BILL NUMBER:S7367

TITLE OF BILL:  An act to amend the local finance law, in relation to
the refunding and advance refunding of bonds

PURPOSE:

This bill provides for the issuance of local refunding bonds which do
not exceed the amounts and maturity of the bonds which they refund.

SUMMARY OF PROVISIONS:

Section 1 of the bill amends paragraph b-i of section 90.00 of the local
finance law, as added by chapter 201 of the laws of 1994.

Section 2 of the bill states that subdivision 3 of paragraph c of
section 90.10 of the local finance law, as amended by chapter 201 of the
laws of 1994.

Section 3 of the bill outlines the severability of this bill.

Section 4 is the effective date.

JUSTIFICATION:

Under existing law, refunding bonds must comply with the fifty percent
              

rule or have level or declining debt service. To meet these require-
ments, a refunding of a single maturity in a series must also refund
bonds which yield no present value savings, but are included only to
conform the refunding issue to the requirement of Local Finance Law.
This restriction causes these structuring bonds to be refunded prema-
turely, wasting potential present value savings, because tax-exempt
bonds generally may be refunded only once under applicable federal tax
laws. The provisions of this bill broaden an issuer's ability to utilize
advance refunding bonds by allowing, as an alternative, the amounts and
stated maturities of the refunding bonds to be set by reference to the
refunded bonds. This eliminates the requirement to include structuring
bonds that provide no present value savings in a refunding issue. This
in turn allows for targeted refunding of a single or limited number of
maturities without triggering a pre-payment of principal. The bill
protects the portions of the Local Finance Law that prevent balloon
payments and that assure bonds are not outstanding longer than neces-
sary, because these provisions remain fully applicable to the original
bonds to be refunded. In addition, the structure of the City's overall
indebtedness is preserved since the refunding bonds simply replace the
bonds originally issued.

The consequences of the unprecedented global financial, liquidity and
credit crisis continue to play out in the market, leading many of the
banks that had provided liquidity support for the City's variable rate
bonds to withdraw or announce their future withdrawal from that busi-
ness. Targeted refundings are an essential tool to address the issue of

banks' not renewing their liquidity facilities, which, absent a refund-
ing, could result in bank-held bonds that not only revert to higher
rates increasing the City's debt service expenses, but often trigger
"term-out" provisions that require accelerated repayment of those bonds.
Correcting the technical restriction on targeted refunding will better
equip the City to specifically address the issues of the financial and
credit crisis without exposing taxpayers to the risks of increased debt
service or principal acceleration on City bonds.

LEGISLATIVE HISTORY:

2012: S.7665 - Referred to Rules / A.10242 - Referred to Local Govern-
ment.

FISCAL IMPLICATIONS:

None.

EFFECTIVE DATE:

This act shall take effect immediately.