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| THE GENERAL ASSEMBLY OF PENNSYLVANIA |
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| HOUSE BILL |
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| INTRODUCED BY SCAVELLO, LEVDANSKY, DENLINGER, FREEMAN, GODSHALL, KORTZ, SIPTROTH, RAPP, PICKETT, BEAR, HENNESSEY, MOUL AND HARPER, AUGUST 6, 2009 |
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| REFERRED TO COMMITTEE ON FINANCE, AUGUST 6, 2009 |
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| AN ACT |
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1 | Amending Title 53 (Municipalities Generally) of the Pennsylvania |
2 | Consolidated Statutes, further providing for the definitions |
3 | of "debt," "independent financial advisor," "interest rate |
4 | management plan" and "qualified interest rate management |
5 | agreement," for scope of unfunded debt and for treatment of |
6 | costs upon refunding; and repealing provisions related to |
7 | interest rate risk and interest cost management. |
8 | The General Assembly of the Commonwealth of Pennsylvania |
9 | hereby enacts as follows: |
10 | Section 1. The definitions of "debt," "independent financial |
11 | advisor," "interest rate management plan" and "qualified |
12 | interest rate management agreement" in section 8002(a) and (c) |
13 | of Title 53 of the Pennsylvania Consolidated Statutes are |
14 | amended to read: |
15 | § 8002. Definitions. |
16 | (a) Classification of debt.--* * * |
17 | "Debt." The amount of all obligations for the payment of |
18 | money incurred by the local government unit, whether due and |
19 | payable in all events, or only upon the performances of work, |
20 | possession of property as lessee, rendering of services by |
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1 | others or other contingency, except the following: |
2 | (1) Current obligations for the full payment of which |
3 | current revenues have been appropriated, including tax |
4 | anticipation notes, and current payments for the funding of |
5 | pension plans. |
6 | (2) Obligations under contracts for supplies, services |
7 | and pensions allocable to current operating expenses of |
8 | future years in which the supplies are to be expended or |
9 | furnished, the services rendered or the pensions paid. |
10 | (3) Rentals or payments payable in future years under |
11 | leases, guaranties, subsidy contracts or other forms of |
12 | agreement not evidencing the acquisition of capital assets. |
13 | This exception shall not apply to rentals or payments under |
14 | any instruments which would constitute lease rental debt but |
15 | for the fact that the lessor or obligee is not an entity |
16 | described in section 8004(a)(1) (relating to when lease or |
17 | other agreement evidences acquisition of capital asset). |
18 | (4) Interest or assumed taxes payable on bonds or notes |
19 | which interest or taxes are not yet overdue. |
20 | [(5) Obligations incurred and payments, including |
21 | periodic scheduled payments and termination payments, payable |
22 | pursuant to a qualified interest rate management agreement.] |
23 | * * * |
24 | (c) Other definitions.--Subject to additional definitions |
25 | contained in subsequent provisions of this subpart which are |
26 | applicable to specific provisions of this subpart, the following |
27 | words and phrases when used in this subpart shall have the |
28 | meanings given to them in this section unless the context |
29 | clearly indicates otherwise: |
30 | * * * |
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1 | ["Independent financial advisor." A person or entity |
2 | experienced in the financial aspects and risks of interest rate |
3 | management agreements who is retained by a local government unit |
4 | to advise the local government unit with respect to a qualified |
5 | interest rate management agreement. The independent financial |
6 | advisor may not be the other party or an affiliate or agent of |
7 | the other party on a qualified interest rate management |
8 | agreement with respect to which the independent financial |
9 | advisor is advising a local government unit. For purposes of |
10 | sections 8281(b)(2) and (e)(5) (relating to qualified interest |
11 | rate management agreements), the independent financial advisor |
12 | may be retained by a public authority. |
13 | "Interest rate management plan." A written plan prepared or |
14 | reviewed by an independent financial advisor with respect to a |
15 | qualified interest rate management agreement, which includes: |
16 | (1) A schedule listing the amount of debt outstanding |
17 | for each outstanding debt issue of the local government unit |
