The Court Validates Non-Referendum Revenue Bonds Aurhorised to Raise Money to Build Educational Facilities
In Nohrr v. Brevard County Educational Facilities Authority, 247 So. 2d 304 (Fla. 1971), the court validated non-referendum revenue bonds that had been authorized to raise money to build educational facilities.
The court deleted from the bonds, however, certain provisions that created a mortgage on the property, allowing the bondholders to foreclose in the event of default.
The court reasoned the mortgage would "morally compel" the governing body to levy taxes to avoid foreclosure in the event bond payments could not be made from non-ad valorem revenue. Id. at 311. In effect, the mortgage provision amounted to a pledge of ad valorem taxes, which is invalid absent approval by the electorate.
Similarly in State v. Brevard County, 539 So. 2d 461 (Fla. 1989), the court approved a long-term lease-purchase arrangement which included an annual "renewal option" similar to the annual non-appropriation clause in the Unisys lease.
The court rejected an argument that the financing arrangement violated Nohrr, but specifically noted the deal allowed the county to "terminate the lease without further obligation" in any given year. Id. at 463.
Thus, the court reasoned, "with its 'annual renewal option' under the lease, the county maintains full budgetary flexibility."
In contrast, a non-substitution clause denies the county "full budgetary flexibility" because it renders the non-appropriation clause illusory by compelling the municipality to make the lease payments or suffer a penalty.
The Attorney General of at least one State has opined a non-substitution clause compels lease payments and creates debt. See La. Atty Gen. Op. No. 86-517, 1986 WL 236994;
Accordingly, the court must address two issues to determine the validity of the non-substitution clause in this case:
(1) whether the risk of non-substitution would morally compel the County Commission to appropriate funds for the lease payments;
(2) whether those funds would come from ad valorem tax dollars.