NMAGO 01-03.

• Case Date: November 14, 2001
• Court: New Mexico

New Mexico Attorney General Opinions 2001. NMAGO 01-03. November 14, 2001OPINION OF Opinion No. 01-03PATRICIA A. MADRID Attorney General BY: Martha A. Daly Assistant Attorney General TO: The Hon. Pauline J. PonceRepresentative, New Mexico House of Representatives1020 South MulberryRoswell, NM 88203-6887 QUESTION: May a board of education of a school district issue general obligation refunding bonds in a principal amount that exceeds the principal amount of the outstanding bonds being refunded?CONCLUSION: Subject to the approval of the Department of Finance and Administration, a board of education may issue general obligation refunding bonds in a principal amount that is greater than the principal amount of the outstanding bonds being refunded, provided the proceeds of the refunding bonds are used only for the purpose of refunding existing school district general obligation indebtedness, as provided by law, and not for new capital outlay projects, operating costs of a school district or other purposes besides refunding. FACTS: Your question arises in the current environment of historic low levels of interest rates, which provides school districts (like other public bodies generally) with an opportunity to refinance their general obligation bond indebtedness, usually to achieve present value savings, if an increase in principal (which is a common ingredient when going from high to low interest rates) is permissible. Your letter of request contains two different hypothetical situations, which are discussed in detail in the analysis portion of this opinion. ANALYSIS: The law on this practice is not uniform across the country. Some jurisdictions prohibit the practice by statute, while in others, statutes expressly authorize it. In still others, constitutional provisions authorize this practice. Finally, some state courts have interpreted their state constitutions to ban it. Thus, this question is strictly controlled by the law of each jurisdiction. Typically, a bond refunding is accomplished by generating sufficient proceeds from the sale of the refunding bonds to retire the refunded bonds, either by immediately calling them (a "current refunding") or funding an escrow account which over time will earn sufficient income to pay off the original bonds and all interest and premiums associated with the refunding issue (an "advance refunding"). By statute, a school board in New Mexico may issue general obligation refunding bonds to refund outstanding bonds whenever it deems such action is "necessary or advisable". See NMSA 1978, § 6-15-12 (1975). The amount of the refunding bonds is left to the board to determine, which amount similarly must be "necessary and advisable." Id. The refunding bonds must mature no later than twenty-five years from the date of issuance of the refunding bonds. See NMSA 1978, § 6-15-13 (1983). These refunding bonds, which are paid from annual property tax levies, may be exchanged dollar for dollar for the bonds being refunded, or may be sold as directed by the board. See NMSA 1978, §§ 6-15-14 (1975) and 6-15-15 (1963). The proceeds of the refunding bonds must be applied only for the purpose of refunding any of the general obligation bonded indebtedness of the school district which has or will...