18 | and the expected annual debt service on that debt. In the |
19 | case of variable rate debt, the schedule shall set forth the |
20 | estimated annual debt service thereon and annual debt service |
21 | on the debt calculated at the maximum rate specified for the |
22 | variable rate debt. |
23 | (2) A schedule listing the notional amounts outstanding |
24 | of each previously executed qualified interest rate |
25 | management agreement which is then in effect. |
26 | (3) A schedule listing all consulting, advisory, |
27 | brokerage or similar fees, paid or payable by the local |
28 | government unit in connection with the qualified interest |
29 | rate management agreement, and a schedule of any finder's |
30 | fees, consulting fees or brokerage fees, paid or payable by |
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1 | the other party in connection with the qualified interest |
2 | rate management agreement. |
3 | (4) A schedule listing the estimated and maximum |
4 | periodic scheduled payments to be paid by the local |
5 | government unit and to be received by the local government |
6 | unit from the other party in each year during the term of the |
7 | qualified interest rate management agreement. |
8 | (5) An analysis of the interest rate risk, basis risk, |
9 | termination risk, credit risk, market-access risk and other |
10 | risks of entering into the qualified interest rate management |
11 | agreement. This paragraph includes schedules of the estimated |
12 | and maximum scheduled periodic payments which would be due |
13 | under the qualified interest rate management agreement. |
14 | (6) An analysis of the interest rate risk, basis risk, |
15 | termination risk, credit risk, market-access risk and other |
16 | risks to the local government unit of the net payments due |
17 | for all debt outstanding and all qualified interest rate |
18 | management agreements of the local government unit. This |
19 | paragraph includes schedules of the estimated and maximum net |
20 | payments of total debt service and scheduled, periodic, net |
21 | payments, which would be due under all of the qualified |
22 | interest rate management agreements. |
23 | (7) The local government unit's plan to monitor interest |
24 | rate risk, basis risk, termination risk, credit risk, market- |
25 | access risk and other risks. This paragraph includes the |
26 | valuation of the market or termination value of all |
27 | outstanding qualified interest rate management agreements.] |
28 | * * * |
29 | ["Qualified interest rate management agreement." An |
30 | agreement, including a confirmation evidencing a transaction |
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1 | effected under a master agreement, entered into by a local |
2 | government unit in accordance with and fulfilling the |
3 | requirements of section 8281 (relating to qualified interest |
4 | rate management agreements), which agreement in the judgment of |
5 | the local government unit is designed to manage interest rate |
6 | risk or interest cost of the local government unit on any debt a |
7 | local government unit is authorized to incur under this subpart, |
8 | including, but not limited to, swaps, interest rate caps, |
9 | collars, corridors, ceiling and floor agreements, forward |
10 | agreements, float agreements and other similar arrangements |
11 | which in the judgment of the local government unit will assist |
12 | the local government unit in managing the interest rate risk or |
13 | interest cost of the local government unit.] |
14 | * * * |
15 | Section 2. Sections 8129 and 8242(a)(2.1) of Title 53 are |
16 | amended to read: |
17 | § 8129. Scope of unfunded debt. |
18 | For the purpose of this subchapter, "unfunded debt" means |
19 | obligations of the same or one or more prior years incurred for |
20 | current expenses, including tax anticipation notes [and |
21 | payments, including termination payments, required to be made |
22 | under qualified interest rate management agreements], due and |
23 | owing or judgments against the local government unit entered by |
24 | a court after adversary proceedings, [including a judgment under |
25 | section 8283(b)(2)(i) (relating to remedies),] for the payment |
26 | of either of which category the taxes and other revenues |
27 | remaining to be collected in the fiscal year and funds on hand |
28 | will not be sufficient without a curtailment of municipal |
29 | services to an extent endangering the health or safety of the |
30 | public or proper public education, and the local government unit |
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1 | either may not legally levy a sufficient tax for the balance of |
