A state created a Housing Authority to provide financing for low-income housing.The Authority issues bonds and uses the proceeds for that purpose.Currently the Authority has outstanding $200 million in bonds backed by the State's promise to cover debt service shortages should they arise.The State Constitution specifically limits the State to no more than $2 million in general obligation debt.How can the state officials defend the $200 million in debt outstanding?

Question

Quizplus · Accepted Answer

The debt is not considered general obligation debt because it is issued by the Housing Authority, not directly by the State. The State's obligation is only a moral one, not a legal one, and the debt is technically the responsibility of the Authority.

A State Created a Housing Authority to Provide Financing for Low-Income