Citizens for Responsible Government (CFRG) have circulated emails claiming that if Kansas City defaults on the proposed GO Bond payments, creditors will seize the homes of Kansas Citians. That’s a scary prospect, and thankfully false.
CFRG points to Detroit as a model. According to the Detroit Free Press, creditors left in the lurch by the city’s 2013 bankruptcy negotiated to take over city owned property to settle debts. General obligation bonds issued in Kansas City tax property to raise the money needed to repay the bond debt. But even in the worst-case scenario, no one is going to be driving up and down Ward Parkway picking out homes to seize.
GO Bonds are backed by the “full faith and credit” of the City. According to a statement from the City (emphasis added):
The security for the bonds is the City’s ability to tax real and personal property, not the property itself. Bondholders have no direct connection to property owners and do not have the right or authority to seize property in lieu of general obligation bond payments.
In the extremely unlikely event the City did not make its debt payment from property taxes collected, the City could use other legally available funds of the City to make the payment.
The city may use a property tax to raise the funds, but even in the very unlikely event of a city default, creditors would sue to recoup their investment. A judge could then order the city to raise taxes. The City might also try to sell assets to generate the funds. Or, as in Detroit, the city would negotiate to settle the debt by giving creditors city property such as City Hall itself, assuming it isn’t being used as collateral for the convention hotel. Again, this is not the same as creditors taking privately owned property.
That the GO Bonds are necessary in the first place is the result of years of poor policy and financial management. And the bond plan is itself bad policy. Those two items are serious enough considerations without the fanciful notion that creditors will seize individual taxpayer assets.
