SESSION OF 2021
SUPPLEMENTAL NOTE ON HOUSE SUBSTITUTE FOR
SENATE BILL NO. 88
As Recommended by House Committee on
Financial Institutions and Rural Development

Brief*
House Sub. for SB 88 would create the City Utility Low-
Interest Loan Program (Program), which would provide loans
to cities for extraordinary electric or natural gas costs incurred
during the extreme winter weather event of February 2021.
The total aggregate amount of loans issued under the
Program, which would be administered by the State
Treasurer, could not exceed $100.0 million of unencumbered
funds. The bill would also amend law governing the
investment of state moneys to add Program loans and
applicable interest rates.
The bill would be in effect upon publication in the
Kansas Register.

City Utility Low-Interest Loan Program (New Section 1)
The bill would designate its provisions and amendments
thereto as the Program. The Program would be part of and
supplemental to Article 42 of Chapter 75 of the Kansas
Statutes Annotated (Article 42 pertains to state moneys,
including the investment of state moneys, activities of the
Pooled Money Investment Board (PMIB), and the
administration of certain loan deposit programs).

____________________
*Supplemental notes are prepared by the Legislative Research
Department and do not express legislative intent. The supplemental
note and fiscal note for this bill may be accessed on the Internet at
http://www.kslegislature.org
Program Definitions (New Section 2)
The bill would establish definitions for terms including:
● “City” would mean a city organized and existing
under the laws of Kansas; and
● “Loan” would mean a deposit of unencumbered
state funds to a city pursuant to the Program.
The bill would also define the terms “director of
investments” and “program.”

Program Administration; Report and Legislative Review
(New Section 3)
The bill would authorize the State Treasurer to
administer the Program. The bill would state the Program’s
purpose would be for providing loans to cities for
extraordinary electric or natural gas costs incurred during the
extreme winter weather event of February 2021. The bill
would restrict the total amount of loans under the Program to
an amount not to exceed $100.0 million of unencumbered
funds pursuant to Article 42 of Chapter 75, Kansas Statutes
Annotated.
The State Treasurer would be required to adopt all rules
and regulations necessary to administer the Program,
including the development of a streamlined application
process. The bill would provide that rules and regulations
must be adopted no later than January 1, 2022, except the
streamlined application process must be established within
14 days from the effective date of the act (Kansas Register
publication). The bill would further specify the adoption of
such rules and regulations would not be a prerequisite for the
approval of Program loans by the State Treasurer. The bill
would state the State Treasurer shall approve loans under the
Program in the most expeditious manner possible on or after
the effective date of this act.

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 The State Treasurer would be required to submit an
annual report to the Governor and Legislature identifying the
cities participating in the Program. The report would be
required to provide the aggregate amount of moneys loans
and the amount of moneys available for loan. The report
would be due on or before January 1, 2022, and each
January 1 thereafter. The Legislature would be required to
perform of a review of the Program as part of the State
Treasurer’s annual report on or after January 1, 2024.

Program Loan Applications (New Section 4)
The bill would authorize the State Treasurer to
disseminate information and to provide loan applications as
soon as practicable on or after the effective date of this act to
cities for Program participation.
A city would be required to forward an application to the
State Treasurer in a form and manner prescribed by the State
Treasurer. The application would be required to:
● Include information regarding the amount of the
loan requested by the city and such information the
State Treasurer may require, including but not
limited to, the specific fund or account of the city in
which loan proceeds would be deposited; and
● Contain a certification by the governing body of the
city that, if the city receives any federal moneys
related to the extreme winter weather event of
February 2021, the first priority for expenditure of
such moneys would be for the payment of any
outstanding balance of a loan made to the city
under the Program.
The bill would further specify a Program loan could be
only for those extraordinary electric or natural gas costs
incurred during the extreme weather event of February 2021,

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as certified by the city’s governing body, and not for any other
utility costs previously budgeted for by the city.
The bill would also provide that no loan could be
amortized for a period of more than ten years. Payments on
such loan would not be required to be more frequently than
annually but could be made more frequently upon agreement
between the city and State Treasurer.

