BILL NUMBER: S273
SPONSOR: MARTINEZ
 
TITLE OF BILL:
An act to amend the local finance law, in relation to installments of
certain bonds; and to repeal certain provisions of such law relating
thereto
 
PURPOSE:
This legislation would make the issuance of bonds by local governments,
which have been repeatedly extended over more than twenty years, perma-
nent. It would also provide that principal installments remaining unpaid
on bonds may be called for redemption prior to their date of maturity
according to the conditions determined by the finance board of a munici-
pality, school district or district corporation at the time of issuance.
Finally, this new bill would permanently eliminate the requirement that
municipalities provide an amount equal to at least 5% of the estimated
cost of each capital improvement prior to the issuance of bonds or
anticipation notes used to finance such capital project.
 
SUMMARY OF PROVISIONS:
Section 1. Amends section 21(b) of the local finance law to permanently
require that the first installment of serial bonds mature not later than
two years after the date of such bonds.
Section 2. Amends section 53(b) of the local finance law permanently and
provides provide that principal installments remaining unpaid on bonds
may be called for redemption prior to their date of maturity in such
amounts, at such times in such manner and pursuant to such terms as
maybe determined by the finance board of a municipality, school district
or district corporation at the time of issuance.
Section 3. Repeals section 107 of the local finance law, which requires
municipalities to provide from current funds an amount equal to at least
5% of the estimated cost of each capital improvement before issuing
indebtedness to finance a given project.
Section 4. is the enacting clause
 
JUSTIFICATION:
1. Amending Section 21.00 b of the NYS Local Finance Law Municipalities
and school districts ("issuers") are required under the New York State
Constitution (Article 8, sec. 2) to pay their indebtedness in annual
installments, the first of which (except for refunding) shall be paid
not more than two years after initial issuance. Section 21.00 b. of the
Local Finance Law ("LFL") formerly was more restrictive, requiring the
first installment of serial bonds to mature not later than eighteen
months after the date of such bonds, however for the last twenty years
the State Legislature has repeatedly amended Section 21.00 b. to substi-
tute two years for the eighteen months and keep the statute consistent
with the constitutional requirement.
Such amendments only provided this flexibility for finite periods of
time, usually from one to three years, presumably to track market condi-
tions for so long as investors did not impose any additional cost on
issuers which incorporated such flexibility in the structuring of prin-
cipal repayment of their bonds. Sunset provisions terminating this flex-
ibility have been routinely included in each successive amendment to
Section 21.00 b., and such flexibility has been routinely and repeatedly
extended for the last twenty years. Meanwhile, the capital markets have
accepted this two-year limit as routine with no market penalties and
issuers routinely structure their bond issues accordingly.
2. Amending Section 53.00 of the NYS Local Finance Law it is common
practice when issuers structure their borrowing through the issuance of
bonds to incorporate an option to redeem such bonds prior to their sche-
duled maturity dates, thus facilitating cost-efficient refinancing or
"refunding" of bonds when lower interest rates prevail in the capital
markets after original issuance of such bonds.
The early redemption date is known as the "call" date of the bonds, and
the refunding is accomplished by giving required notice to the holders
of the bonds that the issuer intends to refund them on the call date by
structuring and issuing refunding bonds at lower interest rates to fund
the payment of outstanding principal and accrued interest due and paya-
ble on the original bonds.
Section 53.00 of the LFL authorizes issuers to incorporate such call
features in their bonds and specifies the process for giving the
required notice and certain parameters for redemption of bonds prior to
their scheduled maturities. For bonds issued prior to July 1, 1988 the
provisions of section 53.00 reflected then prevailing market require-
ments that outstanding principal installments on bonds could only be
called (i) in the inverse order of their maturity or, (ii) in equal
proportionate amounts.
As capital markets evolved, investors became comfortable purchasing
bonds which allowed more flexibility in the call features. Starting in
1988, the State Legislature has repeatedly amended Section 53.00 to
provide that "installments remaining unpaid on such bonds may be called
for redemption prior to their date of maturity in such amounts, at such
times in such manner and pursuant to such terms as may be determined by
the finance board of a municipality, school district or district corpo-
ration at the time of the issuance thereof." Such amendments only
provided this flexibility for finite periods of time, usually from one
to three years, presumably to track market conditions for so long as
investors did not impose any additional cost on issuers which incorpo-
rated such flexibility in the call features of their bonds.
Sunset provisions terminating this flexibility have been routinely
included in each successive amendment to Section 53.00 since 1988, and
such flexibility has been routinely and repeatedly extended for the last
thirty years. Since bond issues come to market throughout the year
including during the periods after state legislation has passed both
houses of the State Legislature and awaits approval by the Governor,
there are periods when issuers and their advisors cannot be sure that
pending bond issues with flexible call features can be marketed and
closed unless and until the Governor's approval is finalized.
3. Amending Section 107.00 of the NYS Local Finance Law Section 107.00
for required municipalities to provide from current funds an amount
equal to at least 5% of the estimated cost of each capital improvement
(excluding from such cost state or federal grant funding and certain
benefited area assessments) prior to the issuance of bonds or bond
anticipation notes to finance such capital improvement. However, for
the last twenty years the State Legislature has repeatedly amended
Section 107.00 to suspend this requirement. Sunset provisions terminat-
ing this suspension have been routinely included in each successive
amendment to Section 107.00 and such suspension has been routinely and
repeatedly extended for the last twenty years while municipalities have
grown accustomed to operating their capital project financing programs
without having to provide such 5% of current funds.
 
FISCAL IMPLICATIONS:
None
 
EFFECTIVE DATE:
This act shall take effect immediately.

Statutes affected:
S273: 21.00 local finance law, 53.00 local finance law, 107.00 local finance law