Investors, the State of the Indiana Intercept is Strong

Reposted from the Bond Buyer with permission of the author

The Feb. 17 article “Indiana School Default a Warning to Investors” questioned the effectiveness of Indiana’s intercept program in preventing a default. As a global matter, all investors should understand the security pledged to the payment of principal of and interest on any of the bonds that it owns, as well as the operation of the mechanism providing for such payment. However, when it comes to Indiana school bonds, any doubts as to the quality or effectiveness of Indiana’s intercept program, or as to the justification of the high rating given to qualifying Indiana school corporations based upon that intercept program, are misplaced if based upon the default event highlighted in the article.

What is the intercept program? The intercept program is not a State guarantee of Indiana school bonds. The intercept is rather a mechanism to give debt service payments a priority position above other costs which may be paid out of a school corporation’s general fund. The intercept program requires that the state treasurer withhold an amount sufficient to pay debt service from its general fund distributions to a school corporation when that school corporation does not make a required payment. All school corporations are eligible for an enhanced rating if its state aid levels meet certain debt service coverage requirements. Additionally, bonds receive a further enhanced rating provided coverage is sufficient and the authorizing documents include certain provisions.

Among these provisions is a requirement that the school corporation make its payment to the paying agent on a date prior to the date the debt service payment is due, or make payment to the trustee on its lease obligations prior to the date of debt service on the building corporation bonds are due. The time period must be at least five (5) days under the current rating methodology.

The default mentioned in the article was not a failure of the state intercept. Rather, the default in the article was the result of the mechanics in place under the transaction documents breaking down. The lease payments were due five days prior to the January debt service payment on the bonds. Upon the failure to pay the lease payment the trustee should have contacted the state treasurer to ensure payment on the bonds on the January due date. From the article it appears that the notice was never given. Such a default would have not occurred had the terms of the transaction documents been implemented.

The intercept legislation is not the only basis for the high credit quality of Indiana school bonds. In addition to the intercept, taxes levied to make debt service payments and lease payments are “protected” from the State’s tax cap legislation. This means that any debt service levy will not be reduced, as would other funds, in cases where a school corporation is unable to recognize its full levy in other funds. Finally, the Department of Local Government Finance is tasked with reviewing debt service levies for bonds and leases and required to make sure that any such levy is sufficient to make debt service payments. The DLGF diligently performs that roll every year as a part of the annual budget process.

The takeaway from the recent default is that investors should understand how the intercept works, and perform diligence and document review to ensure that the requisite process is in place for the state intercept to work properly. Blind reliance is never justified, but neither is unnecessary fear based upon misunderstanding.

Jimmy Shanahan is a partner at Shanahan & Shanahan LLP.

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Indiana municipal budgets

As the year comes to a close, many counties in the State are receiving their 1782 Notices and we should be seeing the first budget orders next week as well.   A question arose last week about why some counties are running so far ahead of others.

The Department of Local Government Finance obviously has to await the completion of the budget approval and adoption process that every municipality completes in the fall each year.  It is our understanding then that the DLGF uses the date on which the county certified Net Assessed Values to the State to determine the order of budget reviews.

Some counties frankly need to step up the process and meet the August deadlines for certifying to the State.  Others are meeting or even in a few cases exceeding the deadlines.  There are a host of other possible hold-ups along the way, and in defense of Assessors that may find themselves questioned for delays, both the Auditor and the Assessor have a hand in hitting these key deadlines.

Happy New Year

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DLGF announces budget notices for all local governments online on new site

New Budget Notices Website Launched

INDIANAPOLIS (September 22, 2014) – The Indiana Department of Local Government Finance has created and launched a new statewide budget notice website that will provide taxpayers with the ability to view local government budget notices in one central online location. These notices can be viewed any time, day or night once submitted by the local units. Additionally, if a taxpayer wants to look at the budget notices for multiple areas, they can now do so using this one centralized location.


BudgetNotices.IN.Gov will assist citizens who want to attend and stay involved with the budgeting process of their local government units. Taxpayers will be able to view all local government units in their county, search by their address, or use an interactive map tool. This website has been designed to promote the importance of budget notices and the role that they play in the daily lives of Indiana taxpayers.


BudgetNotices.IN.Gov allows Indiana taxpayers the opportunity to view budget notices at their convenience and not depend on following a printed publication. “Budget notices are vital to transparency,” said Courtney Schaafsma, commissioner of the Department of Local Government Finance. “It is important that the State continues to pursue opportunities to benefit Indiana taxpayers and this is a step in the right direction.”


Taxpayers that do not have Internet access or have difficulties with the website may contact the Department at (888) 739-9826 and request a paper copy of the notices for their local government units.


BudgetNotices.IN.Gov is available on the Indiana Gateway for Government Units. Gateway is the primary collection and publishing tool for local government units submitting their required reports to the State of Indiana. It has the benefits of digital collection into a robust data warehouse and immediate accessibility by taxpayers.


