Authorizes the issuance and purchase of certain bonds by the municipal bond bank agency

Section 2 of the bill would amend PAL § 2432(2) to add definitions and clarify existing definitions to include bonds issued under the Recovery Act.

Section 3 of the bill would amend PAL § 2434 to add a new subdivision 7-b to create an additional power for MBBA to acquire obligations issued by municipalities, to provide for public improvements afforded by the Recovery Act.

Section 4 of the bill would amend PAL § 2435(1) and (2) to eliminate certain requirements contained therein as to the maximum amount of bonds that MBBA may acquire from anyone municipality at anyone time, in connection with the issuance of Recovery Act bonds.

Section 5 of the bill adds a new section PAL § 2436-b to provide for access by MBBA, pursuant to the procedures specified therein, to certain sales tax revenues and mortgage recording tax revenues at local option in the event municipalities fail to pay principal or interest on obligations of municipalities purchased by MBBA with the proceeds of recovery act bonds, and provides that access to such monies shall be in addition to the state aid guarantee found in PAL . 2436.

Section 6 of the bill would amend PAL § 2437 to provide that Recovery Act bonds can be issued in public or private sales.

Section 7 of the bill would amend PAL § 2438(1) to exclude Recovery Act bonds from the limitation on the aggregate amount of bonds that can be issued by MBBA.

Section 8 of the bill would amend PAL § 2442(1) to provide that the State may amend, modify, repeal or otherwise alter laws that relate to state aid, taxes, fees, or appropriations without impairing bond holders.

Section 9 of the bill would amend Local Finance Law § 85.80 to prevent any municipality whose local ARRA bonds are secured by tax revenues and purchased by MBBA from filing for bankruptcy while local Recovery Act bonds remain outstanding.

Section 10 provides for an immediate effective date.

Existing law

MBBA is currently authorized to purchase obligations of municipalities for various purposes. Once those obligations are purchased, MBBA is subject to various requirements relating to: debt service reserve funds amounts of obligations that can be purchased from individual municipalities, the process to be used by MBBA in selling its bonds, and the type of state aid guarantees that are available to MBBA in situations where the municipalities fail to pay principal or interest on their obligations. Current law does not authorize MBBA to access sales tax revenues or mortgage recording taxes as available funding sources, in addition to the state aid guarantee, in situations where municipalities fail to pay principal or interest on their bonds.

Prior legislative history

None.

Justification

In 2009, the federal government passed the Recovery Act which enacted into law a number of changes relating to how municipalities could borrow to pay for public improvements. Specifically, the Recovery Act provided new categories of taxable bonds known as "Build America Bonds" and "Recovery Zone Economic Development Bonds" that could be issued in lieu of tax exempt bonds and that allow issuers to choose either to receive a direct federal subsidy or to offer bondholders a federal tax credit. Both Build America Bonds and Recovery Zone Economic Development Bonds may only be issued in 2009 and 2010. Recovery Zone Economic Development Bonds may only be issued for investment in "recovery zones." These new types of powers can be used by municipalities to fund public infrastructure improvements in their jurisdictions. Municipalities throughout the State, particularly in today's economic climate, are urgently looking to fund much-needed improvements through these new financing vehicles which can provide substantially reduced financing cost versus tax exempt bonds. As always, their goal is to do so in the most cost-efficient way possible, to ensure savings for their constituents.

The reason behind the proposed amendments to the MBBA statute is to make MBBA available to municipalities across the State, so they can participate and benefit from the new financing options authorized under the Recovery Act. This will allow municipalities to fund critical infrastructure and economic development projects in the most efficient, and cost-effective way. Since its inception, MBBA's purpose has been to make funds available at reduced interest costs to local governments to finance public improvements and purposes, particularly for those municipalities not otherwise able to borrow for such purposes. MBBA is there to streamline borrowing by local governments, by issuing bonds in the municipal credit markets and using the proceeds to purchase the obligations issued by municipalities. This process allows MBBA to provide interest rate savings to municipalities, as MBBA can sell bonds at lower interest rates due to their inherent credit protections and higher credit rating, and pass along the savings to municipalities. Given that both Build America Bonds and Recovery Zone Economic Development Bonds must be issued in taxable form, MBBA will also be able to take advantage of the market efficiencies that can be provided to larger size issues.

As municipalities throughout the State consider using the new types of obligations authorized under the Act, having access to MBBA financing will ensure that they receive the most favorable rates of interest. MBBA is a proven market participant, having issued bonds on behalf of various state entities over the years. Its market position allows it to issue bonds at lower rates of interest than those that can be issued by smaller, less well known issuers.

The current statute, whose provisions dealing with the purchase of municipal bonds of municipalities by MBBA date back to 1972, needs to be modernized in order to allow for maximum efficiency. The statute currently offers only one type of intercept (state aid) in situations where the municipalities fail to pay principal or interest on the bonds acquired by MBBA. The proposal is to add an additional source of funding, an intercept of sales tax and/or mortgage recording tax. The local tax revenue intercept option is proposed in order to allow municipalities to make optimal use of the Recovery Act bonding authorization. Additionally, certain clean-up changes are included, dealing with limitations on the amount of bonds of individual municipalities that can be purchased, and on the way in which the MBBA bonds are sold.

Fiscal implications

This bill would have no cost to the State. MBBA Recovery Act bonds would not be a debt of the State, and would be secured by municipalities' debt service payments on their local ARRA bonds or, in the event of municipal default, by the intercept of State aid and/or municipal tax revenues.

Municipalities participating in a pooled local ARRA bond issue through MBBA would be able to issue debt at a lower cost than otherwise possible. For the purposes of this bill, local ARRA bonds would include two types of taxable bonds: Build America Bonds and Recovery Zone Economic Development Bonds. These bonds, which municipalities may issue only in 2009 and 2010, offer federal interest subsidies of 35 percent and 45 percent, respectively. Build America Bonds are not subject to a volume cap, and the authority to issue such bonds is granted to any municipality. Recovery Zone bonds are subject to a volume cap, and the authority to issue such bonds is allocated among counties and large municipalities. The U.S. Treasury Department has allocated over $370 million to New York for Recovery Zone Economic Development Bonds. The net interest rate on such taxable bonds, after factoring in the subsidy, is currently lower than the interest rate on comparable tax-exempt bonds. However, since the taxable bond market prefers bond issues of at least $100 million, receiving the lowest possible rate on the ARM bonds in effect requires multiple municipalities to participate in a pooled issue.

Effective date

This bill will take effect immediately.