Competitive Bid Authorization
Some states require local governments to select an underwriter for GO bonds through a competitive bidding process. This means that the municipal issuer will advertise for an underwriter and several underwriters will submit bids.
Since the bidding process cannot begin until after the bonds are authorized, the issuer itself must oversee the preparation of the preliminary materials and present them to the governing body of the issuer for a decision.
After the governing body approves the proposal, the issuer will hire a bond counsel. The bond counsel is a law firm hired to provide an objective legal opinion about whether:
- • The issuer has legal authority to issue the bonds
- • The interest on the bonds is exempt from federal and state taxes
The bond counsel does not make financial judgments as to the merits or suitability of the bond for an investor. Its role is to assure underwriters and/or investors that an independent legal expert has verified that the issue meets its legal requirements and standards and to point out any limitations on the revenues that have been pledged to back the bond.
If it is confident that the issue meets all legal requirements, the bond counsel will issue an unqualified legal opinion.
If it is not confident that it meets all the legal requirements, it will offer a qualified legal opinion. A qualified opinion might be made because certain important information is missing in the official statement or there is a pending lawsuit that may influence the issuer’s ability to make payments.
The bond counsel also drafts a document called the bond resolution. The bond resolution describes:
- • The project
- • Its estimated cost
- • The financing plan
- • Lays out the issuer’s duties to the bondholders
- • Pledges the full faith and credit of the issuing authority
The bond resolution is then