2 | the fiscal year, or a sufficient tax, if legally leviable, would |
3 | not be in the public interest. Unfunded debt does not, however, |
4 | include debt incurred under this subpart or obligations in |
5 | respect of a project or part of a project as incurred in respect |
6 | of the cost of a project. |
7 | § 8242. Treatment of costs upon refunding. |
8 | (a) General rule.--In any refunding, a principal amount of |
9 | refunding bonds or notes or obligations evidencing lease rental |
10 | debt equal to the sum of the following: |
11 | * * * |
12 | [(2.1) any funds borrowed in order to pay any |
13 | termination payment required to be paid under a qualified |
14 | interest rate management agreement in which the notional |
15 | amount is identified as corresponding to all or any portion |
16 | of the bond or note being refunded;] |
17 | * * * |
18 | Section 3. Subchapter F of Chapter 82 of Title 53 is |
19 | repealed: |
20 | [SUBCHAPTER F |
21 | INTEREST RATE RISK AND INTEREST COST MANAGEMENT |
22 | Sec. |
23 | 8281. Qualified interest rate management agreements. |
24 | 8282. Covenant to pay amounts due under qualified interest rate |
25 | management agreements. |
26 | 8283. Remedies. |
27 | 8284. Notice and retention of records. |
28 | 8285. Financial reporting. |
29 | § 8281. Qualified interest rate management agreements. |
30 | (a) General rule.-- |
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1 | (1) Except as set forth in paragraph (4), |
2 | notwithstanding any other law to the contrary, a local |
3 | government unit may negotiate and enter into qualified |
4 | interest rate management agreements consistent with the |
5 | provisions of this subchapter. |
6 | (2) The local government unit must authorize and award |
7 | by resolution each qualified interest rate management |
8 | agreement or any confirmation of a transaction. The |
9 | resolution is subject to section 8003(a) and (b) (relating to |
10 | advertisement and effectiveness of ordinances) but may be |
11 | valid and effective for all purposes immediately upon |
12 | adoption or as otherwise provided in the resolution. |
13 | (3) A local government unit has the power to contract |
14 | for insurance covering the risks of nonpayment of amounts due |
15 | under qualified interest rate management agreements. |
16 | (4) The authority granted in this subchapter shall not |
17 | apply to any local government unit which has been declared |
18 | distressed by the Department of Community and Economic |
19 | Development. |
20 | (b) Requirements for resolution.--The resolution authorizing |
21 | and awarding a qualified interest rate management agreement or |
22 | authorizing a transaction under the agreement must include in |
23 | the resolution or as an appendix to the resolution all of the |
24 | following: |
25 | (1) A copy of the qualified interest rate management |
26 | agreement or confirmation of the transaction under the |
27 | qualified interest rate management agreement in substantially |
28 | the form to be executed pursuant to the resolution. |
29 | (2) The interest rate management plan meeting the |
30 | requirements under this subpart: |
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1 | (i) adopted by the local government unit; or |
2 | (ii) if the local government unit is incurring |
3 | indebtedness under this chapter which has or will be |
4 | issued to a public authority that has entered into or |
5 | will enter into an interest rate management agreement |
6 | meeting the requirements of a qualified interest rate |
7 | management agreement under this subpart, adopted by that |
8 | public authority. |
9 | (3) A statement of the manner of the award of the |
10 | qualified interest rate management agreement under subsection |
11 | (e). |
12 | (c) Contents of qualified interest rate management |
13 | agreements.--In addition to other provisions approved by the |
14 | local government unit, a qualified interest rate management |
15 | agreement must contain all of the following: |
16 | (1) The covenant of the local government unit to make |
17 | payments required by the qualified interest rate management |
18 | agreement and the covenants authorized by section 8282 |
19 | (relating to covenant to pay amounts due under qualified |
20 | interest rate management agreements). |
21 | (2) The notional amount of the qualified interest rate |
22 | management agreement and the principal amount of bonds or |
23 | notes or lease rental debt, or portions of the notional or |
24 | principal amounts, issued or to be issued by the local |
25 | government unit under this subpart or guaranteed by the local |
26 | government unit under this subpart, to which the agreement |
