TITLE OF BILL:
to amend chapter 629 of the laws of 2005, amending the local finance law
relating to refunding bonds, in relation to extending the provisions
PURPOSE OF BILL:
The bill would extend, for an additional three years, the authority of
municipalities contained in Local Finance Law (LFL) § 90.00 to sell
their refunding bonds to the New York State Environmental Facilities
Corporation (EFC) in connection with hardship financing a
municipality receives from the Clean Water State Revolving Fund
(CWSRF) or the Drinking Water State Revolving Fund (DWSRF).
SUMMARY OF PROVISIONS:
Section 1 of the bill extends the "sunset" provision of Chapter 629 of
the Laws of 2005 to extend through September 30, 2014, the authority
of municipalities to sell their refunding bonds to EFC without
requiring a showing of savings in order to receive hardship financing
from the CWSRF or DWSRF at zero percent interest.
Section 2 of the bill would provide an immediate effective date.
Pursuant to LFL § 90.00(c)(2), municipalities refunding notes or
bonds within five years of issuance are required to show net present
value savings computed in accordance with LFL § 90.10(b)(2)(a),
unless such notes or bonds are sold to EFC in connection with a
hardship loan at zero percent interest.
PRIOR LEGISLATIVE HISTORY:
Chapter 629 of the Laws of 2005, which was set to expire on September
30, 2008, was extended until September 30, 2011 by Chapter 277 of the
Laws of 2008.
STATEMENT IN SUPPORT:
Municipalities refunding serial bonds are subject to the requirements
of LFL § 90.00. Pursuant to LFL § 90.00(c)(2), municipalities
refunding within five years of issuance are required to show net
present value savings computed in accordance with LFL § 90.10
(b)(2)(a). LFL § 90.10(b)(2)(a) states that refunding bonds shall
only be issued in the event that the present value of the total
payments of both principal and interest to become due on the
refunding bonds shall be less than the present value of the principal
and interest to become due at their stated maturities on the
principal amount of
the bonds to be refunded. Because this provision prevented
municipalities from refinancing zero percent loans from the CWSRF and
DWSRF, LFL § 90.00 was amended by Chapter 629 of the Laws of 2005 to
exempt such refinancing from the requirements of LFL § 90.10(b)
(2)(a). Chapter 629 will be deemed repealed on September 30, 2011.
This bill is necessary to continue providing fiscal relief to
financially distressed municipalities.
EFC, together with the Department of Environmental Conservation (DEC),
administers the CWSRF. The CWSRF was established to provide financial
assistance to various recipients in acquiring, constructing and
upgrading eligible water pollution control projects. EFC, together
with the Department of Health (DOH), also administers the DWSRF. The
DWSRF was established to provide financial assistance for acquiring,
constructing and upgrading eligible water supply projects. Under both
the CWSRF and the DWSRF, EFC is authorized to provide assistance to
recipients for the purpose of financing or refinancing such projects.
Recipients with high-cost projects that serve residential areas may
qualify for a reduced interest rate or interest-free financing
through the CWSRF and DWSRF. EFC's reduced interest rate financings
also assist recipients facing financial hardship.
In order to expand options available to the recipients of financial
assistance from the CWSRF and DWSRF, EFC expanded the forms of
financing offered through the programs including investing in, or
purchasing of, municipal debt/bond obligations.
Through this additional form of financing, EFC is able to extend the
term of the recipient's payment obligation of the EFC financing to up
to 30 years for all CWSRF and DWSRF recipients facing fiscal
hardship. Therefore, fiscally distressed municipalities that qualify
for hardship financings under the CWSRF and DWSRF extended-term
financing at a zero percent interest rate may reduce their annual
debt service by refinancing for a period of greater than 20 years.
However, prior to Chapter 629, it was impossible for the fiscally
distressed municipality to show present value savings because this
type of refinancing merely trades one zero interest financing for
another. However, the reduction in annual debt service can be
substantial. Therefore, these fiscally distressed municipalities were
forced to delay valuable refinancing opportunities, which would
provide them with fiscal relief with a longer term, and lower annual
debt service payments. Chapter 629 provided a valuable and important
financing mechanism for municipalities that this bill would continue
for an additional three years.
The bill would have no impact on the State budget.
The bill would take effect immediately.