MS 2020-07-R-Shepard-May-13-2020-Authority-of-County-to-Refinance-an-Existing-Loan-with-Ref May 13, 2020

Can a Mississippi county issue refunding bonds to refinance a hospital construction loan and pledge full faith and credit to pay it off?

Short answer: The AG concluded that George County could issue refunding bonds under Sections 31-27-1 et seq. to refinance its outstanding hospital general-obligation debt, and that Section 31-15-11 required an annual property tax levy backed by the county's full faith and credit to pay them off.

Disclaimer: This is an official Mississippi Attorney General opinion. AG opinions are persuasive authority but not binding precedent. This summary is for informational purposes only and is not legal advice. Consult a licensed Mississippi attorney for advice on your specific situation.

Plain-English summary

George County had a $3,302,586 loan from Community Bank, secured by general obligation bonds the county had issued under Section 19-9-1 to fund improvements to the George County Regional Hospital. The bank loan carried a 1.75% stated interest rate (2.3% effective). Singing River Electric Cooperative offered the county access to a USDA program that would lend $2,000,000 at 0% interest. The county wanted to use the USDA money plus hospital cash reserves to pay off the bank loan, saving roughly $1,379,000 over the life of the debt and shaving three years off the term.

The legal question was whether a county can issue refunding bonds under Sections 31-27-1 et seq. to refinance its earlier general-obligation hospital bonds, and whether the older statutory regime (Sections 31-15-1 through 31-15-19, the "General Refunding Law of 1934") was an alternative path. The AG said yes on both fronts:

Under Section 31-27-17, the governing body of a governmental unit may refinance outstanding bonds with refunding bonds, and Section 31-27-11 lets the new bonds carry the same security as the old ones (or other lawful security, or both). Section 31-27-13 requires that any refinancing produce at least a 2% net-present-value savings to maturity.
Alternatively, the county could use the General Refunding Law of 1934, Sections 31-15-1 through 31-15-19. Section 31-15-5(1) and Section 31-15-17 carry their own self-contained authority and dispense with elections or other conditions that other bond statutes might require.

If the county chose the 1934 path, Section 31-15-11 would require it to "annually levy a tax upon all taxable property" sufficient to pay principal and interest, and the county's "full faith, credit, and resources" would be irrevocably pledged to repayment.

The AG was careful to note that whether George County's particular USDA-loan-plus-cash-reserves plan actually fit the statutory definition of a "refunding bond" was a factual call for the Board of Supervisors. The AG could opine on the legal authority but not validate the structure in the abstract.

Currency note

This opinion was issued in 2020. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

What is a "refunding bond"?

It is a bond issued for the purpose of paying off (refunding) an earlier outstanding bond, usually to take advantage of lower interest rates or better terms. The new bond replaces the old one in the county's debt structure.

What are the two refunding statutes the AG discusses?

Sections 31-27-1 et seq. (the more general refunding statute) and Sections 31-15-1 through 31-15-19 (the General Refunding Law of 1934, which is older and self-contained). The two paths are not exclusive; the county chooses which authority to use.

What does the 2% net-present-value savings rule require?

Section 31-27-13 prevents counties from using Sections 31-27-1 et seq. to refinance just for the sake of refinancing. The new bonds must produce "an overall net present value savings to maturity of not less than two percent (2%) of the bonds being refunded."

Does the county have to hold an election?

Under Sections 31-15-5(1) and 31-15-17, no. The General Refunding Law of 1934 carries its own self-contained authority and does not require an election or the other approvals that some bond statutes require.

Are the refunding bonds backed by the same security as the original debt?

If the county issues under Sections 31-27-1 et seq., Section 31-27-11 lets it pledge the same source of security as the old bonds, or other lawful security, or both. If the county uses Section 31-15-11, the bonds are backed by the county's full faith and credit and an annual property tax levy sufficient to pay principal and interest as they come due.

Background and statutory framework

The opinion connects two refunding regimes. The newer one, Sections 31-27-1 et seq., gives "the governing body of a governmental unit" authority to "refinance outstanding bonds through the issuance of refunding bonds and the exchange of such refunding bonds for the bond to be refunded" (Section 31-27-17). Section 31-27-11 says refunding bonds "may be secured by a pledge of: (a) the same source of security as the bonds to be refunded, or (b) such other security as the governing body of the governmental unit may lawfully pledge, or both," with the choice resting in a resolution of the governing body. Section 31-27-13 ties the use of this chapter to a 2% NPV savings floor.

The older one, Sections 31-15-1 through 31-15-19, is the General Refunding Law of 1934. Sections 31-15-5(1) and 31-15-17 carry their own complete authority, and Section 31-15-11 imposes the annual property tax levy and irrevocable full-faith-and-credit pledge:

the full faith, credit, and resources of such subdivision shall be and are hereby irrevocably pledged to the payment of such bonds, both as to principal and interest.

The original George County bank loan was secured under Section 19-9-1, the general-obligation hospital improvement statute. The proposed refinancing combined a 0% USDA program loan via Singing River Electric Cooperative and hospital cash reserves. The AG's role was to confirm the statutory paths existed; whether the deal as structured actually qualified as a refunding bond was for the Board to decide on the facts.

The opinion is signed by Special Assistant Attorney General Avery Mounger Lee on behalf of Attorney General Lynn Fitch.

