The Technical Term is “In-substance defeasance”

In-substance defeasance is an accounting term for removing debt from an entity’s balance sheet though the debt itself is not cancelled. The debt is considered paid from an accounting standpoint if a dedicated sinking fund is created with a financial intermediary that is sufficient to extinguish the original debt over time. In the case of the City of Bay St Louis, the proposed Utility Fund refunding bonds would In-substance defease the previous refunding bonds that In-substance defeased the original bond issue.

In layman’s terms this would mark the second time the original Water and Sewer capital improvement bonds have been refinanced. Having a bit of experience with the back end of this type of transaction, I can say first hand that it is complex and carries hefty legal and professional fees as the Bay City Council found out first hand at last night’s meeting.

In other news:

Bay eyes cuts, new projects to fix budget ~ Dwayne Bremer

To the council’s credit, public input was welcomed, even on an impromptu basis, though the nice lady from Ward 6 that wore out Mayor Fillingame did end up being gaveled by Council President McDonald.

Overall, those assembled for yesterday’s budget workshop ended up pleased with the quality of the discussion that took place between the Mayor and City Council. ┬áThe only thing that was missing was the September 2013 audit report and it was not discussed.

Those so interested in a more detailed account of the meeting can click here to access the first of many Tweets on the meeting from the Slabbed New Media Twitter stream. The workshop and council meeting went for six hours straight with a multitude of topics covered.

2 thoughts on “The Technical Term is “In-substance defeasance””

  1. There was certainly a lot to digest last night in the Bay.
    First off: The lady who chastised the Mayor was no worse than when the City Clerk got up last Oct. and literally ranted and raved, waving papers in the air that the city was in good shape financially. Not to mention sending an email to another city employee before his rant at that meeting saying that he couldn’t wait ” to take care of that clown” ( in reference to a citizen who had questioned the finances).
    Well, we all know who “the clowns” are now, and it is not the citizens. Where was the City Clerk last night?
    According to Lucien Bourgeois of Butler Snow, and I quote him, the city of Bay St. Louis is in a “financial crisis that cannot go beyond June 30.”
    But do they care? Not according to their actions, they don’t. They voted to approve the Mayor’s recommendation to send the Fire Chief and a couple of others to a Ferraro Fire Truck convention or some such event in Gulfport, and take the new Ladder Truck with them to “show it off.” Is that why they
    bought it? What if they need it in Bay that day? I guess whomever has a fire at their home can fight it themselves, which will help with “water consumption” since they need the utility funds so badly. So much for lamenting for 5 hours about the state of their finances. How soon they forget.
    The real crisis for the citizens of Bay St. Louis are the ones sitting in front of them running the meeting.
    Ever heard the expression: “The inmates are running the asylum?”

  2. I’d have to look it up, Doug, but what comes to mind is the analogue in Mississippi’s Constitition to our Article 7, Section 14 :
    (A) Prohibited Uses. Except as otherwise provided by this constitution, the funds, credit, property, or things of value of the state or of any political subdivision shall not be loaned, pledged, or donated to or for any person, association, or corporation, public or private. Except as otherwise provided in this Section, neither the state nor a political subdivision shall subscribe to or purchase the stock of a corporation or association or for any private enterprise.

    And absent an express provision in state law, I would argue that only the legislative branch through enactment of a general statute authorizing “X” to forego debt, or through a special act directed to a specific debt, after required notice, can legally cancel the debt.

    You likely readily see the intentional misperception kleptocrats pull when they confuse issues comprehended under accounting with legal precepts, and the rubes think everything is hunkey-dorey.

    Although, Doug, seeing refinancing carried on with some nifty sums, wasn’t costly (in relative terms) for our state kleptocrats. Are you suggesting Mississippi refinancing requires more “juice”? (LOL).

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