BILL NUMBER: S5055
SPONSOR: PARKER
 
TITLE OF BILL:
An act in relation to alternative finance investment bonds
 
PURPOSE:
To direct the chair of the Urban Development Corporation in conjunction
with the chair of the Dormitory Authority, director of Budget, super-
intendent of Financial Services, and the Commissioner of Tax and Finance
to create an investment vehicle known as an Alternative Finance Invest-
ment Bond.
 
SUMMARY OF PROVISIONS:
Section 1 sets forth the legislative findings.
Section 2 defines the Alternative Finance Investment Bond (AFIB) and
directs the chair of the Urban Development Corporation (UDC) to create
the AFIB. This section also requires the UDC, in consultation with the
state Comptroller and Attorney General, to issue regulations for the
Alternative Finance Investment Bond. Finally, the chair of the UDC must
also submit a report within 90 days of passage, on the potential foreign
and domestic market for this investment vehicle.
Section 3 establishes the effective date.
 
JUSTIFICATION:
According to a 2008 report by the Partnership for New York (PNY) titled,
Foreign Direct Investment: Bringing the Benefits of Globalization Back
Home, one in twenty jobs in New York City alone is attributed to the $58
billion in foreign direct investment (FDI) received in New York City. By
comparison, London eclipses New York City with over $104 billion in
foreign direct investment. New York ranks third among the United States'
large states with regards to FDI, lagging considerably behind Texas and
California. The U.S. Census Bureau reports that for the year 2007 Texas
attracted $119 billion in foreign direct investment, California $110
billion, and New York a mere $62 billion. In order to create jobs and
increase New York's competitiveness, more investment and financing
options must be brought to the state.
The way to attract more FDI and new intra-state capital flows is to
create new forms of investment opportunities throughout the state. In
the past decade, nations from the Persian Gulf, South East Asia, and
other emerging markets have experienced tremendous growth. Investors
from these countries are seeking investment opportunities abroad that
comport with their religious beliefs as Muslims, namely a prohibition on
interest. This precludes them from using conventional debt instruments
such as bonds. These investors use sukuk, also referred to as Alterna-
tive Finance Investment Bonds. This financing vehicle permits assets to
be held for the benefit of investors in certificates issued by an enti-
ty. These benefits may include payment of a return that is economically
equivalent to interest an d redemption of the certificates out of the
process from the disposal of the asset.
In a traditional AFIB arrangement, the issuer uses the subscription
proceeds of the bond to acquire the assets, which are then held for the
benefit of the holder of the AFIB. The income earned from the assets is
shared with the bond holder. Upon the maturity of the AFIB, the assets
are sold under a preexisting arrangement and the proceeds are returned
to the holder of the certificates. The New York Times reported in late
2010 that the global demand for sukuk has grown into a $100 billion
market in the past decade.
General Electric became the first U.S. company to utilize this vehicle
in 2009 by issuing a $500 million sukuk to finance the leasing of
aircraft and is in the process of issuing another. Nations such as
England, France, South Africa, and Australia are all in the process of
changing their laws to treat these investment vehicles equal to tradi-
tional bonds. In fact, France is expected to issue its first sukuk in
2011.
In addition to the potential for job growth and development, permitting
the state and private entities to issue Alternative Finance Investment
Bonds would permit communities that do not engage in interest based
transactions, the opportunity to benefit from capital financing facili-
tated by the state for the construction of education and health care
facilities as well as increase the market for those who wish to purchase
the State's debt instruments. The use of AFIBs will permit all communi-
ties in New York to take advantage of state financing and potentially
lower the cost of borrowing.
 
LEGISLATIVE HISTORY:
2021-22: S.5046 - Passed Senate
2019-20: S.4745 - Referred to Banks
2017-18: S.3637 - REFERRED TO BANKS
2015-16: S.1562 - Referred to Banks
2013-14: S.1607 - Referred to Banks
2011-12: S.2792/A.5836 - Referred to Banks
 
FISCAL IMPLICATION:
There will be no cost to the State of New York, but there will be a
potential for large amounts of new investment capital to be made avail-
able to the State and citizens.
 
EFFECTIVE DATE:
Immediately.