Can the Virginia Small Business Financing Authority issue refunding bonds to refinance bonds originally issued by a local industrial development authority?

Plain-English summary

The Virginia Small Business Financing Authority (VSBFA) had been issuing refunding bonds for 25 years to refinance bonds previously issued by industrial development authorities and other issuers. Every refunding had been approved by the VSBFA's board, reviewed by the AG's office, and supported by bond counsel opinions. Recently, however, questions arose about whether the underlying statutes actually authorize VSBFA to refinance bonds originally issued by some other body. VSBFA Executive Director Scott Parsons asked the AG to settle the question.

The AG concluded yes. The Virginia Small Business Financing Act gives VSBFA broad and unequivocal authority to issue refunding bonds, and that authority covers bonds originally issued by other authorities, public bodies, or political subdivisions, including local industrial development authorities.

The reasoning runs through three statutory pillars. First, § 2.2-2280 declares VSBFA's public purpose: assisting small business in obtaining financing, promoting industrial development, and furthering the Commonwealth's economic development. To accomplish that, the General Assembly granted VSBFA "all powers necessary or appropriate to carry out and effectuate its purposes." Second, § 2.2-2287 expressly authorizes VSBFA to borrow money and issue bonds and adds that "[w]henever [the VSBFA] deems refunding expedient it may refund any bonds by the issuance of new bonds." The key word: "any." Third, § 2.2-2200 defines "bonds" broadly to include "any bonds, refunding bonds, notes, debentures, interim certificates, or any bond, grant, revenue anticipation notes or any other evidences of indebtedness or obligation of an authority." That sweeping definition signals legislative intent to cover the full universe of bond instruments, not just bonds VSBFA originally issued itself.

The AG also leaned on § 2.2-2281, which says the Act "shall be liberally construed to accomplish the purposes of this article" and that the Act "supersedes all other laws in conflict herewith." That liberal-construction directive supports reading the refunding authority broadly.

A second line of reasoning was statutory acquiescence. VSBFA had been issuing refunding bonds to refinance bonds originally issued by industrial development authorities and other issuers for many years, with public hearings and AG/bond counsel review. The General Assembly amended Article 7 several times during that period (most recently in 2009) and had not changed the statute to restrict the practice. VSBFA also files annual fiscal reports with the Governor and the chairs of House Appropriations and Senate Finance. The AG read that as actual and constructive notice followed by legislative acquiescence, reinforcing the plain meaning.

Currency note

This opinion was issued in 2010. 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.

The VSBFA enabling statutes have been amended since 2010. Public finance practitioners considering a refunding today should look at the current Virginia Small Business Financing Act and the current Industrial Development and Revenue Bond Act.

Common questions

What is a refunding bond?
A bond issued to pay off an existing bond, often to take advantage of lower interest rates, restructure the debt service schedule, or remove restrictive covenants. The issuer of the new bond doesn't have to be the same body that issued the original; what matters is whether the new issuer has statutory authority to refund.

Why would VSBFA refund a local IDA's bonds?
A larger or more frequently issuing authority can sometimes obtain better market terms than a local IDA. Centralizing certain types of conduit financings through VSBFA can also simplify administration. The opinion does not get into the policy reasons; it focuses on whether the legal authority exists.

What does "bonds" mean in this statute?
Very broadly. The defined term in § 2.2-2200 includes bonds, refunding bonds, notes, debentures, interim certificates, revenue anticipation notes, and any other evidences of indebtedness or obligation of an authority. The AG read this breadth as deliberate.

Does the legislature's silence really count as approval?
The opinion treats it that way. The legislature is presumed to know about the existing administrative interpretation of a statute, especially when that interpretation has continued for years and the General Assembly has had opportunities to change it. Here the AG pointed to the annual fiscal reports VSBFA files and the several amendments to Article 7 (most recently in 2009) that left the practice untouched, reading that inaction as acquiescence.

Could the General Assembly take this authority away?
Yes. The opinion describes the current statutory landscape, not a constitutional limit. The legislature is free to amend §§ 2.2-2279 through 2.2-2314 to restrict VSBFA's refunding authority if it wishes.

Background and statutory framework

The legal anatomy:

• § 2.2-2280. Establishes VSBFA, declares its broad public purpose, and grants it "all powers necessary or appropriate to carry out and effectuate its purposes," including the power to "borrow money and issue bonds as provided by" Article 7.
• § 2.2-2287. Authorizes VSBFA to issue bonds to pay project costs and, importantly, says: "[w]henever [the VSBFA] deems refunding expedient it may refund any bonds by the issuance of new bonds."
• § 2.2-2200. Broadly defines "bonds" to encompass nearly any debt instrument an authority might issue.
• § 2.2-2281. Provides that the Act is cumulative to other VSBFA powers, supersedes conflicting laws, removes the need for additional proceedings, notice, or approval for issuance, and "shall be liberally construed to accomplish the purposes of this article."

The opinion also notes, without giving section numbers, that the Act requires public hearings and approval for certain bond issuances, requires VSBFA to file an annual fiscal report with the Governor and the chairs of House Appropriations and Senate Finance, and that local industrial development authorities are created under the Industrial Development and Revenue Bond Act.

Statutory construction rules invoked: plain meaning of words; the principle that an unlimited statutory phrase ("any bonds") should not be silently limited; the liberal-construction directive of § 2.2-2281; the doctrine of legislative acquiescence following longstanding administrative interpretation.