Citations

Miss. Code Ann. Section 31-27-11 (security for refunding bonds)
Miss. Code Ann. Section 31-27-13 (2% NPV savings floor)
Miss. Code Ann. Section 31-27-17 (refunding authority)
Miss. Code Ann. Sections 31-15-1 through 31-15-19 (General Refunding Law of 1934)
Miss. Code Ann. Section 31-15-5(1) and Section 31-15-17 (independent authority, no election required)
Miss. Code Ann. Section 31-15-11 (annual tax levy, full faith and credit)
Miss. Code Ann. Section 19-9-1 (original GO authority)

Source

Original opinion text

May 13, 2020

Robert P. Shepard, Esquire
Attorney for the George County Board of Supervisors
922 Manila Street
Lucedale, Mississippi 39452

Re: Authority of County to Refinance an Existing Loan with Refunding Bonds

Dear Mr. Shepard:

The Office of the Attorney General is in receipt of your request for the issuance of an official opinion.

Questions Presented

May George County ("the County") issue refunding bonds pursuant to Miss. Code Ann. Sections 31-27-1, et seq. to refinance a portion of the County's loan?

Whether the authority to issue the refunding bonds under Miss. Code Ann. Section 31-15-17 is so complete and absolute that the requirements and restrictions of the original authority, having met those requirements previously to issue debt, are relieved as the County seeks to refinance the debt?

If so, may the County request its levying authority to levy a tax pursuant to Miss. Code Ann. Section 31-15-11 to pay the principal of and interest on the refunding bonds as they seek to refinance the existing obligation?

If so, do the refunding bonds pledge the same source of security and the full, faith, credit and resources of the County?

Background Facts

The George County Board of Supervisors currently has a principal loan of $3,302,586.00, bearing a stated interest rate of 1.75% and an effective interest rate of 2.3%, with the Community Bank for improvements previously made to the George County Regional Hospital. The loan is secured with general obligation bonds issued pursuant to Miss. Code Ann. Section 19-9-1.

The Board would like to refinance the loan with proceeds from a $2,000,000.00 loan offered through a program by Singing River Electric Cooperative wherein USDA funds would be provided at 0% interest and the remaining loan balance paid to Community Bank from the cash reserves of the Hospital. The refinancing would result in a savings to the County of approximately $1,379,000.00 and reduce the life of the loan by three (3) years.

The Board is considering issuing refunding bonds pursuant to Miss. Code Ann. Sections 31-15-1 through 31-15-19 for the refinancing of $2,000,000.00 of the Community Bank loan with the funds from the 0% interest USDA loan and the balance from cash reserves of the Hospital.

Brief Response

In response to your first question, the County may issue refunding bonds pursuant to Sections 31-27-1, et seq. to refinance the county's outstanding general obligation bonds previously issued pursuant to Section 19-9-1 for improvements made to the George County Regional Hospital.

In response to your second question, the County may issue refunding bonds if the County makes a factual determination that the proposed financial structure falls within the authority provided in Sections 31-15-1 through 31-15-19.

In response to your third question, Section 31-15-11 provides that the County shall annually levy a tax upon all taxable property sufficient to pay the principal of and interest on all refunding bonds issued pursuant to that section.

In response to your fourth question, Section 31-15-11 provides "the full faith, credit, and resources of such subdivision shall be and are hereby irrevocably pledged to the payment of such bonds, both as to principal and interest."

Applicable Law and Discussion

Miss. Code Ann. Section 31-27-17 states, "the governing body of a governmental unit may refinance outstanding bonds through the issuance of refunding bonds and the exchange of such refunding bonds for the bond to be refunded." Security for refunding bonds may be the same source of security as the bonds to be refunded or other such security as the governing body may lawfully pledge, or both. See, Miss. Code Ann. Section 31-27-11.

In response to your first question, we are of the opinion that the County may issue refunding bonds pursuant to Sections 31-27-1, et seq. to refinance the county's outstanding general obligation bonds previously issued pursuant to Section 19-9-1 for improvements made to the George County Regional Hospital. Whether the financing structure presented in your factual scenario meets the definition of a "refunding bond" in accordance with Sections 31-27-1, et seq. is a question of fact that must be made by the Board of Supervisors. We note that Miss. Code Ann. Section 31-27-13 requires refunding bonds issued pursuant to the chapter to result in "an overall net present value savings to maturity of not less than two percent (2%) of the bonds being refunded."

A county has the authority to issue general obligation bonds pursuant to Miss. Code Ann. Sections 31-15-1 through 31-15-19 (known as the General Refunding Law of 1934) for the purpose of refunding a previous bond indebtedness of the county that remains outstanding and levies a tax sufficient to pay the principal and interest on such bonds as it matures and accrues. In response to your second question, the County may issue the refunding bonds if the County makes a factual determination that the proposed financial structure falls within the authority provided in Sections 31-15-1 through 31-15-19. Sections 31-15-5(1) and 31-15-17 clearly provide an election or other conditions required by other bond issuance statutes are not required to proceed pursuant to Sections 31-15-1 through 31-15-19.

If the County issues refunding bonds pursuant to Sections 31-27-1, et seq., Miss. Code Ann. Section 31-27-11 provides that the refunding bonds "may be secured by a pledge of: (a) the same source of security as the bonds to be refunded, or (b) such other security as the governing body of the governmental unit may lawfully pledge, or both; all as may be provided by resolution of the governing body of the governmental unit."

If this office may be of any further assistance to you, please do not hesitate to contact us.

Sincerely,
LYNN FITCH, ATTORNEY GENERAL

By: /s/ Avery Mounger Lee
Avery Mounger Lee
Special Assistant Attorney General