BudgetNotices.IN.Gov was established with the passage of House Enrolled Act 1266. The budget notices application was developed to provide Hoosiers with another way to learn about the budget process for the local taxing units and in particular, to know when hearings would be held on next year’s proposed budgets.


The Indiana Department of Local Government Finance is the state agency that oversees the property tax and local government budgeting system in Indiana.


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Contact:           Jenny Banks, 317.234.4376,

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Valparaiso announces Tech Foundry

Mayor Costas Welcomes The Tech Foundry Business Accelerator


VALPARAISO, IN. (JUNE 23, 2014) – Mayor Jon Costas announced the launch of The Tech Foundry Startup Accelerator program, in partnership with Elevate Ventures and the state of Indiana. The goal of The Tech Foundry is to help technology companies meet the challenges facing a start-up, enhancing their success and speeding their entry to the marketplace.
The Valparaiso-based Tech Foundry will be the first business accelerator in Northern Indiana and the second in the state of Indiana. “Sometimes what keeps a new, innovative business from taking off is not a lack of creativity or vision, but a lack of business knowledge,” said Mayor Jon Costas. “We’re pleased to support The Tech Foundry as a way to help promising technology start-ups to flourish. By developing a strategy for helping people to get their bright ideas off the ground, we create new economic opportunity and jobs in our city.”

The Tech Foundry Accelerator program will provide $15,000 in seed funding to each company chosen for the program, along with free office space, access to a high-level advisory team, a 13-week hands-on instructional program, and connections to potential investors, partners, and resources. “Technology moves so fast these days that start-ups need to be nimble and move just as fast,” said Kelly Schwedland, heading the Tech Foundry Accelerator Program. “We adopted a program for the Tech Foundry that caters to early stage companies and offers the intense, hands-on help they need to get to market quickly and successfully.”

The Valparaiso Economic Development Corporation (VEDC), Porter County, NIPSCO 1st Source Bank and the Indiana Economic Development Corp (IEDC) are funding partners and Elevate Ventures will provide program support services. The Tech Foundry also has the support of Porter County Commissioners John Evans, Laura Blaney and Nancy Adams.
To be considered for the first round of Tech Foundry Assistance, qualifying tech start-ups may apply by July 21, 2014 for the program, which will begin on Aug. 15, 2014. Up to six companies will be accepted for round one. For more information about The Tech Foundry and the Accelerator Program, contact Kelly Schwedland at or visit


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MSRB reports on VRDO and ARS


Alexandria, VA – The Municipal Securities Rulemaking Board (MSRB) today published its most recent statistical report on trading, interest rate and other characteristics of the municipal variable rate securities market. The report, “Municipal Variable Rate Demand Obligations and Auction Rate Securities: Interest Rate and Trading Trends,” updates earlier trend analysis and provides information on municipal variable rate securities through March 2014.


The report includes annual trend information on the size of the market for auction rate securities (ARS) and variable rate demand obligations (VRDOs),  trading volume, interest rates and number of rate resets, among other information. Data in the report reflects a continued decline in the issuance, trading and number of interest rate resets of the ARS and VRDO markets.


Among the report’s conclusions are:


  • Since its peak in 2008, the new issue market for VRDOs has contracted five of the last six years.
  • Between April 2012 and March 2014, the size of the VRDO market decreased nearly 22 percent to $222 billion, while the size of the ARS market decreased 31 percent to $27 billion during the same period.
  • The number of trades and par amount traded of VRDOs and ARS, and the numbers of VRDO rate resets are a fraction of their peak levels in 2008.
  • In 2013, VRDO rate resets decreased 13 percent to 703,268, compared to 810,488 rate resets in 2012.

See:  MSRB Press Release for full details

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Municipal Finance Today

Some articles worth perusing today for those that, like us, are all about municipal finance and municipal bonds in Indiana.

The Week in Public Finance over at Governing recaps quite a few national bond related stories.

MSRB has proposed new regulations for municipal advisors, namely professional qualifications and registrations.   Watch for more detail as these regulations become firm over the next six months.

Are Indiana’s tax caps causing municipalities to compete with each other?   “Justin M. Ross, assistant professor of public finance at Indiana University Bloomington’s School of Public and Environmental Affairs, painted that dismal picture at the Chancellor’s Commission for Community Engagement spring gathering at Indiana University Northwest.”

In most Indiana counties, tax bills are being mailed or will be in the next couple weeks.   This is a great improvement from the years when tax bills were delayed and government entities had to borrow while awaiting tax distributions.   Although some may argue there’s a long way to go, it’s worth pausing to consider the good news of on time billings this year too.

Indiana Municipal Advisors – Cender and Company

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Labor market improving gradually

The daily fluctuations in market statistics can start to be overwhelming, so we are trying to pick the few that jump out as important to long range interest rates for municipal bonds.    As the labor market continues to improve there will be pressure for rates to rise back to balanced levels, non recession levels, and thusly the corresponding rates for municipal bond financing.

The number of people who applied to receive unemployment benefits in the last week of January fell by 20,000, reversing the increase from the week before and signaling that the U.S. labor market continues to gradually improve


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