Bill Text: PA HB1905 | 2009-2010 | Regular Session | Introduced

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Bill Title: Further providing for the definitions of "debt," "independent financial advisor," "interest rate management plan" and "qualified interest rate management agreement," for scope of unfunded debt and for treatment of costs upon refunding; and repealing provisions related to interest rate risk and interest cost management.

Spectrum: Slight Partisan Bill (Republican 11-7)

Status: (Introduced - Dead) 2009-08-06 - Referred to FINANCE [HB1905 Detail]

Download: Pennsylvania-2009-HB1905-Introduced.html

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PRINTER'S NO. 2550
THE GENERAL ASSEMBLY OF PENNSYLVANIA
HOUSE BILL
No. 1905 Session of2009
INTRODUCED BY SCAVELLO, LEVDANSKY, DENLINGER, FREEMAN, GODSHALL, KORTZ, SIPTROTH, RAPP, PICKETT, BEAR, HENNESSEY, MOUL AND HARPER, AUGUST 6, 2009
REFERRED TO COMMITTEE ON FINANCE, AUGUST 6, 2009
AN ACT
Amending Title 53 (Municipalities Generally) of the Pennsylvania
Consolidated Statutes, further providing for the definitions
of "debt," "independent financial advisor," "interest rate
management plan" and "qualified interest rate management
agreement," for scope of unfunded debt and for treatment of
costs upon refunding; and repealing provisions related to
interest rate risk and interest cost management.
The General Assembly of the Commonwealth of Pennsylvania
hereby enacts as follows:
Section 1. The definitions of "debt," "independent financial
advisor," "interest rate management plan" and "qualified
interest rate management agreement" in section 8002(a) and (c)
of Title 53 of the Pennsylvania Consolidated Statutes are
amended to read:
§ 8002. Definitions.
(a) Classification of debt.--* * *
"Debt." The amount of all obligations for the payment of
money incurred by the local government unit, whether due and
payable in all events, or only upon the performances of work,
possession of property as lessee, rendering of services by
others or other contingency, except the following:
(1) Current obligations for the full payment of which
current revenues have been appropriated, including tax
anticipation notes, and current payments for the funding of
pension plans.
(2) Obligations under contracts for supplies, services
and pensions allocable to current operating expenses of
future years in which the supplies are to be expended or
furnished, the services rendered or the pensions paid.
(3) Rentals or payments payable in future years under
leases, guaranties, subsidy contracts or other forms of
agreement not evidencing the acquisition of capital assets.
This exception shall not apply to rentals or payments under
any instruments which would constitute lease rental debt but
for the fact that the lessor or obligee is not an entity
described in section 8004(a)(1) (relating to when lease or
other agreement evidences acquisition of capital asset).
(4) Interest or assumed taxes payable on bonds or notes
which interest or taxes are not yet overdue.
[(5) Obligations incurred and payments, including
periodic scheduled payments and termination payments, payable
pursuant to a qualified interest rate management agreement.]
* * *
(c) Other definitions.--Subject to additional definitions
contained in subsequent provisions of this subpart which are
applicable to specific provisions of this subpart, the following
words and phrases when used in this subpart shall have the
meanings given to them in this section unless the context
clearly indicates otherwise:
* * *
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["Independent financial advisor." A person or entity
experienced in the financial aspects and risks of interest rate
management agreements who is retained by a local government unit
to advise the local government unit with respect to a qualified
interest rate management agreement. The independent financial
advisor may not be the other party or an affiliate or agent of
the other party on a qualified interest rate management
agreement with respect to which the independent financial
advisor is advising a local government unit. For purposes of
sections 8281(b)(2) and (e)(5) (relating to qualified interest
rate management agreements), the independent financial advisor
may be retained by a public authority.
