Financing of Charter Schools
As highlighted at BAW, the financing of charter schools with tax-exempt bonds is a rapidly expanding part of our practice. It is clear that such financings are integrally intertwined with the laws of the state in which the charter school is located. We believe that a paper addressing the issues that arise in charter school financings would be of assistance to the general membership. While we do not think it makes sense to do a 50 state survey, reviewing certain state statutes on such matters as state or local aid, the existence (or non-existence) of a direct state intercept available to creditors, the charter granting and review process and statutes that may direct a certain structure (e.g., where certain state or local payments are available to a charter school leasing its property rather than owning it) would allow bond, borrower, issuer and purchaser counsel to be sensitive to the concerns raised in charter school financings.
There are tax and securities law concerns that arise in these financings. The expectation would be that these issues (e.g., disclosure about charter school financing risks and use of related entities such as LLCs to create a successful structure) would be discussed in enough detail to alert members to them.
Given that charter schools are creatures of local law (typically at the state level, but sometimes at county or other levels), this will be an “issue spotting” paper with the goal of alerting practitioners to the structuring and substantive law matters that they will need to deal with in these financings.
Updating Form Indenture and Commentary
The NABL Form Indenture and Commentary paper has not been updated since 2002. The financial crisis that began in 2008 put this document, as well as many other bond documents, under a form of stress testing that likely was not envisioned by those who produced the Form Indenture and related Commentary. In addition to numerous workouts during and following the financial crisis, parties to indentures such as issuers and trustees have refined their obligations under the indentures to which they are parties to further insulate themselves from potential liabilities. Beyond this, the use of email and other electronic means as accepted forms of communication has greatly expanded during this period.
The Committee has responded by putting together a project team to review, and suggest revisions to, the Form Indenture and related Commentary. The resulting updated Form Indenture and Commentary will be of use to our members, many of whom have been updating and revising indentures since the financial crisis.
The primary team members are bond and securities law practitioners. The team will enlist the assistance of various trustee counsels and the Securities Law Committee as may be necessary. One focus of the update will be incorporating lessons learned from the financial crisis, which tested the language of indentures in ways not typically encountered by bond practitioners. Another focus will be the potential effects of changes in the oversight of the municipal market by regulatory agencies (e.g., if the Tower Amendment is modified or terminated).
Infrastructure Financing in Rural Communities
The Committee is working on a paper summarizing the tools currently available for financing infrastructure in rural communities, the pros/challenges with such tools, and offer suggestions for how to increase financing opportunities in such communities.
Constitutional Basis for Tax Exempt Financing – A Historical Review and Look into the Future
The United States Constitution was adopted as a clear rejection of Britain’s unitary system of government, and it was carefully crafted to embrace the principles and tensions of dual federalism following the failure of the decentralization principles embodied in the Articles of Confederation. The principles, and related tensions, of dual federalism account for much of what otherwise appears to be a patchwork quilt of state public finance laws in our industry. They are also integral to understanding why interest on municipal bonds has been exempt from the federal income tax act since its adoption, why municipal bonds are exempt from registration under federal securities laws, and why municipalities are treated differently than corporations under federal bankruptcy law.
This article will explore the applicable provisions of dual federalism in public finance. It will explore the evolution of state constitutions and the resultant non-uniformity of Dillon’s Rule. It will discuss the tensions between the 10th and 11th Amendments on the one side and the Supremacy Clause and the Commerce Clause on the other, both as originally construed and as applicable to the real-life public finance “hot topics” of today. Those include state law issues of power and authority in the areas of bank loans, securitizations, bankruptcies, and related matters. They include federal securities law issues relating to the changing regulatory environment and the boundaries on constitutionality of potentially expanded federal regulation. Finally, they also include discussion of constitutional principles in the area of federal tax reform, including discussion of the elasticity of Supreme Court decisions over time regarding the doctrine of reciprocal immunity and the uncertain precedential value of South Carolina v. Baker.
Finally, this article will close with some forward-looking discussion of where these Constitutional issues are likely to present themselves next in the area of public and quasi-public finance, and some helpful tips on issue spotting and analyzing these issues as they arise.
Projects Needing Volunteers
To Lien or Not to Lien: The Nature of the Lien in the Context of Municipal Bonds
The Committee is putting together a team to start a new paper to address the nature of the lien in the context of municipal bonds. The concept behind this paper is not to produce a 50 state survey, but to explore recent cases addressing the lien (Puerto Rico and Detroit), discuss how the lien may be treated in bankruptcy, review a select number of states with statutory liens, and explore how the lien could be made stronger. The goal is to have this paper published (as a shorter piece) in The Bond Lawyer as a helpful tool for bond lawyers and market participants to understand the nature of the lien.