Bill Summary – FastDemocracy

LEGISLATIVE SERVICES AGENCY
                OFFICE OF FISCAL AND MANAGEMENT ANALYSIS
                                      200 W. Washington St., Suite 301
                                           Indianapolis, IN 46204
                                               (317) 233-0696
                                                  iga.in.gov
                                 FISCAL IMPACT STATEMENT
LS 6768                                                              NOTE PREPARED: Mar 29, 2021
BILL NUMBER: SB 345                                                  BILL AMENDED: Mar 25, 2021
SUBJECT: Sale of Bonds at a Negotiated Sale.
FIRST AUTHOR: Sen. Bassler                                           BILL STATUS: As Passed House
FIRST SPONSOR: Rep. Lehman
FUNDS AFFECTED:               GENERAL                                IMPACT: Local
                              DEDICATED
                              FEDERAL
Summary of Legislation: The bill permits all counties, cities, towns, townships, and school corporations
to sell bonds at a negotiated sale. It requires the Department of Local Government Finance to post on its web
site information that explains the differences between a competitive public sale of bonds and a negotiated
sale of bonds.
Effective Date: July 1, 2021.
Explanation of State Expenditures:
Explanation of State Revenues:
Explanation of Local Expenditures: The bill removes the sunset and expands the use of negotiated sale
in the process of issuing certain bonds. To the extent that negotiated sale is used for offering bonds where
the public sale method does not provide the lowest financing cost, it would lower the cost for the local unit.
Use of negotiated sale in cases where a lower interest rate bid and fees could have been achieved by using
the competitive bids under public sale method would increase the financing cost for the local unit. Any fiscal
impact from the change is indeterminable.
Extending and expanding this option will allow the eligible political subdivisions to take advantage of this
alternative selling method. Most studies have suggested that competitive bidding used in public sale method
result in lower interest cost for the issuer. Others have suggested that negotiated sale enhances the financial-
management capacity of smaller governments. A negotiated sale could be also used to overcome the: (1)
weakness in credit rating, (2) short credit history, (3) large size of the issue, or (4) complexity of the issue.
SB 345                                                 1
Department of Local Government Finance (DLGF): The bill requires DLGF to post descriptions of
competitive public sale of bonds and a negotiated sale of bonds. The agency should be able to fulfill these
requirements within its current staffing and resource levels.
 Additional Information: Current law allows a consolidated city, a second class city, and a school corporation
located in a consolidated city or a second class city to use the method of negotiated sale in the process of
issuing certain bonds. The provision allowing this alternate method expires on July 1, 2021. The bill removes
the expiration date and expands the provision to include all counties, townships, cities, towns, and school
corporations.
Currently, political subdivisions other then those allowed to use the negotiated sale of bonds are required to
use the method of public sale for issuing bonds. A public sale requires an advertisement, a bidding process,
and the bonds being awarded to the bidder offering the lowest interest rate or cost of debt. The issuer with
the help of a financial advisor structures the offering and publishes a notice of sale. Underwriters and
investment syndicates review the offering, determine the interest rate they want to pay, and make a bid. The
bid with the lowest interest rate cost to the issuer is offered the bond. The bonds are then reoffered to the
investors.
In contrast, a negotiated sale is a transaction in which the terms of the bonds and the terms of the sale are
negotiated by the issuer and the bond purchaser. Generally, an issuer selects an underwriter to purchase the
bonds. The negotiations are conducted between the two parties. The structure, price, and maturity of the
offering is determined in the negotiations. Particularly, the interest rates are determined by the terms of the
agreement. The underwriter further sells the bonds to its customers.
Explanation of Local Revenues:
State Agencies Affected:
Local Agencies Affected: All local units of government.
Information Sources: Does It Make Any Difference Anymore? Competitive versus Negotiated Municipal
Bond Issuance, William Simonsen and Mark D. Robbins, Public Administration Review, 1996.
The Influence of Jurisdiction Size and Sale Type on Municipal Bond Interest Rates: An Empirical Analysis,
Bill Simonsen, Mark D. Robbins, Lee Helg, Public Administration Review, 2001.
Fiscal Analyst: Randhir Jha, 317-232-9556.
SB 345                                                2
Statutes affected: 
1. Introduced Senate Bill (S): 5-1-11-1, 5-1-11-6, 14-27-6-40, 20-48-1-4, 36-3-5-8, 36-7-18-31, 36-10-3-24, 36-10-8-16, 36-10-9-15, 36-10-10-20, 36-10-11-21
2. Senate Bill (S): 5-1-11-1, 5-1-11-6, 14-27-6-40, 20-48-1-4, 36-3-5-8, 36-7-18-31, 36-10-3-24, 36-10-8-16, 36-10-9-15, 36-10-10-20, 36-10-11-21
3. Senate Bill (H): 5-1-11-1, 5-1-11-6, 20-48-1-4, 36-3-5-8, 36-7-18-31, 36-10-3-24, 36-10-8-16, 36-10-9-15, 36-10-10-20, 36-10-11-21
4. Engrossed Senate Bill (H): 5-1-11-1, 5-1-11-6, 20-48-1-4, 36-3-5-8, 36-7-18-31, 36-10-3-24, 36-10-8-16, 36-10-9-15, 36-10-10-20, 36-10-11-21