Relates to bond anticipation notes issued during calendar year 2004 or 2005

Summary of specific provisions

Section 1 of this bill would amend paragraph b of section 23.00 of the Local Finance Law to allow bond anticipation notes issued originally during calendar year 2004 or 2005 to extend as far as seven years beyond their original date of issue.

Sections 2, 3, 4 and 5 of this bill would amend subdivision 5 of para- graph d of section 57.00, paragraphs a and b of section 62.10, and the section heading and paragraphs a and b of section 63.00 of the Local Finance Law to increase the current $1,000,000 cap on negotiated sales and/or modify the requirements under which local governments can apply for a waiver from competitive sale in certain market conditions.

Section 6 of this bill requires a report by the State Comptroller on the private sales of bonds conducted pursuant to paragraph b of section 63.00 of the Local Finance Law.

Section 7 of this bill would amend subparagraphs (b) and (d) of subdivi- sion 2 of paragraph b of section 58.00 of the Local Finance Law to modi- fy the current cancellation of notice of sale requirement.

Sections 8 and 9 of this bill would amend subdivision 3 of paragraph e of section 58.00 and paragraph c of section 59.00 of the Local Finance Law to expand options for good faith deposits to include cash.

Sections 10, 11, 12 and 13 of this bill would amend section 10.00 and subdivision 40 of paragraph a of section 11.00 of the Local Finance Law and add two new sections 29.20 and 40.10 to the Local Finance Law to permit budget notes for revenue shortfalls.

Section 14 of this bill states this act is effective immediately.

Justification

This bill has 5 main objectives:

1) Except in the case of bond anticipation notes issued for "assessable improvements" (e.g., town water or sewer projects), local governments are authorized to extend or "rollover" bond anticipation notes for only up to 5 years. At the end of that period, the bond anticipation notes must be retired or converted into long-term debt. Extending the "roll over" period by 2 years would create another option for a municipality currently faced with maturing bond anticipation notes, particularly in this volatile market environment. The grant of authority would be temporary (with a "sunset" provision) so that it would be re-evaluated as market conditions change in the future. Similar grants of authority were enacted in the 1970s and 1980s. The State's Short Term Investment Pool (STIP) can also play a role in potentially purchasing bond antic- ipation notes (BANs), tax anticipation notes (TANs) or revenue antic- ipation notes (RANs) when a local government issuer lacks market access. Under current law (subject to certain exceptions), localities may only sell bonds totaling $1 million or less on a negotiated basis. One of the exceptions is for bonds sold at a discount, subject to the comptroller's approval. Under Office of the State Comptroller regulations, a local government may sell discount bonds at negotiated sale with the Comp- troller's approval if it has determined that a competitive sale is expected to produce higher borrowing costs and is not in the best inter- ests of the issuers because of (1) unstable or volatile market condi- tions, (2) conditions of fiscal stress or negative credit factors expe- rienced by the issuer, (3) the large dollar amount of the proposed issuance, or (4) the complexity of the issue.

2) Financial advisors and underwriters often favor negotiated sales in a volatile market environment because buyers are lined up in advance of the sale. Several recent competitive sales by NYS local governments have attracted only one or two bidders. Local governments, particularly those with lower credit ratings, may benefit if the threshold was increased or conditions for waiver were modified. Consideration should be given to increasing the threshold and to expanding the negotiated sale exception to other than discount bonds, subject to the factors in Office of the State Comptroller regulations. However, the Office of the State Comp- troller has traditionally favored competitive bond sales as a more cost efficient method of financing both on the State and local level, and a local government waiver modification creates potential staff workload issues to address a potential influx of waivers.

3) Local governments are required to provide at least 24 hours notice if a sale is cancelled or if the sale date is changed. Given technology,

this provision could be modified to allow local governments to cancel or postpone a sale up to one hour before pricing on the day of sale. This change would allow a municipal issuer to evaluate market conditions on the day of the planned sale to determine whether the sale is likely to be successful.

4) Bidders are required to deposit at least 1 percent of the total amount of bonds desired via cashiers or certified check (or eligible surety bond) as a "good faith effort" in a competitive bond sale. This protects the local government should the low bidder end up not purchas- ing the bonds. This requirement should be modified to allow for cash deposits via wire transfer. In addition, if the notice of sale provision is modified, this requirement could also be modified to a lower percent- age to help mitigate any purchaser liquidity concerns.

5) Currently, local governments are authorized to issue budget notes to finance certain unforeseeable emergencies and situations where there is insufficient appropriation authority. There is no analogous authority to issue short term notes in the case of an unforeseen revenue shortfall. Consideration should be given to modifying the Local Finance Law for this event. The issuance of budget notes would help local governments respond to unforeseen budget problems and could obviate their need to seek a special act for deficit financing for relatively small, one-time shortfalls.

The comptroller urges passage of this legislation.

Prior legislative history

New proposal.

Effective date

Immediately.