Types of State Debt
With limited exceptions, the Ohio Constitution prohibits the incurrence or assumption of debt by the state without a popular vote. The state may incur debt to cover casual deficits or failures in revenues, or to meet expenses not otherwise provided for, but this power is limited in amount to $750,000. The Constitution expressly precludes the state from assuming the debts of any county, city, town or township, or of any corporation (though an exception in both cases is for debts incurred to repel invasion, suppress insurrection, or defend the state in war). Issuance of state debt paid from the state's general fund is subject to the Constitutional 5% debt service limitation.
General Obligation Debt
By 19 constitutional amendments approved from 1921 to present, Ohio voters have authorized the incurrence of state general obligation (GO) debt and the pledge of taxes and excises to its payment. Exceptions or limitations are for highway user receipts which may only be used to pay debt service on bonds issued for highway projects and net state lottery proceeds which may only be used for debt service for public primary and secondary education facilities.+ Read More...
The Ohio Public Facilities Commission and the Treasurer of State are the only currently authorized issuers of the state's GO debt.
Public Facilities Commission. The
OPFC issues general obligation bonds for common schools, higher
education, natural resources, coal research and development,
conservation projects, local infrastructure improvements, Third
Frontier research and development, job-ready site development, and
veterans compensation. Each of these currently authorized programs is
Veterans Compensation. A 2009 constitutional amendment authorizes the issuance of state general obligation debt to provide compensation to persons who have served in active duty in the United States armed forces at any time during the Persian Gulf, Afghanistan, and Iraq conflicts. Not more than $200 million may be issued and no obligations may be issued later than December 31, 2013.
Third Frontier Research and Development. Constitutional amendments in 2005 and 2010 authorize the issuance of $1.2 billion of general obligation debt in support of Ohio industry, commerce and business. No more than $450 million total may be issued in state fiscal years 2006 through 2011, no more than $225 million in fiscal year 2012 and no more than $175 million in any fiscal year thereafter.
Site Development. A 2005 constitutional amendment authorizes the issuance of $150 million of general obligation debt for the development of sites for industry, commerce, distribution, and research and development. Not more than $30 million was permitted to be issued in each of the first three fiscal years and not more than $15 million in any other fiscal year.
Conservation. Constitutional amendments in 2000 and 2008 authorize $400 million of general obligation debt to be issued to finance preservation of green space, development of recreational trails and protection of farmland, all through partnerships with local governments. Not more than $50 million may be issued in any fiscal year. Additional debt may be issued as outstanding debt is retired, provided that not more than $400 million is outstanding at any time.
Common Schools. A 1999 constitutional amendment authorizes general obligation debt to be issued to pay the costs of capital facilities for a system of common public schools throughout the state. There is no constitutional limit on the amount of debt that can be outstanding at any time. The full faith and credit, revenue (including net state lottery proceeds, if pledged) and taxing power (excluding highway user receipts) of the state are pledged to retire this debt.
Higher Education. That same 1999 constitutional amendment authorizes general obligation debt to be issued to pay the cost of capital facilities for state-supported and state-assisted institutions of higher education. There is no constitutional limit on the amount of debt that can be outstanding at any time.
Infrastructure Improvements. A 1995 constitutional amendment authorized the issuance of $1.2 billion of general obligation debt to finance or assist the financing of public infrastructure capital improvements of municipal corporations, counties, townships, and other government entities, with not more than $120 million issued in any fiscal year. A 2005 constitutional amendment authorizes an additional $1.35 billion of general obligation debt as a ten-year extension of this program, with an increase in the annual issuance amount in the last five-years from $120 million to $150 million.
Natural Resources. A 1993 constitutional amendment authorizes $200 million of general obligation debt to be issued to finance capital facilities for parks and natural resources improvements. Additional debt may be issued as outstanding debt is retired, provided that no more than $200 million is outstanding at any time. Not more than $50 million may be issued in any fiscal year The full faith and credit, revenue (excluding net state lottery proceeds), and taxing power (excluding highway user receipts) of the state are pledged to retire this debt.
Coal Research and Development. A 1985 constitutional amendment authorizes $100 million of general obligation debt to be issued to finance grants, loans, or loan guarantees for research and development of coal technology that will encourage the use of Ohio coal. Funding is available to any individual, association, or corporation doing business, or to any educational or scientific institution located in the state. Additional debt may be issued as outstanding debt is retired, provided that not more than $100 million is outstanding at any time.
Treasurer of State. The Treasurer of State issues general obligation bonds for highway construction, as summarized below.
Highway (Capital Improvements). A 1995 constitutional amendment authorizes the issuance of general obligation debt for highway construction. The amendment provides that as this debt is retired additional debt may be issued so long as no more than $1.2 billion is outstanding at any time. No more than $220 million may be issued in any fiscal year. Though secured by the state’s full faith and credit, debt service has always been paid from pledged highway user receipts (including motor vehicle fuel tax receipts).
