The authority of a local unit of government to incur indebtedness is governed by statute. Many local units of government have authority to issue bonds or certificates of indebtedness for specific purposes, often subject to restrictions on amount or duration. Some local units of government are authorized to enter into a lease-purchase agreement with a local bank, equipment company, or other entity. See, e.g., Minn. Stat. § 465.71.
School districts, with certain limitations, have specific statutory authority to obtain a line of credit from a financial institution. See e.g., Minn. Stat. § 123B.12 (b).
However, absent this type of specific authority to obtain a loan or line of credit, governmental entities may not simply go to a financial institution and take out a conventional loan or line of credit.
Date this Avoiding Pitfall was most recently published: 04/10/2015