Certificates of Obligation (COs) are an instrument of public debt made available to the governing bodies of cities, counties, and certain special districts. COs can be issued “without voter approval (unless a referendum is petitioned) and are backed by tax revenue, fee revenues or a combination of the two,” according to the Texas Comptroller.
Current state law (LGC §271.045) specifies that COs must be issued for: 1) the construction of any public work; 2) the purchase of materials, supplies, equipment, machinery, buildings, land, and rights-of-way for authorized needs and purposes; and 3) the payment of contractual obligations for professional services, including those provided by tax appraisers, engineers, architects, attorneys, map makers, auditors, financial advisors, and fiscal agents.
While COs were originally created to give local governments a tool for emergency spending, there’s a growing body of evidence suggesting that nonvoter approved debt is being issued for capital improvement projects that are either controversial or discretionary, such as public art projects, swimming pools, and parks. As a result, CO debt is on the rise.