Special Obligation Lease-Rental Debt
State special obligation debt, the owners or holders of which are not given the right to have excises or taxes pledged to the payment of debt service, is authorized for specified purposes by Section 2i of Article VIII of the Ohio Constitution. Debt service payments are subject to biennial appropriations made in the state's operating budget under leases or agreements entered into by the state. The Treasurer of State is the current issuer of the state's special obligation lease-rental bonds.+ Read More...
of State. The
Treasurer issues obligations for mental health, parks and recreation,
and cultural and sports facilities purposes, in addition to issuing
lease-rental bonds to house branches and agencies of state government
and their functions, including: state office buildings and facilities
for the Department of Administrative Services and others; the
Department of Public Safety; juvenile detention
facilities for the Department of Juvenile Corrections; prisons and
correctional facilities for the Department of Rehabilitation and
Corrections; and office buildings for the Bureau of Workers’
Debt service on special obligations is generally paid from the GRF, with the exception of debt issued for DPS facilities which is from the Highway Safety Fund and for BWC facilities which is paid from the BWC Administrative Cost Fund.
Revenue Obligations Payable from Federal Title 23 Highway Funds
Treasurer of State. The Treasurer of State issues Major New State Infrastructure Project Revenue Bonds (also known as Grant Anticipation Revenue Vehicles or GARVEEs) to fund selected highway construction projects that have been approved by the U.S. Department of Transportation. The debt service charges on these bonds are secured by and payable primarily from Federal Title 23 Highway Funds received and to be received by the state, subject to biennial appropriations by the General Assembly.
Certificates of Participation
State agencies have also entered into lease-purchase agreements with terms ranging from 7 to 20 years to finance capital improvements or equipment. Certificates of Participation (COPs) have been issued that represent fractionalized interests in or are payable from state payments made under those agreements. Payments by the state are subject to biennial appropriations by the General Assembly, and the holders or owners of the COPs have no right to have excises or taxes levied to make those payments. The OBM Director's approval of such agreements is required if COPs are to be publicly-offered in connection with those agreements. COPs have been issued in connection with leases entered into by the Ohio Department of Administrative Services to finance the acquisition and installation of the following systems:+ Read More...
Multi-Agency Radio Communications System Project (MARCS)
MARCS is a statewide computer and communications network administered by the Department of Administrative Services that is designed to provide instant voice and data communication and supply a communications backbone to the public safety and emergency management.
Knowledge System (OAKS)
OAKS which is an enterprise resource planning system was implemented to support the common back office operations of the state. The major statewide business functions supported by OAKS include capital improvements, financials, fixed assets, human resources and procurement.
State Taxation Revenue and Accounting System (STARS)
STARS is an integrated tax collection and audit system administered by the Ohio Department of Taxation intended to replace the state’s existing separate tax software and administration systems.
Revenue bonds are used by the state to finance a specific project or category of projects. Debt service is secured by and paid from revenues or fees that are charged for the use of facilities. Various state authorities and commissions have been created by the General Assembly to issue revenue bonds. These include the Ohio Turnpike and Infrastructure Commission, the Ohio Housing Finance Agency, the Ohio Water Development Authority, and the Petroleum Underground Storage Tank Release Compensation Board. The funds borrowed by these authorities and the funds for the debt service payments on their obligations are outside the state treasury and are not appropriated by the legislature.+ Read More...
The Department of Development, the Ohio Water Development Authority, the Ohio Air Quality Development Authority, the Ohio Housing Finance Agency and the Ohio Higher Education Facilities Commission also issue conduit bonds for economic development, pollution control and solid waste, housing and private higher education projects. The debt service on those conduit bonds is paid solely by the benefited business or entity.
State Credit Enhancement Programs for School Districts and Community Technical Colleges
The state provides credit enhancement programs for school districts and two-year community and technical colleges to help reduce the cost of borrowing for certain capital projects. Under these programs, the state and the school district or college enter into an intercept agreement under which, in the event that debt service on the applicable debt obligations are not able to be made in full and on time, the state is authorized to withhold funds that would otherwise be paid to the school district or college and divert those funds to payment of debt service on the debt obligations. This credit enhancement typically results in a higher credit rating than the school district or college could obtain on a stand-alone basis. The higher credit rating enhances the security and improves the marketability of the bonds thereby resulting in a lower borrowing cost.+ Read More...
The Ohio Department of Education administers the state’s credit enhancement program for school districts pursuant to Section 3317.18 of the Ohio Revised Code. Chapter 3317, as further implemented by OAC rule 3301-8-1, sets forth the application requirements, eligibility criteria, and the procedural steps by which the intercept mechanism will be used for the payment of debt service in the event an institution is unable to make such payments. Additional information on the school district credit enhancement program is available on the Ohio Department of Education Web site via the following link (Ohio Department of Education).
Two-Year Community and Technical Colleges
The Ohio Board of Regents administers the state’s credit enhancement program for two-year community and technical colleges pursuant to Section 3333.59 of the Ohio Revised Code. That section, in addition to OAC rules being developed, sets forth the application requirements, eligibility criteria, and the procedural steps by which the intercept mechanism will be used for the payment of debt service in the event a college is unable to make such payments. Under the program, a college will have the option of consolidating separate issues into an offering by the Treasurer of State. For additional information on the community and technical college credit enhancement program, please contact the Ohio Board of Regents.