The Richardson City Council is violating the City Charter by selling bonds without the consent of the voters – Visitors Section at City Council, July 12, 2010 False The Story On the evening of July 12, 2010 at the regular City Council meeting, a local attorney claiming to represent a Richardson resident spoke at the Visitors Section, where citizens are allowed to speak for up to 5 minutes on virtually any topic of interest to the City. After saying a few niceties, he launched into the meat of his message: that the Richardson City Council violated the City Charter when it recently passed ordinances authorizing the sale of bonds without the consent of the voters. He did note that some $66 million of the bonds were approved by the voters, but that there seemed to be some $112 million bonds recently approved. He did confess to being confused about $6 million of the bonds, in that they may have been a "refunding" (what most residents would call a "refinance") of bonds, but he said (twice) that it was "crystal clear" that the act of offering bonds for sale without voter approval was a violation of the City Charter. He ended his 5 minutes by noting that if the members of the Council were unable to follow the Charter, then they should resign. The Background What the visitor actually said We will paraphrase the first part of the attorney's speech to the Council. He introduced himself, said that he was present on behalf of a Richardson resident that he named, and then began a series of complimentary comments about the City, the Council, the City Manager, and even the drainage system: He wanted to compliment the city council and all employees on excellent Wildflower event He wanted to say that we have an excellent water drainage system here (after all the recent rain) He wanted to say that we had an excellent fireworks display for July 4th He wanted to compliment [City Manager] Mr. Keffler for being selected as president of the city managers association Next he noted that he had submitted a letter Friday afternoon that did not make it on the agenda (note that the agenda is made up Friday afternoon for final posting, so one can reasonably assume that he got it to City Hall too late), but, that nevertheless, the mayor or the city manager or three members of the city council can call a special meeting of the council [editor's note, see Section 3.09 of the Charter]. At this point, here is a transcript of what the attorney said based on the video of the meeting: "Why would they request a special meeting? Because certain of the bonds were passed by ordinance and these were not passed on by the citizens of Richardson. That is a Charter violation and a specific one, 19.01 and 19.02. How this happened, [I] don’t know, but the voters didn’t vote on it…[it] wasn’t submitted to them. Now there was one [bond election] for 66 million composed of four different projects, and then there seems to be some question about 6 million – maybe it was refunded, maybe it wasn’t. But the bottom line is it wasn’t a $66 million bond package, it was 112. And I think the voters need to have the opportunity to vote on all those. So at the special meeting, the City Council can set aside those ordinances, and submit those issues to the voters either in November of 2010 or May of 2011 or perhaps a special bond election – I don't know the particular [sic] about that. But in 1989, the citizens of Richardson decided to change the Charter, and they did. And, most specifically, as I said, there was a provision that the voters in a special election for bond issues, must vote on the bonds. That can't be changed by a city ordinance. You can't change the Charter, the "agreement" between the governed and the government, by an Ordinance that violates the very Charter itself. A couple of other points. In five weeks the City budget will be submitted by the City Manager. It should be honest and complete, all the obligations disclosed, not something just hidden off the balance sheet or that sort of business. This is a City government, not the CIA and not some private corporation, even though they shouldn't even do that. The third point is an independent audit. 11.11 of the Charter – I don't think we do that. Specifically, all accounts and financial transactions of the City needed to be audited – need to be audited every year. When I saw for September 2008 was an audit of the financial statement – that’s sort of backwards – the financial statement according to the Local Government Code is based on the audit, and if you do it backwards, what are you doing, you’re not having the separate, independent professional accountability and disclosure that the City Charter requires. Now, as I said, I think the City Council can remedy some of these things, and I think that they can certainly do the election by special meeting. And you gentlemen at this point in time will be accountable for your decision, your action, or your non-action, especially dealing with the issue of the bonds. And if it were not so absolutely crystal clear that before you put bonds out there that the citizens must vote on it, I probably wouldn’t be here tonight…but it's absolutely crystal clear. Ladies and gentlemen, I have one final point – if representatives of the citizens of Richardson find it difficult or impossible to follow the Charter, then maybe they need to resign their positions because it’s too important a document. I see my five minutes is up for today. Thank you very much."  You can see the original video at the City's video repository. Sections 19.01 and 19.02 The Richardson City Charter addresses the issue of the ability of the City to issue and sell bonds. In Section 19.01, the Charter says inter alia: "The City of Richardson shall have authority to issue bonds, payable from the ad valorem taxes, when authorized by the qualified voters of the city, for any purpose for which a city may issue bonds under the Constitution and the laws of this state." In Section 19.02, the Charter says inter alia: "Any proposition to issue new or additional bonds, payable from the ad valorem taxes as authorized herein, shall be first submitted to a vote of the qualified voters of the City of Richardson at an election to be held for that purpose…and unless a majority of the qualified voters voting thereon in such election vote in favor of the issuance of such bonds, the same shall not be issued…" You can read both sections in full at Municode.com. Thus, it appears on the surface that the attorney may have a point. State law versus the City Charter The State of Texas created the concept of "home-rule municipalities" decades ago in order to simplify government administration in local areas. In short, the State delegated a fair amount of power to home-rule cities to manage their own affairs without day-to-day State oversight. This means, of course, that there will be from time to time situations where a