NVDAILY.COM | Local News
Posted July 10, 2012 | 8 Comments
Officials: Referendum not an option for jail authority
By Alex Bridges -- firstname.lastname@example.org
State law and other limitations kept the RSW Regional Jail Authority from pitching its recent borrowing venture to the voters.
A longtime vocal opponent of the regional jail recently filed a lawsuit in Shenandoah County asking the court to void the financing for the project on the grounds that, among other reasons, the locality did not put the bond issue up for a referendum.
Individual county governments wishing to borrow money, depending on the kind of debt and amount sought, must put the issue up for a vote in a referendum on a ballot, said Neal Menkes, director of fiscal policy for the Virginia Municipal League. Speaking in general terms and not specifically about the regional jail situation, Menkes noted this requirement does not apply in the same way to cities or towns.
"In order to issue a general obligation bond, which means it's secured by real estate taxes by and large, for a county, under the state constitution and state code, they have to put it to referendum," Menkes said.
The Rappahannock-Shenandoah-Warren Regional Jail Authority could not go into debt through the sale of general obligation bonds, according to Douglas Stanley, chairman of the agency's board and county administrator for Warren County. Instead the authority had to go into debt through the sale of moral obligation bonds by way of the Virginia Resources Authority, Stanley explained.
"So general obligation are where you'd typically have a vote, a referendum," Stanley said. "The authority itself ... does not have taxing authority. The authority cannot do general obligation bonds.
"That's how regional projects like this work and that's why the [Virginia Resources Authority] as a funding mechanism exists to be able to handle that," Stanley said.
The creation of a regional authority made up of more than one locality would eliminate the need to put a debt issue to a referendum.
"I can't see that it would require a general referendum," Menkes said. "It might require a vote by each of the three local governing bodies."
In fact, the boards of supervisors of each of the three counties involved in the project have approved resolutions of support for the authority to go into debt. The Shenandoah County Board of Supervisors in April voted unanimously to approve the authority entering into debt for the jail project.
"I don't think that any authority's going to want to get so far out ahead of its members that it's gonna cause a major conflict between them and their boards or their local governments rather," Menkes said.
Prince has argued in statements that general obligation bonds would come with better interest rates.
"The general obligation bond is backed by the full faith and credit of the locality," Menkes said. "I mean, it's always gonna be the highest ranking type of debt instrument as far as Wall Street is concerned."
General obligation bonds also come with the benefit of support from the voters, which Wall Street views as favorable, Menkes explained. General obligation bonds often work better for large-scale, costly and long-standing projects, such as school buildings, libraries or parks, than moral obligation bonds, according to Menkes.
"You want the support of your citizenry because there will be an increase in your operating costs when you construct a new school building or library or what have you, fire station," Menkes said. "That's a smart thing because you're going to get the lowest interest rate that you'll have to pay with general obligation bond and plus the citizens will have been educated as to that project and why it's important and in fact they're signing off on it and so they're pledging themselves to the success of the project."