27 | relates. |
28 | (3) The term of any qualified interest rate management |
29 | agreement, which must not exceed the latest maturity date of |
30 | the bonds or notes referenced in the qualified interest rate |
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1 | management agreement. |
2 | (4) A provision requiring the termination of the |
3 | agreement if all debt to which the qualified interest rate |
4 | management agreement relates is no longer outstanding. |
5 | (5) The maximum annual interest rate which the local |
6 | government unit may pay thereunder. |
7 | (6) A provision that the maximum net payments by fiscal |
8 | year of a local government unit shall not exceed the maximum |
9 | interest rate specified in the qualified interest rate |
10 | management agreement for: |
11 | (i) periodic scheduled payments, not including any |
12 | termination payments, due under the qualified interest |
13 | rate management agreement; and |
14 | (ii) the interest on the bonds or notes to which the |
15 | qualified interest rate management agreement relates. |
16 | (7) The source of payment of the payment obligations of |
17 | the local government unit, which must be either general |
18 | revenues or revenues specifically identified in the |
19 | agreement. |
20 | (8) A provision addressing the actions to be taken if |
21 | the credit rating of the other party changes. |
22 | (9) A provision that periodic scheduled payments due |
23 | under the qualified interest rate management agreement and |
24 | debt service due on the related bonds or notes or payments |
25 | due under the related instrument evidencing lease rental debt |
26 | or guaranty of the local government unit shall be senior in |
27 | right and priority of payment to termination payments due |
28 | under the qualified interest rate management agreement. |
29 | (d) Other provisions of the qualified interest rate |
30 | management agreement.--The qualified interest rate management |
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1 | agreement may include: |
2 | (1) A covenant to include any termination payment or |
3 | similar payment for a qualified interest rate management |
4 | agreement in its current budget at any time during a fiscal |
5 | year or in a budget adopted in a future fiscal year. |
6 | (2) A provision that the following shall be equally and |
7 | ratably payable and secured under the applicable covenants |
8 | authorized in section 8282: |
9 | (i) Periodic scheduled payments due under the |
10 | qualified interest rate management agreement; and |
11 | (ii) Any of the following to which the agreement |
12 | relates: |
13 | (A) the debt service due on the bonds or notes; |
14 | (B) payment under an instrument evidencing lease |
15 | rental debt; or |
16 | (C) payment under a guaranty of the local |
17 | government unit. |
18 | (3) A provision that the qualified interest rate |
19 | management agreement may be terminated at the option of the |
20 | local government unit without cause but that the qualified |
21 | interest rate management agreement may not be terminated at |
22 | the option of the other party to the qualified interest rate |
23 | management agreement without cause. |
24 | (e) Award of qualified interest rate management |
25 | agreements.-- |
26 | (1) The local government unit shall establish a process |
27 | for selecting other parties before entering into a qualified |
28 | interest rate management agreement. |
29 | (2) The local government unit shall establish |
30 | qualifications for other parties before entering into a |
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1 | qualified interest rate management agreement. The |
2 | qualifications shall include a rating for the other party of |
3 | at least the third highest rating category from a nationally |
4 | recognized rating agency. |
5 | (3) A qualified interest rate management agreement must |
6 | be awarded by public sale, private sale by negotiation or |
7 | private sale by invitation. |
8 | (4) The local government unit shall select the qualified |
9 | interest rate management agreement which the local government |
10 | unit determines is in its best financial interest. The |
11 | qualified interest rate management agreement selected must |
12 | contain financial terms and conditions which in the opinion |
13 | of the independent financial advisor to the local government |
14 | unit are fair and reasonable to the local government unit as |
15 | of the date of award. |
16 | (5) The local government unit may satisfy the |
17 | requirements of paragraph (4) by obtaining a finding from an |
18 | independent financial advisor to the public authority that |
