The Florida Supreme Court dropped a bombshell on the normally staid world of government construction financing the other day. By a unanimous vote, they overturned 27 years of precedent by ruling that Escambia County couldn't sell bonds to finance a new 4-lane highway without voter approval. In the process, they cast a pall of doubt over one of the most popular means of financing government building projects in the state. At issue is the legal status of quasi government bonds known as certificates of participation, or COPs for short. COPs are like revenue bonds but are not directly backed by the full faith and credit of the government body that issues them. Because of this, Florida Supreme Court rulings in 1980 and 1990 said that, unlike general revenue bonds, they don't need voter approval. The new ruling strikes at the heart of those previous rulings. The Florida Constitution says that when any local government body wants to issue bonds backed by property taxes, it has to get voter approval first. In 1980 and 1990, the Florida Supreme Court held that the Constitution requires voter approval only if the governments are going to pledge property taxing power. If they are only pledging to pay with property taxes, they don't need voter approval. Here's what they meant. If the government pledges taxing power to pay off the bonds, then the investors who buy the bonds can sue in court to force the government to raise taxes to pay them back. If the government only promises to pay off the bonds with property taxes, the investors can't force the government to raise taxes to pay them back. The new Supreme Court ruling says that the Constitution makes no such distinction between types of bonds. They ruled that if you plan to pay back your bonds with property taxes, you must get voter approval first. COPs are like bonds that only have a promise to pay with property taxes. Let's use a school district that wants to build a new school to see how they work. First, the school board creates a dummy corporation with itself as the board of directors. Next, the board uses the corporation to issue COPs and sell them to investors. Once they have been sold, the dummy corporation uses the money to build the new school. After building the school, the corporation leases it to the school district. The lease payments are used to pay back the investors who bought the COPs.
Once the COPs are paid off, the corporation deeds the school to the school district which then owns it free and clear. Notice that the school district didn't pledge its property taxing power to pay off the COPs. Therefore, based on the 1980 and 1990 rulings, they didn't need voter approval to issue them. COPs have been very popular. Altogether, school districts and local governments throughout Florida have used them to raise over 12 billion dollars. The new Supreme Court ruling has thrown the legality of all those COPs into doubt. It shouldn't surprise anyone that those government bodies are clamoring for the Supreme Court to clarify the impact of its ruling on COPs. They need answers to two key questions. First, does the ruling apply to COPs? Second, if it does apply, does it apply retroactively or only to future ones? Strictly speaking, the new ruling only applies to a special type of bond that Escambia County planned to use. But the part of the ruling that overturns the 1980 and 1990 decisions could apply to COPs. The Court also said their decision doesn't apply to already existing bonds. If they rule that their decision applies to COPs, will they also exempt existing ones? A lot is riding on the Court's response. For one thing, many school districts have been planning to use COPs to build new schools to meet the school concurrency requirements that start next year. What will happen if they need voter approval for them is anybody's guess. For many government planners, the impact of the Supreme Court's ruling on new schools and a host of other building projects is almost too horrible to contemplate. | 
