Opinion ID: 1290225
Heading Depth: 1
Heading Rank: 3

Heading: General Obligation v. Revenue Bonds

Text: Municipalities are subject to a constitutional debt limitation for general obligation bonds which is based upon the assessed value of taxable property within the municipality. Article X, Section 14(7), South Carolina Constitution. Wolper argues the act contravenes this constitutional ceiling on general obligation debt. The trial judge held that redevelopment bonds issued pursuant to the act were not general obligation bonds, and therefore were not subject to the constitutional debt limitation. We agree. Municipalities may incur two types of bonded indebtedness: (1) general obligation bonds, secured by the full faith, credit and taxing power of the municipality; and (2) indebtedness payable from a particular revenue-producing project or a special source authorized by Article X, Section 14(1) of the South Carolina Constitution. See City of Beaufort v. Griffin , 275 S.C. 603, 274 S.E. (2d) 301 (1981); Article X, Section 14(2) and (3), South Carolina Constitution. Tax increment redevelopment funding is expressly authorized by Article X, Section 14(10) of the South Carolina Constitution. The redevelopment debt is to be retired from a special source, i.e., the incremental increase of ad valorem taxes on property within the redevelopment area. In the event the property values in the redeveloped area do not increase, or increase at a slower rate than anticipated, the repayment of the redevelopment debt is negatively affected. The redevelopment bondholders may not look beyond the special fund for retirement of the debt. The bonds are not secured by the full faith, credit and taxing power of the municipality, and therefore cannot be classified as a general obligation debt. DeLoach v. Scheper , 188 S.C. 21, 198 S.E. 409 (1938). The debt limitation of Article X, Section 14(7) does not apply. See, S.C. Code Anno. Section 31-6-20(B) (Supp. 1984).