city's charter may conflict with State law and vice versa. In these cases, the State Legislature should clarify whether in the case of conflict, the city's charter prevails or the State law prevails (unfortunately, the Legislature doesn't always do so). For example, in the case of "acquisition, sale, or lease of property" in the Local Government Code in Section 252.002, the Legislature made it extremely clear that if there was conflict between this chapter of the Local Government Code and a provision in a city's charter, then the language of the city's charter supersedes the State Local Government Code. In another case, the method by which election judges are chosen by home-rule cities is sometimes ruled by the city's charter and sometimes by State law, depending on where the language in the State law is found. See Section 32.011 in the Texas Election Code. So, we should ask ourselves: Does the legislation that relates to the ability of home-rule municipalities to sell debt have any language that relates to possible conflict between a city's charter and State law? The Certificate of Obligation Act of 1971 In 1971, the State Legislature passed the Certificate of Obligation Act. As Public Finance Handbook for Texas Counties (much of the helpful background information herein applies equally to municipalities) notes: "Certificates of obligation ("CO's") are a streamlined method of financing. They are authorized by the Certificate of Obligation Act of 1971, Subchapter C of Chapter 271 of the Texas Local Government Code. CO's are limited to certain statutory purposes, which cover most any financing that the county might need to do: (a) pay for construction of a public work; (b) pay for purchase of materials, supplies, equipment, machinery, buildings, lands, and rights-of-way for the issuer's authorized needs and purposes; and (c) pay for professional services such as engineers, architects, attorneys, and financial advisors." (pages 21-22 of the Public Finance Handbook for Texas Counties) As you will see, there are several different instruments that can be used by a municipality to raise money – see McCalpin’s Unofficial Guide to Municipal Bonds at the Richardson Echo for a brief explanation of the types of bonds that Richardson residents are likely to see. As you see from the quote above, Certificates of Obligation can be issued for only a limited set of reasons, but because the State wished to make a "streamlined method of financing" available to municipalities, the State did away with the requirement that the bond proposition be taken to the voters. In the case of the alleged $112 million that the attorney refers to, the $66 million was in GOs, the General Obligation bonds that indeed require voter approval (and got it). But the balance of the bonds were COs, the Certificates of Obligation that do not require voter approval. So, we can now see a clear conflict between the Richardson City Charter that requires that all bond propositions be taken to the voters and State law that permits municipalities to sell certain types of bonds (COs) without voter approval. How do we know which one prevails? State law prevails While the Legislature has from time to time been annoying obscure about its intentions on whether State law or a city charter should prevail in case of conflict, happily the Legislature made its intention abundantly clear in this case: "Sec. 271.044.  SUBCHAPTER AVAILABLE TO CERTAIN MUNICIPALITIES.   (a)  A municipality may use this subchapter only if the municipality: (1)  is incorporated under the home-rule amendment to the constitution (Article XI, Section 5, of the Texas Constitution);  or (2)  is incorporated under a general or special law and the municipality has the authority to levy an ad valorem tax of not less than $1.50 on each $100 valuation of taxable property in the municipality. (b)  A home-rule municipality may use this subchapter regardless of any provision in the municipality's charter to the contrary." [Certificate of Obligation Act, Texas Local Government Code ] In terms of item (a), Richardson has been home-rule city since 1956. In terms of item (b), the Legislature could not have made its intention or the Law any clearer: A home-rule city can issue Certificates of Obligation no matter what that city's charter says.     Summary While the attorney who spoke at the City Council meeting was correct that the language of the Charter seemed to forbid the selling of debt without voter approval, he seemed completely unaware that State law overrules that specific language in the Charter, and does so in a way that is "crystal clear". Thus, the accusation that the City Council had violated the City Charter is unequivocally false, since the language in the Charter was itself no longer valid. Conclusion It is with some confusion that we write this conclusion. Confusion because we have seldom had a Rumorcheck on a question that was so clear cut. There is no doubt at all that State law overrides the City Charter in permitting the sale of Certificates of Obligation – the Act’s language could not be more explicit. There is no doubt at all that the City Council did not violate the Charter in passing the ordinances to sell those bonds, because the Charter’s own language had been "rendered inoperative", to use the old phrase. And there is no doubt that less than 5 minutes of research by even an amateur would have found the clear-cut justification in the Act – it was only the fourth of the twenty-eight sections in the Act. But we have no explanation on why someone acting in the capacity of an experienced attorney representing a client would come to City Hall and make such a serious accusation that is so easily proven false. At the least, his inappropriate statement that the City Council should resign because of his false accusation would seem to call for a formal apology. William J. 'Bill' McCalpin Richardson, Texas Postscript added 7/15/2010: The day after we published this article here on RumorCheck.org, Ian McCann of the Dallas Morning News made an entry in his Richardson blog on this same subject, and he came fundamentally to the same conclusion - see the blog entry. Postscript added 7/19/2010: On July 19, 2010, Richardson City Attorney Peter Smith released a formal response to the various claims made by the attorney in the Visitors Section on July 12. In this letter, he more completely explains the background of the right of home rule cities like Richardson to issue Certificates of Obligation, he clarifies the relationship of the various bonds that Richardson issued or is refunding, and he even notes that the Attorney General of Texas (who must approve virtually all debt issued by public bodies like the City) has not failed to approve the repeated issuance of COs by the City of Richardson. In addition, he addresses and dismisses the claim concerning the annual audit of the City's accounts.