"Interest rate management plan." A written plan prepared or
reviewed by an independent financial advisor with respect to a
qualified interest rate management agreement, which includes:
(1) A schedule listing the amount of debt outstanding
for each outstanding debt issue of the local government unit
and the expected annual debt service on that debt. In the
case of variable rate debt, the schedule shall set forth the
estimated annual debt service thereon and annual debt service
on the debt calculated at the maximum rate specified for the
variable rate debt.
(2) A schedule listing the notional amounts outstanding
of each previously executed qualified interest rate
management agreement which is then in effect.
(3) A schedule listing all consulting, advisory,
brokerage or similar fees, paid or payable by the local
government unit in connection with the qualified interest
rate management agreement, and a schedule of any finder's
fees, consulting fees or brokerage fees, paid or payable by
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the other party in connection with the qualified interest
rate management agreement.
(4) A schedule listing the estimated and maximum
periodic scheduled payments to be paid by the local
government unit and to be received by the local government
unit from the other party in each year during the term of the
qualified interest rate management agreement.
(5) An analysis of the interest rate risk, basis risk,
termination risk, credit risk, market-access risk and other
risks of entering into the qualified interest rate management
agreement. This paragraph includes schedules of the estimated
and maximum scheduled periodic payments which would be due
under the qualified interest rate management agreement.
(6) An analysis of the interest rate risk, basis risk,
termination risk, credit risk, market-access risk and other
risks to the local government unit of the net payments due
for all debt outstanding and all qualified interest rate
management agreements of the local government unit. This
paragraph includes schedules of the estimated and maximum net
payments of total debt service and scheduled, periodic, net
payments, which would be due under all of the qualified
interest rate management agreements.
(7) The local government unit's plan to monitor interest
rate risk, basis risk, termination risk, credit risk, market-
access risk and other risks. This paragraph includes the
valuation of the market or termination value of all
outstanding qualified interest rate management agreements.]
* * *
["Qualified interest rate management agreement." An
agreement, including a confirmation evidencing a transaction
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effected under a master agreement, entered into by a local
government unit in accordance with and fulfilling the
requirements of section 8281 (relating to qualified interest
rate management agreements), which agreement in the judgment of
the local government unit is designed to manage interest rate
risk or interest cost of the local government unit on any debt a
local government unit is authorized to incur under this subpart,
including, but not limited to, swaps, interest rate caps,
collars, corridors, ceiling and floor agreements, forward
agreements, float agreements and other similar arrangements
which in the judgment of the local government unit will assist
the local government unit in managing the interest rate risk or
interest cost of the local government unit.]
* * *
Section 2. Sections 8129 and 8242(a)(2.1) of Title 53 are
amended to read:
§ 8129. Scope of unfunded debt.
For the purpose of this subchapter, "unfunded debt" means
obligations of the same or one or more prior years incurred for
current expenses, including tax anticipation notes [and
payments, including termination payments, required to be made
under qualified interest rate management agreements], due and
owing or judgments against the local government unit entered by
a court after adversary proceedings, [including a judgment under
section 8283(b)(2)(i) (relating to remedies),] for the payment
of either of which category the taxes and other revenues
remaining to be collected in the fiscal year and funds on hand
will not be sufficient without a curtailment of municipal
services to an extent endangering the health or safety of the
public or proper public education, and the local government unit
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either may not legally levy a sufficient tax for the balance of
the fiscal year, or a sufficient tax, if legally leviable, would
not be in the public interest. Unfunded debt does not, however,
include debt incurred under this subpart or obligations in
respect of a project or part of a project as incurred in respect
of the cost of a project.
§ 8242. Treatment of costs upon refunding.
(a) General rule.--In any refunding, a principal amount of
refunding bonds or notes or obligations evidencing lease rental
debt equal to the sum of the following:
* * *
[(2.1) any funds borrowed in order to pay any
termination payment required to be paid under a qualified
interest rate management agreement in which the notional
amount is identified as corresponding to all or any portion
of the bond or note being refunded;]
* * *
Section 3. Subchapter F of Chapter 82 of Title 53 is
repealed:
[SUBCHAPTER F
INTEREST RATE RISK AND INTEREST COST MANAGEMENT
Sec.
