[Cobo] Revenue Bond vs. G.O. Bond Explanation

[Mauck, Sheri]

We are circulating the following information, compiled by the General
Counsel for the State Regents in 1998 and still relevant, as a response
to a question posed on the reason why an institution will be required to
sign a lease agreement for their capital bond projects.

 

This information explains the differences between the current 2005
capital bond structure and those issued in the 1992 G.O. Bond issue.
The current revenue bond structure, also referred to as a "lease,
lease-back structure," is the same structure we utilized for the 1999
OCIA issuance. 

 

1.  General obligation (G.O.) bonds cannot be issued without a vote of
the people.

2.  General obligation bonds put the full faith and credit of State
behind the bonds

3.  General obligation bonds create a debt within the meaning of the
constitution.

4.  Revenue Bonds can be issued with a vote of the people

5.  Revenue Bonds must be "self-liquidating" or "profit-producing."

6.  Ordinarily the revenue stream to liquidate such revenue bonds will
come from fees collected in relation to the asset

7.  The revenue stream to liquidate such bonds may come from monies
appropriated by the Legislature to agencies that rent, lease or
lease-purchase the facilities constructed, improved,  and/or purchased.

8.  When the monies are to be appropriated by the Legislatures to an
agency, the ownership of the improvement is vested in the agency with
the authorization to issue the bonds, in this case the Oklahoma Capital
Improvement Authority, which then leases it to another agency
(institution) for a periodic payment; the lease-purchase payment
constitutes the revenue stream that makes the bonds revenue bonds rather
than G.O. bonds. 

9.  The Oklahoma Supreme Court has upheld this financing methodology in
a series of cases going back to 1960.

 

 

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