Citations

• Va. Code § 2.2-505
• Va. Code Ann. § 2.2-2200
• Va. Code Ann. § 2.2-2280
• Va. Code Ann. § 2.2-2281
• Va. Code Ann. § 2.2-2287

Source

• Landing page: https://www.oag.state.va.us/annual-reports-opinions/official-opinions
• Original PDF: https://www.oag.state.va.us/files/Opinions/2010/10-093-Parsons.pdf

Original opinion text

COMMONWEALTH of VIRGINIA
Office of the Attorney General
Kenneth T. Cuccinelli, II
Attorney General

December 30, 2010

Mr. Scott E. Parsons
Executive Director
Virginia Small Business Financing Authority
P.O. Box 446
Richmond, Virginia 23218

Dear Mr. Parsons:

I am responding to your request for an official advisory opinion in accordance with § 2.2-505 of the Code of Virginia.

Issue Presented

You ask whether the Virginia Small Business Financing Authority ("VSBFA") has the legal authority pursuant to the Virginia Small Business Financing Act ("the Act") to refinance bonds or other obligations previously issued by another authority, public body, or political subdivision including an industrial development authority created under the Industrial Development and Revenue Bond Act.

Response

It is my opinion that the VSBFA is authorized to refinance bonds or other obligations previously issued by another authority, public body or political subdivision, including an industrial development authority.

Background

You state that over the past 25 years, the VSBFA has issued refunding bonds to refund bonds previously issued by industrial development authorities and other issuers. Each issuance of such refunding bonds by the VSBFA has been duly approved by its Board of Directors following a legal review by the Office of the Attorney General and the opinion of qualified bond counsel. You further state that questions have arisen recently regarding the interpretation of certain provisions of the Act as they relate to the issuance of certain refunding bonds.

Applicable Law and Discussion

Section 2.2-2280 establishes the Virginia Small Business Authority. In creating the Authority, the General Assembly identified a broad public purpose:

[T]hat (i) there exists in the Commonwealth a need to assist small business in the Commonwealth in obtaining financing for new business or in the expansion of existing business in order to promote and develop industrial development and to further the long-term economic development of the Commonwealth through the improvement of its tax base and the promotion of employment and (ii) it is necessary to create a governmental body to provide financial assistance to small business in the Commonwealth by providing loans, guarantees, insurance and other assistance to small business, thereby encouraging the investment of private capital in small business in the Commonwealth.

To fulfill this purpose, the General Assembly granted to the VSBFA "all powers necessary or appropriate to carry out and effectuate its purposes including, but not limited to" an extensive list of enumerated powers that includes the power to "borrow money and issue bonds as provided by" Article 7.

Section 2.2-2287 explicitly authorizes the VSBFA to borrow money and issue bonds to pay the cost of the projects for which the bonds have been issued. Specifically, this statute provides that "[w]henever [the VSBFA] deems refunding expedient it may refund any bonds by the issuance of new bonds ...." Section 2.2-2200 broadly defines the term "bonds" as "any bonds, refunding bonds, notes, debentures, interim certificates, or any bond, grant, revenue anticipation notes or any other evidences of indebtedness or obligation of an authority...." This language evidences a clear legislative intent to grant the VSBFA broad discretion and authority to issue refunding bonds for the benefit of eligible projects in the furtherance of the purposes of the Act.

It is a general rule of statutory construction that the words of a statute are to be given their usual, commonly understood meaning. Generally, where the language of a statute is clear and unambiguous, rules of statutory construction are not required.

Furthermore, § 2.2-2281 provides:

Nothing contained in this article shall be construed as a restriction or limitation upon any powers that the Authority might otherwise have under any other law of the Commonwealth, and this article supersedes all other laws in conflict herewith and is cumulative to such powers. Insofar as the provisions of this article are inconsistent with the provisions of any other law, the provisions of this article shall be controlling and the powers conferred by this article shall be regarded as supplemental and additional to powers conferred by any other laws. No proceedings, notice or approval shall be required for the issuance of any bonds or any instrument or the security therefor, except as provided in this article.

The provisions of this article shall be liberally construed to accomplish the purposes of this article.

The plain language of the Act is broad and unequivocal. The General Assembly, when defining the term "bonds" in § 2.2-2200, specifically mentions the word "bond" in three separate contexts. Therefore, the legislature was aware of the broad spectrum of bonds and the various entities that might issue such bonds. If the General Assembly wished to limit the authority of the VSBFA to issue refunding bonds only to refund certain types of previously issued bonds, it could easily have done so by expressly stating such limitations in § 2.2-2287. Similarly, the General Assembly could have expressly provided that the authority of the VSBFA to issue refunding bonds under this section did not apply to bonds issued by local industrial development authorities. Such limitations, however, are not included in the statute, and no such limitation should be implied. The General Assembly uses the language "any bonds" in § 2.2-2287, and, as the Act provides, the broad implications of that term must "be liberally construed to accomplish the purposes of the" Act.

Moreover, for the past several years, the VSBFA has issued refunding bonds to refund bonds that were originally issued by industrial development authorities or other issuers. Each issuance was reviewed by bond counsel and the Office of the Attorney General. In most instances, these refunding bonds were issued only after public hearings and approval as required by statute. During that time, the General Assembly amended Article 7 several times, the last being in 2009. Additionally, the VSBFA is required to submit an annual fiscal report of its activities to the Governor and to the chairmen of the House Committee on Appropriations and the Senate Committee on Finance. Therefore, the General Assembly had both actual and constructive notice of the practices of the VSBFA, and it has not chosen to amend the Act to prohibit such conduct. This acquiescence further confirms the plain meaning of the statute noted above.

Conclusion

Accordingly, it is my opinion that the VSBFA is authorized to refinance bonds or other obligations previously issued by another authority, public body, or political subdivision, including an industrial development authority.

With kindest regards, I am

Very truly yours,

Kenneth T. Cuccinelli, II
Attorney General