BALLOON INDEBTEDNESS On and after July 1, 2014, if any local government or local government instrumentality proposes to issue balloon indebtedness, present law requires the local government or local government instrumentality to first obtain approval from the comptroller of the treasury in accordance with the Local Government Public Obligations Act of 1986. "Balloon indebtedness" means indebtedness that (i) has a final term to maturity totaling 31 or more years from the original date of issuance of the indebtedness to the date the indebtedness is fully amortized, including any subsequent refinancing; (ii) delays principal repayment for more than three years after the date of issuance; (iii) capitalizes interest beyond the later of the construction period or three years from the date of issuance; or (iv) does not have substantially level or declining debt service. The term excludes a number of scenarios, including indebtedness that is evidenced by a loan with either the United States department of agriculture or the United States department of housing and urban development. This bill rewrites this exemption to broaden it to include indebtedness that is evidenced by a loan with either this state or a department or agency of the federal government. LOCAL GOVERNMENT Solely for purposes of balloon indebtedness, present law authorizes a local government to account for the amortization of principal and the payment of debt service on a fiscal year basis, a calendar year basis, or an annual basis commencing on the date upon which debt is issued. Prior to the adoption by the local government or local government instrumentality of any action authorizing the issuance of balloon indebtedness, the local government or local government instrumentality must submit a plan of balloon indebtedness to the comptroller of the treasury or the comptroller's designee for approval. For purposes of the provisions above, present law defines a "local government" as an incorporated city or town, metropolitan government, county, or utility district. This bill adds a water, wastewater, or energy authority to the list. TREATMENT OF PRINCIPAL OF DEBT Present law provides that the principal of debt will be treated as being payable or amortized (i) upon its stated maturity, (ii) upon any mandatory redemption date, and (iii) upon any date on which the holder of the debt has the option to require the debt to be prepaid, redeemed, or purchased, other than with the proceeds of a liquidity facility provided by a third party. This bill revises this provision to remove such principal from being payable or amortized according to (iii). PROCESS FOR HEIGHTENED RISK DEBT Prior to issuing a debt obligation containing (i) a variable interest rate or rates; (ii) an interest rate reset provision where the interest rate can be changed at certain intervals during the life of the debt; or (iii) a put option where the holder of the debt has the ability to force repayment before the final maturity date of the debt ("heightened risk debt"), this bill requires a local government to submit a request to the comptroller of the treasury or the comptroller's designee for approval. This bill authorizes the comptroller or the comptroller's designee to request additional information as may be required to properly review the request. Under this bill, the comptroller or the comptroller's designee must evaluate each request based on the local government's particular circumstances and must approve the request only if a determination is made that the debt terms are in the public's interest. This bill requires the comptroller or the comptroller's designee to report the comptroller's approval or disapproval of the request to the governing body of the local government within 15 business days after receipt of the request and all requested supplemental documentation. After receiving the approval of the comptroller or the comptroller's designee of the request, or, after the expiration of 15 business days from the date the request and all supplemental documentation are received by the comptroller or the comptroller's designee and no disapproval having been reported by the comptroller or the comptroller's designee, whichever date is earlier, the local government may take such action with reference to the proposed request as it deems advisable in accordance with this bill. This bill clarifies that the provisions under this heading do not apply to loans or interim certificates with or purchased by either this state or a department or agency of the federal government.

Statutes affected:
Introduced: 9-21-133(a)(1)(B), 9-21-133, 9-21-133(a)(3), 9-21-133(b)