Any new or existing municipality can take over those bonds. They do it all the time. And as a fallback the state could take those on and refinance them and pay then off. It's really not difficult, but the author makes it seem to be.
As for the millage rate, if Reedy Creek is higher than the state maximum, I'm curious for what valuation Disney appraises its own property, since the millage rate is only part of the story.
The state _could_ attempt to negotiate with bondholders to repurchase the bonds - probably at a significant premium, however. Of course, if one of the bondholders refuses to sell, there wouldn't be much they can do... (I wonder if Disney holds any of those bonds for this very reason?)
From what I see, the state statute grants the ability for RCID to issue bond contracts. I don't believe the statute grants the state any ability to interfere with those contracts.
I'm not an expert, but usually bonds are bought at a discount. The city would sell 1.5 million worth of bonds for 1.3 million, for example. The effective interest rate comes from that discount.
That said, they don't seem to provide a lot of details and I've seen some wildly misleading numbers from Strongtowns. They're not to be trusted to provide objective numbers.
Most localities sell bonds, backed up by promise of future tax revenue. Eventually their bonds are downgraded and they have to pay higher and higher interest rates. Finally, the math comes crashing down and the game is over when the market has no more appetite for the bonds and the state and feds won't backstop them.
Bonds for something like are typically secured by revenue. When they issue a revenue bond, they need to have the ability to raise the rates to cover the bond. Current rates only matter if they are too high.
The situation in a place like Flint or Detroit is complicated by the fact that the municipality is depopulating, and they cannot afford the infrastructure built for a few million people that now serves far fewer. In any case, a private entity doesn't have a magical ability to fix this stuff. A private company would just buy the future cash flows at a discount and farm the resource for as long as possible.
Clearly, at some point it becomes cost-effective for the state to step in and just buy back the bonds at close to par under the implied threat of bankruptcy as an alternative. Almost free money!
Whether its a good investment or not is dictated by the risk and interest rate associated to it. You can't not pay your obligations which in this case would be the interest rate to cover today's expenses. Otherwise we are talking about a larger issue which would be bankruptcy.
Large capital expenditures undertaken by municipalities are usually funded by bonds.
A municipality would issue bonds to fund the replacement of their water mains, which are breaking and pouring water into the streets every winter. It would issue bonds to renovate their elementary school, which has a leaking roof, asbestos insulation everywhere, and drinking fountains that dispense leaded water.
Municipalities have limited borrowing power, so muni fiber does have to compete against all those other priorities. And it's been a tough market for muni bonds lately.
What's more, muni fiber would be considered a non-essential revenue bond. These types of bonds carry higher interest rates than essential services bonds, or general obligation bonds.
Refinancing their bonds at a lower interest rate is an entirely reasonable business decision vs having to pay them off. Cash flow is king, do whatever possible to maximize it.
Yeah, you're right. I think the public votes on the intent to issue bonds, and once the intent is approved, the administrators duke it out. I would not attribute everything to incompetence or corruption though - a lot of California municipalities have negative ratings, and school board bonds are least attractive compared to general obligation and other muni papers, so that rate might be in line with market.
As for the millage rate, if Reedy Creek is higher than the state maximum, I'm curious for what valuation Disney appraises its own property, since the millage rate is only part of the story.
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