AG19910325 - Laserfiche WebLink

Home Browse Search

'Isn't it clear that the Constitution allows two kinds of debt - one kind secured by thc taxing power and one kind that is not? Isn't the contract in this case simply an example of the second kind of debt?' Obviously, such questions are not p._rec_-,,dent or in any way controlling, but this and the absenc~ of a detailed cas~ law analysis in the opinlon indica~ the Court has little doubt as to the reading of the constitutional provision. Suffict to say, Wayne County won a complete victory. Comparable ius~lment sale ~onUaets by other North Carolina issuers should face no legal challenges. With regard to other effects of the caso, three points are worthy of discussion - 1) the need for 'identification' or pledging of nontax revenues, as currently required by some counsel for leaseffpurchase contracts; 2) the future use of ~-s; and :~) the need, or lack there~f, for 'non-appropriafon clauses.N On the first point, it seems certain ~uch ide. ntlfieation et pledging is not necessary ~d will not cor,~au¢. The pmutic~ was only developed to assm'e that mx revenues were not us~l to pay such contracts and thus avoid one aspect of the constitutional question. However, the Court clearly has put this problem to rest and such devic~.s should not be seen again. As to con,hued use of financing l~ses under N.C.6.S. Sections 160A-19 or 153A- 165, current thinking is this will not occur for tl~'~ ~a.sons. Fh-st, installment sales now have the blessing of the Court and leases do not. Even though the in favor legal arguments of their validity are exu~emely similar, the lack of such judicial imprimatur for leases is likely to l~rsuade knowledgeable issuers, their couustl and lenders to avoid them. The second is the of N.c.6.s. section 160A-20. This amended in flexib~ty 1989 to allow the possibility of constructiun funding for pmj~ts. The net effect is a government utilizing this statute can avoid the often cuml~rsome and always irritating necessity to either create a non-profit corporation to nominally construct the project or have a 's~cond closing' upon completion of cons~'uction. The later option exposed the government to the risk that interest ra~s will ~ prior to the time of compl~on when it has a ~ deal. A third rcasoa !s fl~ S~tioa 166A-20 specificatly authorizes s~curi .ty intrusts and mo~guges as .s~curity and the comparable l~aso s~atutes do not. This laok can be'worked around only with difficulty and lenders usually do not end up with as much ~curity (at l~ast in real property financings) in l~tse transactions as they do in sales. For these reasons, ~1~._~ in th~ future should be limimd to tho~e infr~que~nt ~t~a~ous where peculiar ch'cumstaaces axgu~ against using installment sale The effect of the Wayne County cas~ on the utility of 'non-appropriation ~lauses' is not neatly so cl~at. Non-appropriation clauses ar~ provisions in the docame~ts which specifically allow the contracting governmen~ entity to exereis~ a riaht of non-appropriation annually. Such provisions usually requh~ ~he ~l~ief administxative offi~r of the unit to i~chid- the anticipated annual payments due under the leas~ or iustallmmt sale contra~t within the next fiscal yea~ in his proposed budget for such year tendered to the governing