Relates to the special powers of the environmental facilities corporation

Summary of provisions

Section 1 of the bill would amend Public Authorities Law ("PAL") 1285-j(6) to: (i) reduce the ratings requirement associated with EFC's authorization to invest moneys within the CWSRF in obligations of various New York State entities delineated in GML § 10(1)(f) (iv); and (ii) permit EFC to invest CWSRF moneys in obligations of any agency, instrumentality or governmental entity of another state rated in one of the two highest rating categories by at least one nationally recognized rating agency.

Section 2 of the bill would amend PAL § 1285-m(6) in a similar manner as with the CWSRF to: (i) reduce the ratings requirement associated with EFC's authorization to invest moneys within the DWSRF in obligations of various New York State entities delineated in GML 10(1)(f)(iv),;and (ii) permit EFC to invest DWSRF moneys in obligations of any agency, instrumentality or governmental entity of another state rated in one of the two highest rating categories by at least one nationally recognized rating agency.

Section 3 of the bill provides the effective date.

Existing law

PAL §§ 1285-j(6) and 1285-m(6) authorize EFC to invest moneys from the CWSRF and the DWSRF-in obligations specifically identified in GML § 10 provided such obligations are rated by a nationally recognized rating agency in one of its two highest rating categories.

GML § 10(1)(f)(iv) provides that in exchange for the deposit of public funds, local governments may accept, as security, obligations issued or fully insured by New York State, those issued by municipal corporations, school districts and district corporations of New York State and those issued by any public benefit corporation which under a specific New York State statute may be accepted as security for deposit of public funds.

Prior legislative history

This is a new bill.

Statement in support

New York's State Revolving Funds ("SRFs") are the largest in the country with assets exceeding $13 billion. The SRFs are capitalized through federal grants, State matching funds, repayments from prior financings, proceeds from the issuance of bonds and investment income. The SRFs provide funding for municipalities and other eligible entities to construct clean water and drinking water infrastructure projects throughout the state. A substantial portion of

that funding is generated through the issuance by EFC of bonds. In addition, EFC places investments to support its bond issuances and to generate interest income. The purpose of these investments is to enhance bondholder security which preserves EFC's AAA credit ratings, and to generate interest income which subsidizes funding costs for EFC's borrowers.

EFC's investment portfolio exceeds $3 billion. Pursuant to PAL 1285-j(6) and 1285m(6), EFC is allowed to invest in obligations that are specifically identified in GML § 10 but with the additional requirement that all such investments must be rated "AA" by at least one nationally recognized rating agency. By contrast, GML § 10, which applies to all bcal governments in the State, does not impose the universal "AA" rating requirement on investments by local government entities. Indeed, with respect to the provision at issue in the bill -- GML § 10(1)(f)(iv) there is no ratings requirement imposed upon municipalities.

The bill would amend PAL §§ 1285-j(6) and 1285-m(6) to reduce to "A" the rating standard applicable to obligations delineated in G'ML 10(1)(f) (iv) for purposes of CWSRF and DWSRF investments: obligations issued or fully insured or guaranteed by New York State, those issued by municipal corporations, school districts and district corporations of New York State, and those issued by any public benefit corporation which under a specific New York State statute may be accepted as security for deposit of public moneys. Reducing the rating in this manner would allow EFC to invest in, and earn additional investment income from a more diverse array of New York State entities. Diversity is a positive attribute in an investment portfolio. The reduced rating requirement comes with manageable risk given EFC's experience and competence in assessing the creditworthiness of governmental entities in the State,

In addition, this legislation adds a new paragraph (d) to PAL 1285-j(6) and 1285-m(6) permitting EFC to invest CWSRF and DWSRF moneys in obligations of any agency, instrumentality or governmental entity of another state rated in one of the two highest rating categories by at least one nationally recognized rating agency. This provision would broaden the scope of eligible investment securities particularly by allowing EFC to invest in revenue bonds of out-of-state issuers meeting the stated ratings criteria. These issuers are increasingly issuing revenue bonds and notes to finance projects that historically have been undertaken by the issuance of general obligation bonds by state or local governments. Revenue bonds are more plentiful than general obligation bonds, and in the case of "essential service" bonds (such as water and sewer bonds) and other dedicated-tax bonds, offer more yield without taking on significant additional risk. As with the revenue bonds issued by EFC, many other issuers of revenue bonds provide enhanced opportunities for investors, often at higher rates of return or with other favorable terms. Retaining the higher rating standard for this class of securities further protects the investment portfolio from additional risk of out-of-state investment.

By allowing CWSRF and DWSRF assets to be invested in these obligations as discussed above, the SRF programs (including the participating municipalities), will benefit from higher investment returns.

Budget implications

None.

Local impact

Increased earnings on CWSRF and DWSRF investments will benefit municipalities throughout the state by making more capital available to finance critical environmental infrastructure projects.

Effective date

This act shall take effect immediately; provided, however that the amendments to subdivision 6 of section 1285-j and subdivision 6 of section 1285-m of the public authorities law made by sections one and two of this act shall not affect the expiration and reversion of such subdivisions and shall expire and be deemed repealed therewith; provided further that nothing contained in this act shall be construed so as to extend the provisions of this act beyond September. 30, 2017, when upon such date this act shall expire and the provisions contained herein shall be deemed repealed.