Authorizes municipalities, school districts and district corporations to issue refund bonds on bonds issued before June 1, 2009 or within 30 days of effective date

Title of bill

An act to amend the local finance law, in relation to advance refunding of certain bonds

Purpose

Amends section 90.10 of the local finance law to permit the refunding (refinancing) of outstanding bonds for the sole purpose of restructuring debt service.

Summary of provisions

Section 1-authorizes a specific amendment to section 90.10 of the local finance law to accomplish the above described purpose.

Section 2-contains the severability provision.

Section 3-contains the effective date.

Existing law

The present value limitation on debt refundings of section 90.10 of the local finance law would be eliminated for refunding certain outstanding bonds.

Justification

Section 90.10 of the local finance law permits the refunding (refinancing) of outstanding serial bonds of municipalities and school districts prior to their maturity dates. For many years this provision included a requirement that any such refunding result in present value savings to the issuer. In 2001, Chapter 383 of the laws of 2001 amended section 90.10 to permit school districts to refund outstanding bonds without present value savings for debt service restructuring purposes in connection with changes in the timing of receipt of future state building aid. This bill would extend the authority to issue refunding bonds under section 90.10 without present value savings to all municipalities and school districts for debt service restructuring purposes.

Over the years, the periods of probable usefulness for many capital projects already financed with outstanding bonds have been extended. For example, in 2003, the useful life of a typical building reconstruction (a very common capital project) was amended from 20 years to 25 years. In addition, many municipalities and school districts have, in the past, issued their bonds for less than the full period of probable usefulness in order to reduce overall interest expense.

Furthermore, bonds issued prior to January 1, 1994, could not be structured with substantially level or declined annual debt services as authorized by Chapter 201 of the laws of 1994. With tighter budgets, many municipalities and school districts would like to consider the option to extend the maximum maturities of their outstanding bonds to the full period of probable usefulness legally available. While aggregate interest over time would increase, it could be spread over a longer legally permitted time period with less debt service due in the next several years. This is generally not possible under section 90.10 as currently written because such an extension of maturity would not generally result in present value savings. The proposed amendment to section 90.10 of the local finance law would permit such "debt restructuring" refundings within the limitations of (1) existing maximum periods of probable usefulness authorized by the local finance law, (2) the existing debt amortization methodology authorized by the local finance law and its Constitutional requirements and (3) the existing Office of the State Comptroller review, oversight and approval process mandated by section 90.10 of the local finance law. The Legislature has approved similar legislation for school districts in the past. Therefore, there is precedent for this type of legislation for all local governments.

Legislative history

2007/08: S.1138 - Passed Senate 2005/06: S.731 - Passed Senate 2004: S.6877 - Passed Senate

Fiscal implications

None to the State. Provides budgetary relief to local governments.

Effective date

This act shall take effect immediately.