Relates to the sale of bonds to the New York state environmental facilities corporation

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.