Relates to the special powers of the New York state environmental facilities corporation

Section 2 of the bill would amend PAL § 1285-j(6) to add a new paragraph (c) permitting EFC to invest CWSRF moneys in obligations issued or fully guaranteed by Multilateral Development Banks; to add a new paragraph (d) permitting EFC to invest CWSRF moneys in obligations which have been refunded prior to maturity and are payable from defeasance securities which meet the requirements of subsections (a), (b) or (c) of that subdivision; to add a new paragraph (e) permitting EFC to invest CWSRF moneys in obligations of out-of-state governmental entities; and to add a new paragraph (f) permitting EFC to invest CWSRF moneys in obligations of out-of-state not-for-profit organizations.

Section 2-a of the bill would make the same amendments as Section 2 to be effective upon the reversion of PAL § 1285-j(6) as provided in section 3 of chapter 307 of the laws of 2005, as amended.

Section 3 of the bill would amend PAL § 1285-m(6) to add a new paragraph (c) permitting EFC to invest DWSRF moneys in obligations issued or fully guaranteed by Multilateral Development Banks; to add a new paragraph (d) permitting EFC to invest DWSRF moneys in obligations which have been refunded prior to maturity and are payable from defeasance securities which meet the requirements of subsections (a), (b) or (c) of that section; to add a new paragraph (e) permitting EFC to invest DWSRF moneys in obligations of out-of-state governmental entities; and to add a new paragraph (f) permitting EFC to invest DWSRF moneys in obligations of out-of-state not-for-profit organizations.

Section 3-a of the bill would make the same amendments as Section 3 to be effective upon the reversion of PAL § 1285-m(6) as provided in section 3 of chapter 307 of the laws of 2005, as amended.

Existing law

Currently, PAL §§ 1285-j and 1285-m permit EFC to invest CWSRF and DWSRF moneys (a) in investment agreements continuously secured by obligations with any insurance or reinsurance company or corporate affiliate thereof rated by a nationally recognized rating agency in one of its two highest categories, any bank, trust company or broker or dealer, as defined by the securities exchange act of 1934, which is a dealer in government bonds, which reports to, trades with and is recognized as a primary dealer by a federal reserve bank and is a member of the securities investors protection corporation, if, (i) such obligations securing such investment agreements are obligations as set forth in General Municipal Law ("GML") § 10, (ii) such obligations are delivered to a trustee for the benefit of the corporation or, with respect to moneys pledged under an indenture of trust relating to bonds or notes of the corporation, to the trustee under such indenture, or are supported by a safe keeping receipt issued by a depository satisfactory to the corporation as applicable, provided that such investment agreements must provide that the value of the underlying obligations shall be maintained at a current market value, calculated no less frequently than monthly, of not less than the amount deposited thereunder, (iii) a prior perfected security interest in the obligations which are securing such agreement has been granted to the corporation, as applicable, and (iv) such obligations are free and clear of adverse third party claims, or (b) in obligations as set forth in GML § 10 that are rated by a nationally recognized rating agency in one of its two highest rating categories.

Prior legislative history

This is a new bill.

Statement in support

Over the past decade, the Legislature has assisted EFC in expanding its investment authorization, in particular with regard to the collateral eligible to secure public deposits. (See Chapter 413 of the Laws of 1996, Chapter 327 of the Laws of 1998, Chapter 121 of the Laws of 2000 and Chapter 307 of the Laws of 2005, all of which expanded the scope of eligible investment providers). Most recently, Chapter 307 of the Laws of 2005 (as extended by Chapter 214 of the Laws of 2008), permitted EFC to directly invest in any security obligation permitted under the GML. Each of these statutory amendments reduced the risk to participating municipalities that interest subsidies would fall short of targets by expanding the universe of eligible providers and eligible collateral. The proposed amendment would further reduce this risk and, in addition, would directly boost the prospect for increased annualized program earnings and enhance the scope of eligible investment providers. Program earnings are immediately available to support additional projects. The continuing high demand for financing from EFC by municipalities underscores the need to prudently increase and diversify program earnings to support the future project needs of New York's municipalities.

This legislation would allow EFC to invest SRF funds in certain obligations which have been refunded prior to maturity and are payable from certain defeasance securities ("Pre-refunded Obligations") held in escrow until maturity of the refunded obligations. These obligations, absent a refunding, would not be eligible under the current statutory framework. However, upon refunding such obligations, if payable from escrow defeasance securities that are otherwise eligible under PAL §§ 1285-j and 1285-m, such obligations may offer an opportunity for greater returns and enhanced ratings and security than would be available from a direct investment in the escrow defeasance securities.

In addition, this legislation would allow EFC to invest in certain obligations issued by or fully guaranteed by Multilateral Development Banks and certain obligations issued by out-of-state governmental entities and not-for-profit organizations. Eroding market conditions and declining ratings of previously qualified insurers, banks or broker dealers have combined to significantly diminish the traditional Guaranteed Investment Contract ("GIC") market. Due to the lack of qualified GIC providers, it is currently not possible for EFC to successfully bid and place GICs which have traditionally provided security for EFC's leveraged financings, and investment earnings to subsidize the interest cost associated with the underlying municipal project financings. As a result, EFC may have to use program equity to meet its subsidy obligations to its municipal borrowers. This scenario would erode EFC's ability to fund additional SRF projects. However, certain international institutions and out-of-state governmental entities could provide an alternate source for reserve investments at excellent credit ratings levels, given the broad-based sovereign support inherent in these institutions. Multilateral Development Banks and out-of-state governmental entities have active structured debt programs. Similar to Multilateral Development Banks and out-of-state governmental entities, certain out-of-state not-for-profit organizations could provide an alternate source of reserve fund investments at excellent credit ratings levels. These institutions operate stable business models and will add to the pool of eligible investment providers thereby reducing the risk that EFC is unable to secure investments at rates needed to meet subsidy obligations to SRF program borrowers.

By allowing CWSRF and DWSRF assets to be invested in these obligations, the SRF programs and participating municipalities would benefit from higher investment returns without diminishing investment credit quality.

Budget implications

None.

Effective date

This bill would take effect immediately; provided, however, that (a) the amendments to PAL § 1285-j(6) made by section 2 of the bill would not affect the expiration of such subdivision and shall be deemed to expire therewith; (b) the amendments to PAL § 1285-m(6) made by section 3 of the bill would not affect the expiration of such subdivision and shall be deemed to expire therewith; (c) section 2-a of the bill would take effect on the same date as the reversion of PAL § 1285-j(6) as provided in section 3 of chapter 307 of the laws of2005, as amended; and (d) section 3-a of the bill would take effect on the same date as the reversion of PAL § 1285-m(6) as provided in section 3 of chapter 307 of the laws of2005, as amended.