Rural Bond Bank: Good News for Local Governments By GEORGE H. RYAN, Lieutenant Governor, Chairman, Rural Affairs Council

By the time the Illinois General Assembly adjourned this summer, it had approved 1148 pieces of legislation, addressing a broad range of issues.

As chairman of the Rural Affairs Council, there was at least one measure of special interest — a bill that has since been approved by Governor Thompson.

That legislation is House Bill 2520, which creates the Illinois Rural Bond Bank. Its goal: to help local units of government throughout the state to borrow funds at a more reasonable cost to finance improvement and development projects that the communities need.

The General Assembly must appropriate the start-up administrative funds in the amount of $125,000 for the rest of Fiscal Year 1990. For FY 1991, the need is for $250,000. Plus the debt service needs funding by the legislature in the amount of $5 million.

But it's a "must have"; the Bond Bank is a crucial tool to help small towns and rural areas better help themselves. In fact, the need for assistance such as this became clear just a couple of years ago when the Task Force on the Future of Rural Illinois held hearings around the state. At that time, local officials told us that they needed to be able to finance local improvements without having to give 'an arm and a leg' to sell their bonds in the bond markets. By virtue of this new law creating the Rural Bond Bank, local communities are being given the type of assistance they need to overcome the barriers to reasonably priced loans.

Specifically, the Bond Bank will be allowed to serve all towns smaller than 25,000; all counties except those over 1 million or counties contiguous to those counties over 1 million; school districts, community college districts; or other units of local government.

Just how will the Bond Bank work? It will "pool" the bond issues it has purchased into one or more larger packages, which it will then sell on the national bond market at more favorable interest rates for the small towns. The proceeds from the sale of the pooled issue go back into the Bond Bank for use with the next batch of borrowing requests from small towns.

The Bond Bank, through pooling and other provisions, will enable small towns and other rural governments to borrow the money they need at lower interest rates — and more quickly and easily — than they could ever hope to do if they went into the bond market themselves. That's because the bond market pays attention to the larger and more sophisticated bond issuers and does not pay attention to the small towns which still need to borrow money. The Rural Bond Bank puts smaller government borrowers on a more "level playing field" with large governments.

Specifically, the Bond Bank will use the following key means to provide more reasonable credit for small government borrowers:

• The pooling device, which gives "economies of scale" by combining several issues into one, larger issue.

• Intercept provision — upgrades the quality [risk] of the issue. In case of default, the various State aid due the borrowing community is intercepted to pay the bond debt service.

• Debt service reserve — to be provided by appropriation of the General Assembly.

• "State Moral Obligation" — in case the reserve fund is depleted, the Governor and the General Assembly will work together to allocate monies to replenish that fund.

October 1989 / Illinois Municipal Review / Page 9

The Bond Bank is also able to serve small and rural units of local government by providing professional financial advice and service.

The Rural Bond Bank Board of Commissioners includes the Lieutenant Governor [Chairman], the State Treasurer [Vice Chairman] and five appointees of the Governor [two not from the same political party as the Governor]. An Executive Director is appointed by the Board of Commissioners.

Right now we are looking at the following timetable for the Rural Bond Bank:

• Governor appoints Board of Commissioners.

• Board convenes and names Executive Director, General Counsel and establishes offices in Springfield.

• 60 to 90 days — Counsel creates master documents, administrative and application procedures.

• 60 days — advertise program; receive first applications and review.

• 30 days — bond program participants selected.

• 30 days — first bonds issued [March 1990].

Certainly recognition must be extended to the House and Senate sponsors of the Rural Bond Bank: Reps. Richard Mautino of Spring Valley, Ted Leverenz of Maywood and Tom McCracken of Westmont and Sens. Richard Luft of Pekin, Jack Schaffer of Crystal Lake and Penny Severns of Decatur.

For more information about the Illinois Rural Bond Bank please contact: Donald Norton, Executive Director, Illinois Rural Affairs Council, 612 Stratton Building, Springfield, IL 62706, 217/782-7514.

News items and photographs of interest indicating new developments and progress in your municipality are always of interest to our readers. You are urged to send such information to the ILLINOIS MUNICIPAL REVIEW for publication. Be sure your information is complete. All photographs should be black and white glossy prints.— Editor

Page 10 / Illinois Municipal Review / October 1989