Senate Bill S3742

                                 BILL NUMBER:  S3742

 TITLE OF BILL :

An act to amend the local finance law, in relation to the sale of
bonds to the New York state environmental facilities corporation and
installment loans and obligations evidencing installment loans and
financings


 PURPOSE OF THE BILL :

This bill would authorize municipalities to sell bonds or notes to New
York State Environmental Facilities Corporation ("EFC") evidencing
long-term installment financings in order to obtain financial
assistance from the Water Pollution Control State Revolving Fund
("CWSRF") and the Drinking Water State Revolving Fund ("DWSRF"). This
bill further provides that a single installment bond may evidence
multiple advances. This amendment allows for a hybrid installment
financing that would permit conversion from short-term SRF financing
to long-term SRF financing utilizing a single installment bond with
appropriate repayment schedules. Finally, this amendment allows EFC to
provide both fixed and variable rate financings.

 SUMMARY OF PROVISIONS :

              

Section 1 of the bill amends Section 169.00 of the Local Finance Law
("LFL"). This provision would expand EFC's ability to purchase
municipal bonds or notes evidencing installment financings from the
CWSRF and the DWSRF. This amendment further provides for the use of a
single installment bond or note with attached schedules to evidence
multiple advances and the terms of a municipality's obligation of
repayment. The utilization of an installment bond and attached
schedules delineating the principal amount of advances and the
interest rate or rates applicable to such principal amounts for
repayment of the advances, would effectuate the conversion from short
term State Revolving Fund ("SRF") financing to long-term financing and
reduce administrative burdens and unnecessary costs for
municipalities.

Section 2 of the bill provides for an immediate effective date.

 EXISTING LAW :

A note or bond provides written evidence of an issuer's obligation to
pay a specified principal amount together with interest at a stated
rate. Under the LFL, municipalities may issue and sell bonds or other
obligations to EFC.

Section 169.00 of the LFL authorizes municipalities to sell to EFC
bonds or notes evidencing their indebtedness. Under Section 169.00, a
single municipal bond or note is executed at closing, for the maximum
principal amount of the financing. The bond or note provides, however,
that the municipality is only obligated to repay amounts that are
actually advanced under such note (and interest, at a fixed rate, only
accrues on the amounts so advanced). Advances under the note are
evidenced by endorsements on a "grid" or schedule attached to the bond
or note.

 PRIOR LEGISLATIVE HISTORY :

During the 2002 Legislative session, a similar bill was introduced
authorizing long-term grid notes. The bill passed the Senate (S.7373)
and was introduced and held in the Assembly Ways and Means Committee
(A.11016).

During the 2003 Legislative session, a long-term grid note bill was
introduced in the Senate (S.5113) and was passed. The bill was also
introduced in the Assembly (A.8025) and was held in the Assembly
Committee on Local Governments. The bill was carried over for the 2004
Legislative session, when it was approved by the Senate and held in
the Assembly Committee on Local Governments.

During the 2005 Legislative session, a long-term grid note bill was
introduced in the Senate (S.5327) and was passed. The bill was also
introduced in the Assembly (A.7092) and was held in the Assembly
Committee on Local Governments. The bill was carried over for the 2006
Legislative session, where it was approved by the Senate and held in
the Assembly Committee on Local Governments.

The proposals mentioned above did not address the variable rate
exemption contained in the current bill.

 STATEMENT IN SUPPORT :

EFC, together with the Department of Environmental Conservation,
administers the CWSRF, created by Chapter 565 of the Laws of 1989.
The CWSRF was established to provide financial assistance to
recipients, including municipalities, in acquiring, constructing and
upgrading eligible water pollution control projects. In addition, EFC,
together with the Department of Health, administers the DWSRF, created
by Chapter 413 of the Laws of 1996. The DWSRF was established to
provide financial assistance for acquiring, constructing and upgrading
eligible water supply projects.

Under both SRF Programs, EFC is authorized to provide assistance in
several forms.  Whenever a financing is made to a municipality under
the SRF programs, EFC receives a general obligation bond or note from
that municipality as evidence of its obligation.

The Federal monies used by EFC for financings are first made
available' to the SRF under a letter of credit, upon which the State
draws in accordance with certain rules prescribed by the United States
Environmental Protection Agency. Under these rules, Federal funds can
be drawn upon to provide funds only as eligible costs are incurred by
the municipality. The use of installment bonds (authorized by the LFL
Section 169.00) with schedules or "grids" allows municipalities to
draw financing proceeds on a cost-incurred basis without having to
issue a separate bond or note to EFC for each amount advanced.

This amendment would further expand the current use of installment
bonds to not only evidence multiple advances, but also allow for the
conversion from short-term status to long-term status. Installment
bonds with attached "grids" or schedules would allow all
municipalities, including those most economically disadvantaged, to
draw funds and, in effect, "close" a new financing each time funds are
requested, and upon conversion from short-term status to long-term
status without incurring the transactional costs associated with
another traditional closing. EFC would seek Public Authorities Control
Board ("PACB") approval for each financing. In addition, EFC would
seek PACB approval upon conversion and establishment ofthe interest
rate or rates that will be fixed for the remaining term of the
financing.

This amendment also expands the current use of installment bonds to
evidence either a fixed or variable rate obligation. In order to meet
growing program demand and diminished program resources, starting in
2008, EFC will be offering eligible recipients CWSRF and DWSRF
unsubsidized market rate short-term and long-term financing. EFC's
Short Term Market Rate Financing ("SMRF") program will provide
financing for eligible recipients by EFC's issuance of short-term
commercial paper notes to provide financing for recipients during
construction of their projects. Because commercial paper notes mature
at least every 270 days, EFC will adjust the rate on the installment
bond or note to match the market rates received by EFC. Upon
completion of construction or after three years, whichever is earlier,
recipients will be eligible to convert their installment bonds or
notes with EFC through EFC's guaranty financing program.  Under that
initiative, eligible recipients will be able to receive fixed-rate
market rate financing for up to thirty years for CWSRF and DWSRF
projects.

This expanded use of installment bonds or notes will serve to
facilitate financing to all municipalities, but it will be most
beneficial to disadvantaged communities seeking SRF hardship
assistance. While hardship assistance loans constitute approximately
10% of all SRF projects, these economically disadvantaged communities
account for almost 90% of the long-term direct . SRF financing. A
formal closing with attendant transactional costs would occur only
once upon the initial financing. Such transactional costs have ranged
from three thousand dollars to as much as twenty thousand dollars per
closing. These transactional costs can be a factor in prohibiting a
municipality from undertaking SRF financing. This proposal serves to
eliminate costs for subsequent closings and/or upon conversion from
short-term status to long-term status and yet preserves current
practice with respect to PACB approval.

In addition, this amendment will allow EFC to provide financing,
through the SMRF and long-term guaranty program, to municipalities
that might otherwise be unable to access the market for necessary
financing.

 BUDGET IMPLICATIONS :
None.

 EFFECTIVE DATE :
This act shall take effect immediately.