ATLANTA -- Reacting to tremendous pressure from the municipal bond industry, Brevard County, Fla., commissioners in a narrow three-to-two vote Tuesday canceled a referendum on a certificates of participation deal sold in 1989.
The board's vote came despite citizens groups' protests against the lease issue. It also featured a change of heart by the commission's chairwoman, Sue Schmitt, who cast the deciding vote and reversed the board's earlier decision to allow voters to pass judgment on the lease securing the $23.9 million deal.
The commissioners had scheduled the March 1992 referendum to decide whether to continue lease appropriations. The vote was set following complaints about building defects in the country's recently completed operations center, which had been funded by the certificates. But the board's Tuesday hearing also showed there was considerable disgruntlement among voters because they were not consulted about the county's decision to finance the building in the first place.
The move to renege on the lease deal drew extraordinary warnings from rating agencies, municipal insurers, analysts, and investors, all of whom said they were relieved by Tuesday's vote.
However, because the county came so close to allowing a default on the certificates, they said similar deals in Florida and elsewhere are likely to be scrutinized more carefully in the future, and issuers are likely to pay a price.
"We may have to fight this battle more frequently in the future, and I would expect more near misses," said Richard Ciccarone of the National Federation of Municipal Analysts, which had provided the board with an unusual and forceful warning about the consequences of allowing a lease default.
"It's an important precedent. We can expect more volatility in the COP area because it is appropriated annually and politicians will consider from time to time, when funds are scarce or priorities change, not making appropriations," he said.
"There probably will be some general price increase as a result of the perception that we will have political bouts" occasionally over this type of lease issue, he said.
County officials said, however, that they had been vindicated by the board's latest vote. "No one in the financial community should now doubt our willingness to stand behind our financial obligations," said county Comptroller Douglas Martin.
"When the complete picture was presented to the commissioners, I think the chairman realized what a drastic effect a referendum would have on the county financial standing and decided to vote against holding it," he said. "The call for the referendum has been a political issue and has now, in my opinion, been resolved. Hopefully it can now die a quiet death and we can move on."
Mr. Martin said that Ms. Schmitt had been particularly concerned about Sanwa Bank Ltd.'s warning that it would cancel the letter of credit backing the county's tax-exempt commercial paper program if it went ahead with the referendum. The loan program -- which currently totals $950,000 and is up for renewal today -- has allowed the county to fund neighborhood projects such as road and sewer repairs.
Ms. Schmitt also was very troubled by the possibility that the referendum could trigger a downgrade from Moody's Investors Service on the county's credit rating, the comptroller said. Moody's placed the county's A-rated GOs under review on Oct. 18, but it announced yesterday that it had lifted the review in light of the board's decision.
Sanwa Bank also was quick to respond to the board's action yesterday, announcing it would renew the country's letter of credit. Because the cloud over the county's credit was quickly dispelled, Mr. Martin said the county would soon be able to proceed with plans for new capital financings.
However, members of at least one citizens group -- the Brevard Citizens for Better Government -- vowed yesterday to fight the lease financing in court.
"How dare Mr. Martin say this is just political," said Glenda Busick, a vice president of the citizens group. "We are still very upset that our right to vote on financing the government center was circumvented .... One way or another, we will prevail," she said.
According to Ms. Busick, the warnings conveyed by bond market participants to Brevard County presented "clear evidence" that the financial community considers lease financings a long-term debt. She added that long-term debt requires a voter referendum under Florida law, hinting at a possible legal argument against the financing.
"It's obvious to me that the commission members were blackmailed by the big companies, the ratings agencies, the banks, and the developers," she said.
Bond industry professionals at Tuesday's hearing had a different view, however, saying that they were the ones who clearly were under attack by an army of hecklers organized by the citizen groups.
"The meeting was a circus," said one participant, who asked not to be identified. "I am surprised that the commission voted not to have a referendum because of the tenor of the meeting. There was hardly a supporter [of the lease issue] in the place," he said.