Government bond lien bill advanced

Lawmakers gave first-round approval April 2 to a bill that would create a statutory lien and grant a security interest in bond-pledged revenue sources of an issuing governmental unit.

Under LB788, introduced by Columbus Sen. Paul Schumacher, a lien would be valid, binding and prior against all parties having claims against a governmental unit in a bankruptcy filing.

Schumacher offered and later withdrew an amendment that would have prohibited a city of the metropolitan or primary class from filing a petition for bankruptcy.

Schumacher said the bill would clarify that bondholders would have priority in the unlikely event of the insolvency of a public entity in the state. Bankruptcies in cities like Detroit have raised concerns about what would happen if a Nebraska city were unable meet its financial obligations, he said.

“We should tell the people [that] we sell bonds to exactly where they stand,” Schumacher said.

Grand Island Sen. Mike Gloor supported the bill, saying it would encourage continued investment by providing consistency across the state regarding who has priority in a bankruptcy situation. Those who loan money to public entities expect to see a return on their investment, he said.

“This is important to these small bankers because of the uncertainty that is out there,” Gloor said.

Lexington Sen. John Wightman agreed, saying cities likely would face higher interest rates and encounter difficulty borrowing needed funds without LB788.

“We’ll see some increase in bond rates very soon if this bill does not pass,” he said.

Lincoln Sen. Bill Avery opposed the bill. He said investors know that municipal bonds carry some risk as an investment tool and will continue to issue them, adding that municipal bankruptcies are not a problem in Nebraska.

“Our bond ratings remain strong without this law,” Avery said. “It is totally unnecessary and I don’t think it serves the public interest.”

The bill advanced to select file on a 25-16 vote.