Posted by Michael Earl Patton

Government bonds are supposed to be extremely safe investments.  Not only do they normally have a dedicated stream of revenue for the payments, they are also generally insured to boot.  The insurance companies try to make certain there are no unpleasant surprises so they don’t have to pay out money.  One of the ways they do this is to demand copies of the annual audited financial statements.

Even if the next interest payments are made, the county appears poised to default on stadium bonds because they are years late in providing audited financial reports for 2004 and 2005.  If the companies insuring the bonds decide not to wait any longer, after June 30 they can send a letter demanding the reports or the county would be in default.

As The Cincinnati Beacon has reported, the Hamilton County Auditor has not released any reports about the financial condition of the county since 2003.  Audited reports for those years are also not available due to unresolved issues with the State Auditor.

A default would doubtless lower the county’s credit rating and mean the county would have to pay higher interest rates to borrow money.  For residents of Hamilton County it would mean a cutback in services or higher taxes or both.

Here’s what the 2006 stadium bond prospectus says on p. 34 about the stadium bonds issued in 1998:

It is an event of default under such Insurance Agreements if audited financial statements are not received within 90 days after written notice from MBIA.  MBIA has not delivered any such notice and has waived the County’s non-compliance with the Insurance Agreements with respect to the financial statements for the years 2004, 2005 and prospectively for so long as the County continues to diligently pursue a rsolution of those audit issues; provided that the MBIA waiver will expire on June 30, 2008. (emphasis added)

MBIA is the company that insured the stadium bonds issued in 1998.  A similar statement concerns the bonds issued in 2000, insured by Ambac.  A statement in bold print alerting potential bond purchasers of the lack of audited financial statements is on page 6, again with the statement that the non-compliance waiver will end on June 30, 2008.

If the June 30 deadline is missed the insurance carriers can extend the waiver or notify the county that they will be in default unless the county produces the annual audits.

The Cincinnati Beacon has made repeated inquiries to the county auditor, Mr. Rhodes, as to whether the deadline will be met or if it has been extended.  So far there has been no reply.

The Beacon is of the opinion that the financial condition of the county should be available to the public.  This is also mandated by state law.  It appears that there is a risk of a default—a technical default perhaps, but still a default—on hundreds of millions of dollars of county debt that could have negative consequences for Hamilton County residents.  We want to know what’s going on.

Thank you for reading (and printing from) The Cincinnati Beacon.