Certification of Program Loans; Interest Rate (New
Section 5)
The bill would authorize the State Treasurer to accept or
reject an application based on the State Treasurer’s
evaluation of whether the city meets the Program
requirements. If sufficient funds are not available for a
Program loan, the applications may be considered in the
order received when funds become available.
Upon the acceptance of an application, the bill would
require the State Treasurer to certify to the Director of
Investments the amount required for the loan and the Director
would place a deposit of this certified amount in the specific
fund or account of the city indicated in the loan application
and approved by the State Treasurer.
The bill would provide the interest rate on a loan must
be 2.0 percent below the market rate provided in KSA 75-
4237 (a floating rate). The bill would require such rate to be
recalculated on the first business day of January each year
using the market rate then in effect. The bill would further
specify the minimum interest rate (or floor) would be 0.25
percent if the market rate is below 2.25 percent. When
necessary, the bill would provide the State Treasurer may
request the Director of Investments to place such deposit with
the city prior to approval of an application.
The bill would require all moneys received by the State
Treasurer from cities for payments of the Program loans to be
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deposited in the State Treasury to the credit of the Pooled
Money Investment Portfolio.

Conflict of Provisions with Other Law Governing State
Moneys; Exemption from Bonded Indebtedness (New
Section 6)
The bill would provide, in the event a conflict arises
between provisions of this bill and provisions of Article 42 of
Chapter 75, Kansas Statutes Annotated, or any other
provision of law, the provisions of the bill shall control.
The bill would also provide that any Program loan made
to a city shall not be considered bonded indebtedness for the
purposes of KSA 10-308 (pertaining to bonded indebtedness
of of cities) or any other statute imposing a limitation on
indebtedness of a city.

Program Interest Rates, Investment in State Moneys
(Section 7)
The bill would amend law governing the investment of
state moneys to add those loan deposits made under the
Program and applicable interest rates established by the bill.
The bill would also make technical amendments.

Background
The House Committee on Financial Institutions and
Rural Development recommended a substitute bill
incorporating provisions pertaining to the establishment of the
City Utility Low-Interest Loan Program (Program) originally
contained in HB 2429, as introduced by the House
Committee on Appropriations.
SB 88, as recommended by the Senate Committee on
Local Government, would have amended law regarding the
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process for vacation of city streets or other public easements
and would have added law regarding challenging a street
vacation ordinance. A companion bill, HB 2176, was
introduced by the House Committee on Local Government.
[Note: The provisions pertaining to local government
topics were not retained in the substitute bill.]

HB 2429 – City Utility Low-Interest Loan Program
The bill was introduced by the House Committee on
Appropriations at the request of Representative Finch.

House Committee on Financial Institutions and Rural
Development
In the House Committee hearing, Representative Finch,
representatives of the Kansas Municipal Utilities and the
League of Kansas Municipalities (LKM), and the State
Treasurer provided proponent testimony.
Conferees indicated the bill is in response to the
extreme cold weather event in February 2021 that impacted
Kansas and much of the United States. The weather event
caused energy supply issues that resulted in significant and
unexpected increases in the purchase price of natural gas
and electricity. The conferees indicated the 118 municipal
electric utilities and 53 municipal gas utilities in Kansas were
uniquely impacted by the weather event because they are
required to operate under the cash basis law, which prohibits
a municipality from creating debt in excess of the amount of
funds the municipality has on-hand in the treasury at the time.
The cash basis law, which is not applicable to investor-owned
utilities and electric cooperatives, prevents municipalities from
spreading out excess expenses over time to reduce the
economic impact to customers. The conferees discussed the
urgent need for the bill, as payments are coming due and
municipalities are not able to pay the costs.

