Enacts the "city of Newburgh fiscal recovery act" to authorize such city to issue bonds to liquidate certain deficits, and impose certain budgetary requirements

Summary of provisions

Section 1 of the bill would set forth the short title of the act as the City of Newburgh Fiscal Recovery Act ("NFEA").

Section 2 of the bill would set forth legislative findings.

Section 3 of the bill would establish the supremacy of the NFRA relative to any inconsistent general, special or local law.

Section 4 of the bill would set forth definitions for the NFRA.

Section 5 of the bill would authorize the City to issue bonds on or before December 31, 2011 in an aggregate principal amount not to exceed $15,000,000, for the purpose of liquidating actual deficits in its General Fund, Special Revenue Fund, and Capital Projects Fund existing at the close of its 2010 fiscal year.

Section 6 of the bill would provide that the financing of the deficits described in section 5 of the bill is a purpose of the City for which indebtedness may be incurred, the period of probable usefulness of which would be fixed at 15 years.

Section 7 of the bill would provide that no deficit bonds may be issued unless and until the State Comptroller has first reviewed and confirmed the existence of the deficits described in section 5 of the bill and certified the amount of such deficits.

Section 8 of the bill would provide that deficit bonds may not be issued in an amount exceeding the amount of the deficits certified by the State Comptroller pursuant to section 7 of the bill. Any amount of deficit notes issued in excess of the certified deficit amount would need to be either redeemed or deposited in the Special Debt Service Fund established in section 15 of the bill.

Section 9 of the bill would require the City Comptroller to prepare quarterly reports comparing budgeted revenues and expenditures to actual revenues and expenditures, along with a trial balance of general ledger accounts. Each report would also include actions recommended by the City Manager to resolve any unfavorable budget variance.

Section 10 of the bill would require the State Comptroller to examine the City's proposed budget and make recommendations thereon to the City prior to the adoption of the budget. The City Council would be required to make adjustments to the proposed budget consistent with any such recommendations.

Section 11 of the bill would require the City Manager to prepare, along with the proposed budget, a 3-year financial plan covering the next succeeding fiscal year and the two fiscal years thereafter, which would at a minimum contain: projected employment levels; projected annual expenditures; reserve fund amounts; estimated annual revenues; and the proposed use of onetime revenue sources. In addition, the financial plan would identify actions necessary to achieve and maintain long-term fiscal stability, including, but not limited to, improved management practices, initiatives to minimize or reduce operating expenses, and potential shared services agreements with other municipalities. The City Manager would be required to update the financial plan consistent with the adopted budget and quarterly budget reports.

Section 12 of the bill would require the City Comptroller to notify the State Comptroller at least 15 days prior to the issuance of any bonds or notes or entering into any installment purchase contract, and the State Comptroller may review and make recommendations regarding the affordability to the City of any such proposed issuance Or contract.

Section 13 of the bill would authorize the private sale of deficit bonds, any refunding of such deficit bonds, and any other bonds issued by the City on or before December 31, 2012, subject to the approval of the State Comptroller of the terms and conditions of such sales.

Section 14 of the bill would require all proceedings in connection with the issuance of such deficit bonds or deficit notes to be taken in accordance with the provisions of the Local Finance Law ("LFL"); provided, however, that the City's bond resolutions would not be subject to (i) any mandatory or permissive referendum, (ii) LFL

§ 107.00 with respect to any requirements for a down payment, and (iii) the provisions applicable to municipalities authorized to incur debt to liquidate operating deficits under LFL § 10.10.

Section 15 of the bill would require the City, upon the issuance of any deficit bonds or deficit notes, to establish a Special Debt Service Fund with the State Comptroller for the purpose of paying City debt service due or becoming due in subsequent fiscal years. The State Comptroller would be authorized to deposit State aid payable to the City and a portion of the City's property tax collections in the Special Debt Service Fund as necessary to ensure sufficient moneys are available to make scheduled debt service payments over the succeeding twelve month period after accounting for the City's receipt of taxes and State aid during such period. As soon as practicable thereafter, the State Comptroller would be required to pay over to the City any remaining amounts of State aid and City property taxes that are not needed to reserve for debt service.

Section 16 of the bill would set forth the State's pledge to the holders of any bonds, notes or other obligations issued by the City during the effective period of the NFRA that the State will not limit, alter or impair the rights vested in the City to fulfill the terms of any agreements made with bondholders pursuant to the NFRA, and would clarify that nothing contained in the NFRA would obligate the state to make any payments or impose any taxes to satisfy the debt service obligations of the City or restrict any right of the State to amend, modify, repeal or otherwise alter LFL § 54 or any other provision relating to state aid, taxes or fees.

Section 17 of the bill would set forth the rights of bondholders and the State Comptroller to commence an action in Orange County Supreme Court if the City fails to comply with any provision of this bill.

Section 18 of the bill would set forth a severability clause.

Section 19 of the bill would make it effective immediately, and the NFRA would remain in effect for a 15-year period following the first issuance of deficit bonds or deficit notes pursuant to the NFRA.

Prior legislative history

None.

Existing law

LFL § 10.10 sets forth the uniform deficit financing process for municipalities and school districts that are authorized by a special or general law to incur debt to liquidate operating deficits.

Statement in support

The fiscal condition of the City of Newburgh has severely deteriorated in recent years as a result of serious local economic and demographic challenges, the City's inability to ensure proper financial accounting procedures, improvident budgeting and taxing practices, and significant turnover in positions responsible for the management of city finances. These factors have led to a substantial structural imbalance between revenues and expenditures;with a projected cumulative deficit of approximately one-quarter of the City's budgeted revenues. The ability of the City to regain fiscal stability is impaired by a recent decline in the City's tax base and continuing weakness in the local economy. These circumstances have caused an independent bond rating service to lower the City's bond rating below investment grade, thereby making the City's ability to access the credit market uncertain.

The combination of actions authorized in this Act is necessary to help the City return to fiscal and economic stability and improve its ability to market bonds. The bill would require enhanced budgetary discipline and stronger oversight of City finances by the State, establish a State-managed debt service fund to ensure required payments to bondholders, and authorize short-term budgetary relief with deficit financing to mitigate the impact on essential City services and property taxes as the City seeks to regain fiscal stability.

Budget implications

The State Comptroller's administrative responsibilities under this Act could be accomplished within existing resources. By authorizing the City to issue deficit bonds, this bill would help the City to restore its fund balance without drastic reductions in essential services and unsustainable increases in City property taxes. The bill's enhanced fiscal oversight of the City and Special Debt Service Fund would improve the City's ability to market future bond and note issues at a lower cost.

Effective date

This bill would take effect immediately. The NFRA would remain in effect for a 15-year period following the date of first issuance of deficit bonds or deficit notes pursuant to the NFRA.