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Public Act 321 Allows Some Bond Refundings at a Net Present-Value Loss, to Permit Restructuring Future Debt Payments

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FOCUS: Bond Counsel Corner
John M. Kamins
Foster Swift Municipal Law News: MTA Edition
January 2011

A new law signed by Governor Granholm in December 2010 – Public Act 321 – may provide some relief for Michigan municipalities facing severe budgetary challenges meeting their payment obligations on outstanding bonds. Many municipalities face those challenges due to decreased property tax revenues and other decreased revenues. Act 321 has amended the Revised Municipal Finance Act to allow a municipality to issue refunding bonds without present value savings to refund all or a portion of their outstanding bonds, but only before December 31, 2012 and with prior approval from the Michigan Department of Treasury and a required public hearing. This may enable municipalities to restructure their debt service obligations for projects that have not yet generated anticipated revenue streams, by extending some principal payments into later years and lowering current payment obligations to comport better with revised revenue projections. Act 321 does not apply, however, to outstanding bonds secured by the unlimited full faith and credit pledge of a municipality.