Kentucky Municipal Bond Case Update: Davis vs. State of Kentucky

A recent Supreme Court ruling in a garbage collection case has implications in the Davis vs. Kentucky muni bond interest case.

The Supreme Court ruled in favor of a local governments that they do not violate the Constitution when they direct garbage collected by private waste management companies to their processing facilities.

An article in The Bond Buyer noted:

Provided such flow control ordinances treat in-state private businesses exactly the same as out-of-state ones, they do not violate the so-called dormant Commerce Clause, the high court said. The constitutional clause stipulates that only Congress can erect barriers to trade between the states.

The decision has broad implications for the municipal bond market because it suggests that the existing system of muni bond financing, under which some 40 states exclude from taxation the interest earned on in-state bonds while taxing the interest earned on debt issued out-of-state, will probably be deemed lawful by the court in another dispute, market participants said.

"This decision says that when a state favors itself, it's either outside the commerce clause or under a more lenient version of the commerce clause," said Len Weiser-Varon, a partner at Mintz Levin Cohn Ferris Glovsky and Popeo PC. Yesterday's decision, in United Haulers Assoc. Inc. v. Oneida-Herkimer Solid Waste Management Authority, applies to a Kentucky bond dispute that is currently before the court in which a Kentucky couple, George and Catherine Davis, successfully challenged the constitutionality of the state's exemption for interest on bonds issued in state. Several attorneys who have been watching the case have speculated the Supreme Court was waiting to rule in the flow-control case before deciding if it will review the Davis matter."

The next opportunity for the Supreme Court to hear the Davis vs. Kentucky case is May 10, 2007.

Source:
High Court on Trash Flow
The Bond Buyer
By: Andrew Ackerman
May 1, 2007
http://www.bondbuyer.com/$nocookies$/article.html?id=20070430ALLDORJ2