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 Conferees further indicated the bill would allow
municipalities to avoid the added cost of bonding and issuing
no-fund warrants; would provide economic stability; and
would allow municipalities to use federal funding, if it
becomes available, to be directed towards loan repayment.
Written-only proponent testimony was provided by
representatives of the Kansas Chamber, Kansas City Board
of Public Utilities, Kansas Municipal Gas Agency, Kansas
Municipal Energy Agency, and McPherson Board of Public
Utilities; representatives of 36 municipalities in Kansas; 8
residents of Denison; 1 resident of Humboldt; 2 residents of
Lyons; 3 residents of Osawatomie; and 1 resident of Walton.
Written-only proponents discussed the financial hardship the
cost increases would put on their organization, municipality,
customers, or individual budgets, if not mitigated.
No other testimony was provided.
The House Committee amended the bill to remove the
contents of SB 88 and insert the contents of HB 2429.

Fiscal Information
According to the fiscal note prepared by the Division of
the Budget on HB 2429, the Office of the State Treasurer
(Office) estimates enactment of the bill would require $33,000
in FY 2021 and $46,000 in FY 2022 to implement the
Program and the agency would request that amount come
from the State Treasurer’s Operating Fund or other fees
within the agency. The Office estimates enactment of the bill
would require the agency to hire at least 0.50 new FTE
position to manage the Program. In addition, there would be
the need to hire outside legal counsel to draft loan contracts
with cities and to write expedited rules and regulations. The
bill, the Office notes, would require it to assume full credit risk
in administering these loans to cities. If a city were to default
on the loan, the funds, which would otherwise be available to
the State of Kansas, would be lost. Since the idle funds
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balance is used as the funding source for the loans, it is
assumed that State General Fund resources would be
needed to backfill idle fund balances if a city were to default
on a loan.
The bill would require the PMIB, at the direction of the
State Treasurer, to make deposits of up to $100.0 million of
idle funds to cities qualifying for the Program. The bill would
require the PMIB, at the direction of the State Treasurer, to
make deposits of up to $100.0 million of idle funds at eligible
lending institutions to fund the Program. The PMIB is
authorized to make investments in U.S. Treasury and federal
agency securities, highly rated commercial paper and
corporate bonds, and repurchase agreements and certificates
of deposit at Kansas banks. Declining balances have required
the PMIB to maintain a highly liquid portfolio, which reduces
the amount of return available to the pool. The PMIB
maintains a significant portion of its investments in overnight
repurchasing agreements.
According to the fiscal note, rates that the PMIB could
earn in that market fell to near zero after actions from the
Federal Reserve in 2020 (and are likely to stay low for the
foreseeable future according to the November 2020
Consensus Revenue Estimate Memo). Recalculating the rate
on the loan to cities each year has the potential to lock in a
lower or higher interest rate that could be earned in the
market; however, without knowing the timing of future interest
rate changes, it is not possible to estimate the impact of the
bill on interest earnings from requiring the deposit of up to
$100.0 million of idle funds at eligible lending institutions
compared to other investments the PMIB might make. The
PMIB and the State Treasurer indicate sufficient idle fund
cash balances would fund the Program; however, future
balances that would be used to support this program over the
course of the next ten years are unknown. The PMIB
indicates the costs to administer the deposit of idle funds at
eligible lending institutions would be negligible and could be
absorbed within existing resources and staff levels.

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 The LKM is unable to determine the precise amount of
loans that would be requested by cities, as not all cities have
received bills that cover the time frame of the extreme winter
weather event in February 2021.
Any fiscal effect associated with HB 2429 is not reflected
in The FY 2022 Governor’s Budget Report.
Cities; utility costs; loan deposit program; City Utility Low-Interest Loan Program;
State Treasurer; weather event


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Statutes affected:
As introduced: 12-504, 12-505
Version 2: 10-308, 75-4237, 75-4232
Enrolled: 10-308, 75-4237, 75-4232