8281. Qualified interest rate management agreements.
8282. Covenant to pay amounts due under qualified interest rate
management agreements.
8283. Remedies.
8284. Notice and retention of records.
8285. Financial reporting.
§ 8281. Qualified interest rate management agreements.
(a) General rule.--
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(1) Except as set forth in paragraph (4),
notwithstanding any other law to the contrary, a local
government unit may negotiate and enter into qualified
interest rate management agreements consistent with the
provisions of this subchapter.
(2) The local government unit must authorize and award
by resolution each qualified interest rate management
agreement or any confirmation of a transaction. The
resolution is subject to section 8003(a) and (b) (relating to
advertisement and effectiveness of ordinances) but may be
valid and effective for all purposes immediately upon
adoption or as otherwise provided in the resolution.
(3) A local government unit has the power to contract
for insurance covering the risks of nonpayment of amounts due
under qualified interest rate management agreements.
(4) The authority granted in this subchapter shall not
apply to any local government unit which has been declared
distressed by the Department of Community and Economic
Development.
(b) Requirements for resolution.--The resolution authorizing
and awarding a qualified interest rate management agreement or
authorizing a transaction under the agreement must include in
the resolution or as an appendix to the resolution all of the
following:
(1) A copy of the qualified interest rate management
agreement or confirmation of the transaction under the
qualified interest rate management agreement in substantially
the form to be executed pursuant to the resolution.
(2) The interest rate management plan meeting the
requirements under this subpart:
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(i) adopted by the local government unit; or
(ii) if the local government unit is incurring
indebtedness under this chapter which has or will be
issued to a public authority that has entered into or
will enter into an interest rate management agreement
meeting the requirements of a qualified interest rate
management agreement under this subpart, adopted by that
public authority.
(3) A statement of the manner of the award of the
qualified interest rate management agreement under subsection
(e).
(c) Contents of qualified interest rate management
agreements.--In addition to other provisions approved by the
local government unit, a qualified interest rate management
agreement must contain all of the following:
(1) The covenant of the local government unit to make
payments required by the qualified interest rate management
agreement and the covenants authorized by section 8282
(relating to covenant to pay amounts due under qualified
interest rate management agreements).
(2) The notional amount of the qualified interest rate
management agreement and the principal amount of bonds or
notes or lease rental debt, or portions of the notional or
principal amounts, issued or to be issued by the local
government unit under this subpart or guaranteed by the local
government unit under this subpart, to which the agreement
relates.
(3) The term of any qualified interest rate management
agreement, which must not exceed the latest maturity date of
the bonds or notes referenced in the qualified interest rate
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management agreement.
(4) A provision requiring the termination of the
agreement if all debt to which the qualified interest rate
management agreement relates is no longer outstanding.
(5) The maximum annual interest rate which the local
government unit may pay thereunder.
(6) A provision that the maximum net payments by fiscal
year of a local government unit shall not exceed the maximum
interest rate specified in the qualified interest rate
management agreement for:
(i) periodic scheduled payments, not including any
termination payments, due under the qualified interest
rate management agreement; and
(ii) the interest on the bonds or notes to which the
qualified interest rate management agreement relates.
(7) The source of payment of the payment obligations of
the local government unit, which must be either general
revenues or revenues specifically identified in the
agreement.
(8) A provision addressing the actions to be taken if
the credit rating of the other party changes.
(9) A provision that periodic scheduled payments due
under the qualified interest rate management agreement and
debt service due on the related bonds or notes or payments
due under the related instrument evidencing lease rental debt
or guaranty of the local government unit shall be senior in
right and priority of payment to termination payments due
under the qualified interest rate management agreement.
(d) Other provisions of the qualified interest rate
management agreement.--The qualified interest rate management
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agreement may include:
(1) A covenant to include any termination payment or
similar payment for a qualified interest rate management
agreement in its current budget at any time during a fiscal
year or in a budget adopted in a future fiscal year.
