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New bill would require “truth in lending” language for government bonds

When a person takes out a mortgage to buy a home, there are significant “truth-in-lending” laws requiring the loan contract disclose -among other things – the interest payments that will be required. It only makes sense, then, that when government offers voters a bond referendum similar disclosure provisions should be in place.

After all, voters are deciding whether or not to assume a debt they will have to repay – why shouldn’t governments be held to the same standards?

That’s the reasoning behind a new bill filed this week in the North Carolina Senate. Senate Bill 265, sponsored by Todd Johnson (R-Union) and Carl Ford (R-Rowan, Stanly) would require greater transparency on bond referendums, providing voters with a clearer picture of what it is they are voting on.

Prior to legislation signed by then-Gov. Pat McCrory in 2013, bond referendums made no mention of interest payments at all, nor any reference to the very real possibility that taxes may need to be raised to pay off the newly-issued debt. The 2013 law required bond referendums to add “plus interest” after the bond amount, as well as the phrase “additional taxes may be levied in an amount sufficient to pay the principal of and interest on the bonds.”

That bill represented significant progress for transparency on bond referendums, and SB 265 would mark a greater step in that direction by requiring more details about the bond, which include:

  • the maximum duration of the bond debt
  • the estimated total amount of interest payments
  • the amount of property tax increase that would be required to pay off the debt
  • that approval of this debt would enable the governmental unit to issue additional debt not approved by taxpayers in the future, and what amount

In the Great Recession, we heard a lot of talk about “predatory lenders” preying on unwitting borrowers by not fully or transparently disclosing all the details of the debt. But for the longest time, governments in North Carolina have engaged in similar predatory behavior by not fully disclosing information about debt they are foisting upon taxpayers.

SB 265 is a measure that would provide long-overdue transparency.

 

Brian Balfour / Senior Vice President of Research

Brian is Senior Vice President of Research at the John Locke Foundation