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Types of State Debt

With limited exceptions, the Ohio Constitution prohibits the incurrence or assumption of debt by the state without a popular vote. The state may incur debt to cover casual deficits or failures in revenues, or to meet expenses not otherwise provided for, but this power is limited in amount to $750,000. The Constitution expressly precludes the state from assuming the debts of any county, city, town or township, or of any corporation (though an exception in both cases is for debts incurred to repel invasion, suppress insurrection, or defend the state in war). Issuance of state debt paid from the state's general fund is subject to the Constitutional 5% debt service limitation.



General Obligation Debt

By 20 constitutional amendments approved from 1921 to present, Ohio voters have authorized the incurrence of state general obligation (GO) debt and the pledge of taxes and excises to its payment. Exceptions or limitations are for highway user receipts which may only be used to pay debt service on bonds issued for highway projects and net state lottery proceeds which may only be used for debt service for public primary and secondary education facilities.

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Special Obligation Lease-Rental Debt

State special obligation debt, the owners or holders of which are not given the right to have excises or taxes pledged to the payment of debt service, is authorized for specified purposes by Section 2i of Article VIII of the Ohio Constitution. Debt service payments are subject to biennial appropriations made in the benefitting agency's operating budget pursuant to leases or agreements entered into by those agencies. The Treasurer of State is the current issuer of the state's special obligation lease-rental bonds.

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Revenue Obligations Payable from Federal Title 23 Highway Funds

Treasurer of State. The Treasurer of State issues Major New State Infrastructure Project Revenue Bonds (also known as Grant Anticipation Revenue Vehicles or GARVEEs) to fund selected highway construction projects that have been approved by the U.S. Department of Transportation. The debt service charges on these bonds are secured by and payable primarily from Federal Title 23 Highway Funds received and to be received by the state, subject to biennial appropriations by the General Assembly.

Certificates of Participation

State agencies have also entered into lease-purchase agreements with terms ranging from 7 to 10 years primarily to finance information technology projects and capital equipment. Certificates of Participation (COPs) have been issued that represent fractionalized interests in or are payable from state payments made under those agreements. Payments by the state are subject to biennial appropriations by the General Assembly and the holders or owners of the COPs have no right to have excises or taxes levied to make those payments. The OBM Director's approval of such agreements is required if COPs are to be publicly-offered in connection with those agreements. COPs have been issued to finance the acquisition and installation of the following information systems and equipment:

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Revenue Bonds

Revenue bonds are used by the state to finance a specific project or category of projects. Debt service is secured by and paid from revenues or fees that are charged for the use of facilities. Various state authorities and commissions have been created by the General Assembly to issue revenue bonds. These include the Ohio Turnpike and Infrastructure Commission, the Ohio Housing Finance Agency, the Ohio Water Development Authority, and the Petroleum Underground Storage Tank Release Compensation Board. The funds borrowed by these authorities and the funds for the debt service payments on their obligations are outside the state treasury and are not appropriated by the legislature.

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State Credit Enhancement Programs for School Districts and Community Technical Colleges

The state provides credit enhancement programs for school districts and two-year community and technical colleges to help reduce the cost of borrowing for certain capital projects. Under these programs, the state and the school district or college enter into an intercept agreement under which, in the event that debt service on the applicable debt obligations are not able to be made in full and on time, the state is authorized to withhold funds that would otherwise be paid to the school district or college and divert those funds to payment of debt service on the debt obligations. This credit enhancement typically results in a higher credit rating than the school district or college could obtain on a stand-alone basis. The higher credit rating enhances the security and improves the marketability of the bonds thereby resulting in a lower borrowing cost.

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