(2) A provision that the following shall be equally and
ratably payable and secured under the applicable covenants
authorized in section 8282:
(i) Periodic scheduled payments due under the
qualified interest rate management agreement; and
(ii) Any of the following to which the agreement
relates:
(A) the debt service due on the bonds or notes;
(B) payment under an instrument evidencing lease
rental debt; or
(C) payment under a guaranty of the local
government unit.
(3) A provision that the qualified interest rate
management agreement may be terminated at the option of the
local government unit without cause but that the qualified
interest rate management agreement may not be terminated at
the option of the other party to the qualified interest rate
management agreement without cause.
(e) Award of qualified interest rate management
agreements.--
(1) The local government unit shall establish a process
for selecting other parties before entering into a qualified
interest rate management agreement.
(2) The local government unit shall establish
qualifications for other parties before entering into a
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qualified interest rate management agreement. The
qualifications shall include a rating for the other party of
at least the third highest rating category from a nationally
recognized rating agency.
(3) A qualified interest rate management agreement must
be awarded by public sale, private sale by negotiation or
private sale by invitation.
(4) The local government unit shall select the qualified
interest rate management agreement which the local government
unit determines is in its best financial interest. The
qualified interest rate management agreement selected must
contain financial terms and conditions which in the opinion
of the independent financial advisor to the local government
unit are fair and reasonable to the local government unit as
of the date of award.
(5) The local government unit may satisfy the
requirements of paragraph (4) by obtaining a finding from an
independent financial advisor to the public authority that
the financial terms and conditions of the agreement are fair
and reasonable to the public authority as of the date of the
award if all of the following apply:
(i) The local government unit is incurring
indebtedness under this chapter which has or will be
issued to a public authority.
(ii) In connection with the incurring of debt under
subparagraph (i), the local government unit will become
obligated for all or a portion of the public authority's
costs under an interest rate management agreement.
§ 8282. Covenant to pay amounts due under qualified interest
rate management agreements.
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(a) Contents.--The local government unit shall include in a
qualified interest rate management agreement a covenant that the
local government unit shall do the following:
(1) Include the periodic scheduled amounts payable in
respect of the qualified interest rate management agreement
for each fiscal year in its budget for that fiscal year.
(2) Appropriate those amounts from its general or
specially pledged revenues for the payment of amounts due
under the qualified interest rate management agreement.
(b) Pledge.--
(1) Except as set forth in paragraph (2), the local
government unit may pledge its full faith, credit and taxing
power for the budgeting, appropriation and payment of
periodic scheduled payments due under a qualified interest
rate management agreement.
(2) A local government unit may not make a pledge under
paragraph (1) if the payment obligations of the local
government unit under the qualified interest rate management
agreement are limited as to payment to specified revenues of
the local government unit.
(c) Security interest.--If the periodic scheduled payment
obligations of the local government unit are specified in the
qualified interest rate management agreement to be made from
specified revenues of the local government unit, the local
government unit may include in the qualified interest rate
management agreement a covenant granting a security interest in
those revenues to secure its periodic scheduled payment
obligations under the agreement. The security interest shall be
perfected under section 8147 (relating to pledge of revenues).
§ 8283. Remedies.
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(a) Failure to budget amounts due under a qualified interest
rate management agreement.--
(1) This subsection applies if a local government unit
fails or refuses to budget for any fiscal year a periodic
scheduled payment:
(i) due in that year pursuant to the provisions of a
qualified interest rate management agreement; and
(ii) payable from the general revenues of the local
government unit.
(2) If a local government unit commits a failure or
refusal under paragraph (1), the following apply:
(i) The other party to the interest rate management
agreement may bring an enforcement action in a court of
common pleas.
