Pocket #4 contains Municipal Property Corporation (MPC) Bond debt of $29,496,137. It totals 33% of Glendale’s debt for this year. According to the latest Glendale Comprehensive Annual Financial Report (CAFR) of 2013, the overall total of MPC debt is $1,020,889,000.
So far we’ve examined the contents of three pockets: Pocket #1, Enterprise Fund debt; Pocket #2, HURF and Transportation Bond debt; and Pocket #3, G.O. Bond debt. These revenues come from specific sources; either customer utility bills, or State Shared revenue, or a dedicated transportation sales tax or secondary property tax.
The uses of monies from Pockets #1 and #2 are regulated and can only be used for utilities, or streets or transportation projects. Pocket #3 is regulated as to the amount of money it may acquire but the stipulations for revenue use are very broad and leave room for council decisions that can be political.
As was identified in the last blog, the state had, by statute, limited the amount of G.O. Bond debt any city could issue. Two categories of G.O. bond debt were created, restricting the amount of bond issuance to two categories: one of 6% of assessed secondary property value and another of 20% of assessed secondary property value.
The Municipal Property Corporation, however, was born as a means by which any city can circumvent the state imposed G.O. debt restrictions and allow the issuance of more municipal debt. Cities throughout the state have created MPCs…from Sierra Vista to Surprise. The earliest reference I could find to Glendale’s MPC is December of 1985.
There is no comprehensive definition in Arizona’s Revised Statutes for an MPC. Generally all are 501(C) (3) s, commonly known as non-profits. The bonds they issue are repaid by a city’s General Fund’s excise (sales tax) revenue. Technically, the bonds issued by a municipal corporation are not considered debts of the city, according to the state revenue department. They are not constrained by the same revenue and expenditure limits as that of G.O. bonds by which cities must abide.
Bonds issued by an MPC are not a debt owed by a city. If they default, a city is not legally bound to pay them with its general tax revenues. But realistically a city does have to make sure the debt is repaid. A city could not allow its MPC’s bonds to default, especially if MPC debt created assets like a water system or an airport. Although it’s not the debt of a city and is a debt of the MPC, any city would be obligated to pay it.
Since there are no restrictions on the amount of MPC debt a city may issue, it’s an area that can quickly lead to financial trouble as it has in Glendale’s case. Glendale’s long held, council adopted policy on excise (sales tax) funded debtstates that debt service will not exceed 10% of the 5-year average of the General Fund Groups’ ongoing revenue.Glendale is not in compliance with its own 10% policy and hasn’t been for several years. The money that goes into this pocket is not enough to cover what has to be paid out of this pocket. There isn’t a pocket large enough to hold what Glendale needs to pay out of it.
These bogs were offered to provide a better understanding of Glendale’s debt structure — where the money comes from and how it is used. In the next two blogs we’ll explore the “why” of some debt that was issued and lastly, are there solutions to Glendale’s debt. The answers may not be pretty.
© Joyce Clark, 2014
FAIR USE NOTICE
This site contains copyrighted material the use of which is in accordance with Title 17 U.S. C., Section 107. The material on this site is distributed without profit to those who have not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of environmental, political, human rights, economic, democratic, scientific and social justice issues, etc. We believe this constitutes a ‘fair use’ of any such copyrighted material as provided for in Section 107 of the US Copyright Law and who have expressed a prior interest in receiving the included information for research and educational purposes. For more information go to http://www.law.cornell.edu/uscode/17/107.shtml. If you wish to use copyrighted material from this site for purposes of your own that go beyond ‘fair use,’ you must obtain permission from the copyright owner.