Extends effectiveness of provisions relating to statutory installment bonds

Summary of provisions

Section 1 of the bill would extend the "sunset" provisions of Chapter 581 of the laws of 2005 through September 30, 2014, thereby continuing the authority of local governments to issue statutory installment bonds in an amount not to exceed twenty million dollars to the New York State Environmental Facilities Corporation ("EFC") at a fixed rate or, if issued in serial maturities, at a set rate for each individual maturity.

Section 2 of the bill would provide an immediate effective date.

Existing law

A bond provides written evidence of an issuer's obligation to repay a specified principal amount on a dale certain together with interest at a stated rate. Under the LFL, municipalities and public benefit corporation borrowers may issue and sell serial bonds to EFC. A separate bond is issued for each year's maturity and each bond indicates the principal and interest amount due on maturity.

LFL § 62.10 allows municipalities to issue a single statutory installment bond for the full principal amount, not to exceed one million dollars, if the issue is sold at private sale. Statutory installment bonds issued and sold to the United States of America or any agency thereof may exceed the one million dollar principal limitation.

LFL § 62.10(b) further provides the substantive terms and form the installment bond is to utilize. This form reflects, among other things, bonds of fixed annual installments of principal and interest.

LFL § 62.10(c) allows municipalities to issue a single statutory installment bond for the full principal amount, not to exceed twenty million dollars, to EFC at a fixed rate

or, if issued in serial maturities, at a set rate for each individual maturity. This provision will be deemed repealed as of September 30, 2011.

Prior legislative history

Chapter 581 of the Laws of 2005, which would have expired September 30, 2008, was extended through September 30, 2011 by Chapter 213 of the Laws of 2008.

Statement in support

EFC serves to promote environmental quality by providing low cost capital and expert technical assistance to municipalities, businesses and State agencies for environmental projects in New York State. In this role, EFC administers the Clean Water State Revolving Fund (CWSRF) and Drinking Water State Revolving Fund (DWSRF). Under these revolving fund programs, EFC offers both leveraged and direct loans.

As of September 30, 2010, EFC has issued approximately $13.1 billion in State Revolving Fund Bonds under the CWSRF and DWSRF to fund loans to local governments and public benefit corporations.

Prior to 2005, in accordance with the LFL, a borrower receiving an EFC financing issued serial bonds to EFC for each maturity. For a 20-year financing, EFC would receive 20 separate bonds from the community. The issuance of serial bonds has caused EFC, and those providing Trustee services, excessive servicing cost and substantial time in handling and processing of multiple bonds. For example, for EFC pooled financings, EFC would receive at loan closing up to 20 separate bonds because most loans from the State Revolving Funds are for periods of twenty (20) years. For pooled financings, where 30 to 50 borrowers may participate at one time, this would require receiving 600 to 1000 separate individual bonds. This process has also resulted in unnecessary bonding costs to borrowing entities.

Serial bonds issued to EFC may reflect a different interest rate for each maturity. These interest rates, of course, reflect the pre-established annual percentage of principal payable for the use of borrowed funds for a particular maturity. This concept differs from the issuance of bonds with variable rates of interest pursuant to LFL § 54.90. Variable rate bonds under section 54.90 allow for the issuance of bonds with interest rates that are subject to adjustment pursuant to a rate formula, procedure or index, the computation of the variable rate being made upon the occurrence of a clearly delineated event.

A single debt instrument for financings at or less than twenty million dollars, such as a statutory installment bond, reduces the costs associated with printing, processing and storage. Reduced paper usage will also achieve environmental benefits, while also reducing the

chance of error associated with multiple printed bonds. This simplified approach also benefits borrowers in making the financing process more "user friendly" while enhancing the efficient preparation and execution of the bonds. Additional allowances for either a fixed or, if issued in serial maturities, at a set rate of interest for each individual maturity, will enable financing options more reflective of the budgetary realities of the borrowing entity.

Budget implications

The bill would have no impact on the State budget.

Effective date

The bill would take effect immediately.