee Comptroller Jason Mumpower said were proposed by Kidwell & Co., municipal advisor to the Ocoee Utility District, for a U.S. Department of Agriculture water and wastewater revenue bond anticipation note up to $37.5 million, USDA water and wastewater revenue bonds up to $37.5 million and water and wastewater revenue improvement bonds up to $25 million.

“My local government team tells me [this] is a record setting for cost of issuance for a project like this,” Mumpower said since he frequently sees municipal advisors charge less than $10,000 for USDA borrowings because they are so simple.

Kidwell & Co. President Larry Kidwell said the authority should look beyond the firm’s costs to the value it provides, noting his firm’s work saves his clients more money in interest rates than it costs them.

The board voted to defer consideration of the bonds to its next meeting in July and directed its staff to investigate the fees and report back.