19 | the financial terms and conditions of the agreement are fair |
20 | and reasonable to the public authority as of the date of the |
21 | award if all of the following apply: |
22 | (i) The local government unit is incurring |
23 | indebtedness under this chapter which has or will be |
24 | issued to a public authority. |
25 | (ii) In connection with the incurring of debt under |
26 | subparagraph (i), the local government unit will become |
27 | obligated for all or a portion of the public authority's |
28 | costs under an interest rate management agreement. |
29 | § 8282. Covenant to pay amounts due under qualified interest |
30 | rate management agreements. |
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1 | (a) Contents.--The local government unit shall include in a |
2 | qualified interest rate management agreement a covenant that the |
3 | local government unit shall do the following: |
4 | (1) Include the periodic scheduled amounts payable in |
5 | respect of the qualified interest rate management agreement |
6 | for each fiscal year in its budget for that fiscal year. |
7 | (2) Appropriate those amounts from its general or |
8 | specially pledged revenues for the payment of amounts due |
9 | under the qualified interest rate management agreement. |
10 | (b) Pledge.-- |
11 | (1) Except as set forth in paragraph (2), the local |
12 | government unit may pledge its full faith, credit and taxing |
13 | power for the budgeting, appropriation and payment of |
14 | periodic scheduled payments due under a qualified interest |
15 | rate management agreement. |
16 | (2) A local government unit may not make a pledge under |
17 | paragraph (1) if the payment obligations of the local |
18 | government unit under the qualified interest rate management |
19 | agreement are limited as to payment to specified revenues of |
20 | the local government unit. |
21 | (c) Security interest.--If the periodic scheduled payment |
22 | obligations of the local government unit are specified in the |
23 | qualified interest rate management agreement to be made from |
24 | specified revenues of the local government unit, the local |
25 | government unit may include in the qualified interest rate |
26 | management agreement a covenant granting a security interest in |
27 | those revenues to secure its periodic scheduled payment |
28 | obligations under the agreement. The security interest shall be |
29 | perfected under section 8147 (relating to pledge of revenues). |
30 | § 8283. Remedies. |
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1 | (a) Failure to budget amounts due under a qualified interest |
2 | rate management agreement.-- |
3 | (1) This subsection applies if a local government unit |
4 | fails or refuses to budget for any fiscal year a periodic |
5 | scheduled payment: |
6 | (i) due in that year pursuant to the provisions of a |
7 | qualified interest rate management agreement; and |
8 | (ii) payable from the general revenues of the local |
9 | government unit. |
10 | (2) If a local government unit commits a failure or |
11 | refusal under paragraph (1), the following apply: |
12 | (i) The other party to the interest rate management |
13 | agreement may bring an enforcement action in a court of |
14 | common pleas. |
15 | (ii) After a hearing held upon notice to the local |
16 | government unit as the court may direct, if the court |
17 | finds a failure or refusal under paragraph (1), the court |
18 | may, by order of mandamus, require the treasurer of the |
19 | local government unit to pay to the other party out of |
20 | the first tax money or other available revenue or money |
21 | thereafter received in the fiscal year by the treasurer |
22 | the periodic scheduled payments due pursuant to the |
23 | provisions of the qualified interest rate management |
24 | agreement. The order shall be subject to section 8281(c) |
25 | (8) (relating qualified interest rate management |
26 | agreements). |
27 | (iii) Any priority on incoming tax money accorded to |
28 | a separate sinking fund for tax anticipation notes under |
29 | the authority of section 8125 (relating to security for |
30 | tax anticipation notes and sinking fund) shall not be |
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1 | affected by an order under subparagraph (ii) until the |
2 | sum on deposit in each sinking fund equals the money |
3 | which should have been budgeted or appropriated for each |
4 | series. |
5 | (b) Failure to pay amounts due under a qualified interest |
6 | rate management agreement.-- |
7 | (1) This subsection applies if: |
8 | (i) a local government unit fails to pay any amount |