(ii) After a hearing held upon notice to the local
government unit as the court may direct, if the court
finds a failure or refusal under paragraph (1), the court
may, by order of mandamus, require the treasurer of the
local government unit to pay to the other party out of
the first tax money or other available revenue or money
thereafter received in the fiscal year by the treasurer
the periodic scheduled payments due pursuant to the
provisions of the qualified interest rate management
agreement. The order shall be subject to section 8281(c)
(8) (relating qualified interest rate management
agreements).
(iii) Any priority on incoming tax money accorded to
a separate sinking fund for tax anticipation notes under
the authority of section 8125 (relating to security for
tax anticipation notes and sinking fund) shall not be
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affected by an order under subparagraph (ii) until the
sum on deposit in each sinking fund equals the money
which should have been budgeted or appropriated for each
series.
(b) Failure to pay amounts due under a qualified interest
rate management agreement.--
(1) This subsection applies if:
(i) a local government unit fails to pay any amount
due under a qualified interest rate management agreement
when it becomes due and payable; and
(ii) the failure continues for 30 days.
(2) If there is a failure under paragraph (1), the other
party to the qualified interest rate management agreement may
bring an action in a court of common pleas to recover the
amount due. This paragraph is subject to:
(i) the priorities under sections 8125 and 8281(c)
(8); and
(ii) any limitations upon rights of action properly
provided in the qualified interest rate management
agreement.
(3) The judgment recovered under paragraph (2) shall:
(i) have an appropriate priority upon the money next
coming into the treasury of the local government unit;
and
(ii) be a judgment upon which funding bonds may be
issued pursuant to Ch. 81 Subch. B (relating to tax
anticipation notes and funding debt).
(c) Failure to pay by school districts.--
(1) This subsection applies if a board of directors of a
school district fails to pay or to provide for the payment of
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periodic scheduled payments, not including any termination
payments, due pursuant to the provisions of a qualified
interest rate management agreement.
(2) A party to a qualified interest rate management
agreement must notify the Secretary of Education of a failure
under paragraph (1).
(3) Upon notice under paragraph (2), the following
apply:
(i) The secretary shall notify the Department of
Community and Economic Development and the offending
board of school directors.
(ii) If the secretary finds that the amount due and
payable by the school district has not been paid, the
secretary shall withhold out of any State appropriation
due the school district an amount equal to the amount due
pursuant to the qualified interest rate management
agreement and shall pay over the amount so withheld to
the party to the qualified interest rate management
agreement to whom the amount is due.
§ 8284. Notice and retention of records.
(a) Notice.--
(1) The local government unit shall file with the
Department of Community and Economic Development certified
copies of a resolution authorizing a qualified interest rate
management agreement, including any appendix to the
resolution, 15 days following adoption.
(2) If the maximum net payments by fiscal year for
periodic scheduled payments of the local government unit, not
including any termination payments, and interest on the bonds
or notes to which the qualified interest rate management
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agreement relates exceed the amount of interest approved in
proceedings of the local government unit with respect to such
bonds or notes filed with and approved by the department, the
local government unit shall adopt an amendment to the
ordinance or resolution authorizing such bonds or notes
reflecting such increase. The amendment shall be advertised
and effective as provided in section 8003 (relating to
advertisement and effectiveness of ordinances) and filed with
the department. No approval by the department or filing fee
by the local government unit shall be required for any filing
under this subsection.
(b) Records.--The department shall keep copies of all
documents filed with the department under this section as long
as a qualified interest rate management agreement is in effect.
Documents filed with the department under this section are
public records available for examination by any citizen of this
Commonwealth; any party to the qualified interest rate
management agreement; or any bondholder or noteholder, including
holders of tax anticipation notes, of the local government unit
filing any document pursuant to this section.
§ 8285. Financial reporting.
A local government unit which has entered into a qualified
interest rate management agreement shall include in its annual
financial statements information with respect to each qualified
interest rate management agreement it has authorized or entered
into, including any information required pursuant to any
statement issued by the Governmental Accounting Standards
Board.]
Section 4. This act shall take effect immediately.
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