9 | due under a qualified interest rate management agreement |
10 | when it becomes due and payable; and |
11 | (ii) the failure continues for 30 days. |
12 | (2) If there is a failure under paragraph (1), the other |
13 | party to the qualified interest rate management agreement may |
14 | bring an action in a court of common pleas to recover the |
15 | amount due. This paragraph is subject to: |
16 | (i) the priorities under sections 8125 and 8281(c) |
17 | (8); and |
18 | (ii) any limitations upon rights of action properly |
19 | provided in the qualified interest rate management |
20 | agreement. |
21 | (3) The judgment recovered under paragraph (2) shall: |
22 | (i) have an appropriate priority upon the money next |
23 | coming into the treasury of the local government unit; |
24 | and |
25 | (ii) be a judgment upon which funding bonds may be |
26 | issued pursuant to Ch. 81 Subch. B (relating to tax |
27 | anticipation notes and funding debt). |
28 | (c) Failure to pay by school districts.-- |
29 | (1) This subsection applies if a board of directors of a |
30 | school district fails to pay or to provide for the payment of |
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1 | periodic scheduled payments, not including any termination |
2 | payments, due pursuant to the provisions of a qualified |
3 | interest rate management agreement. |
4 | (2) A party to a qualified interest rate management |
5 | agreement must notify the Secretary of Education of a failure |
6 | under paragraph (1). |
7 | (3) Upon notice under paragraph (2), the following |
8 | apply: |
9 | (i) The secretary shall notify the Department of |
10 | Community and Economic Development and the offending |
11 | board of school directors. |
12 | (ii) If the secretary finds that the amount due and |
13 | payable by the school district has not been paid, the |
14 | secretary shall withhold out of any State appropriation |
15 | due the school district an amount equal to the amount due |
16 | pursuant to the qualified interest rate management |
17 | agreement and shall pay over the amount so withheld to |
18 | the party to the qualified interest rate management |
19 | agreement to whom the amount is due. |
20 | § 8284. Notice and retention of records. |
21 | (a) Notice.-- |
22 | (1) The local government unit shall file with the |
23 | Department of Community and Economic Development certified |
24 | copies of a resolution authorizing a qualified interest rate |
25 | management agreement, including any appendix to the |
26 | resolution, 15 days following adoption. |
27 | (2) If the maximum net payments by fiscal year for |
28 | periodic scheduled payments of the local government unit, not |
29 | including any termination payments, and interest on the bonds |
30 | or notes to which the qualified interest rate management |
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1 | agreement relates exceed the amount of interest approved in |
2 | proceedings of the local government unit with respect to such |
3 | bonds or notes filed with and approved by the department, the |
4 | local government unit shall adopt an amendment to the |
5 | ordinance or resolution authorizing such bonds or notes |
6 | reflecting such increase. The amendment shall be advertised |
7 | and effective as provided in section 8003 (relating to |
8 | advertisement and effectiveness of ordinances) and filed with |
9 | the department. No approval by the department or filing fee |
10 | by the local government unit shall be required for any filing |
11 | under this subsection. |
12 | (b) Records.--The department shall keep copies of all |
13 | documents filed with the department under this section as long |
14 | as a qualified interest rate management agreement is in effect. |
15 | Documents filed with the department under this section are |
16 | public records available for examination by any citizen of this |
17 | Commonwealth; any party to the qualified interest rate |
18 | management agreement; or any bondholder or noteholder, including |
19 | holders of tax anticipation notes, of the local government unit |
20 | filing any document pursuant to this section. |
21 | § 8285. Financial reporting. |
22 | A local government unit which has entered into a qualified |
23 | interest rate management agreement shall include in its annual |
24 | financial statements information with respect to each qualified |
25 | interest rate management agreement it has authorized or entered |
26 | into, including any information required pursuant to any |
27 | statement issued by the Governmental Accounting Standards |
28 | Board.] |
29 | Section 4. This act shall take effect immediately. |
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