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A09692 Memo:

NEW YORK STATE ASSEMBLY
MEMORANDUM IN SUPPORT OF LEGISLATION
submitted in accordance with Assembly Rule III, Sec 1(f)
 
BILL NUMBER: A9692
 
SPONSOR: Magnarelli
  TITLE OF BILL: An act to amend the local finance law, in relation to making technical amendments to the time frame within which a governing board of the municipality or school district authorized to incur debt to finance a deficit may make adjustments to its proposed budget; updating the list of types of obligations which may be issued by municipalities, school districts or district corporations; and to amend chapter 386 of the laws of 2010, amending the local finance law relating to the private sale of bonds, in relation to eliminating the expiration and repeal of such provisions   PURPOSE: To correct two technical errors in the Local Finance Law and to repeal the expiration of the increase in the amount of bonds a muni- cipality, school district or district corporation annually may sell at private sale in any fiscal year.   SUMMARY OF PROVISIONS: Section 1 of this bill would amend Paragraph d of Section 10.10 of the Local Finance Law to delete the phrase "within fifteen days after receipt of any such recommendations." Section 2 of this bill would add a new Subdivision 12 to Paragraph a of Section 20.00 of the Local Finance Law to update the list of types of obligations which may be issued by municipalities, school districts or district corporations to add deficiency notes. Section 3 of this bill would amend Section 14 of Chapter 386 of the Laws of 2010 to repeal the sunset provision that would have the increase in the amount of bonds a municipality, school district or district corpo- ration annually may sell at private (negotiated) sale in any fiscal year from 51 million to 55 million expire on June 1, 2012.   PRIOR LEGISLATIVE HISTORY: New bill.   JUSTIFICATION: Section 1 of this bill is a technical amendment to language added by Chapter 341 of the Laws of 2007, which enacted Section 10.10 of the Local Finance Law. Section 10.10 provides uniform require- ments applicable to municipalities and school districts that are author- ized by general or special law to contract indebtedness to finance the liquidation of operating deficits. Paragraph d of Section 10.10 sets forth a procedure for the submission of the proposed budget of the muni- cipality or school district to the State Comptroller (and, in the case of a school district, the Commissioner of Education) for review and recommendation. Among other things, Paragraph d provides that "no later than five days prior to the adoption of the budget" the municipality or school district must review those recommendations and either make adjustments to the proposed budget consistent with the recommendations or explain in writing the reasons for the rejection of any recommenda- tion. Later in the same sentence as the quoted provision, the phrase "within fifteen days after receipt of any such recommendations" appears, creating an ambiguity as to the proper timeframe for the municipality or school district to act. It is apparent that the inclusion of this phrase in Paragraph d was inadvertent and likely a carryover from an earlier version of the bill that was enacted. The phrase "within fifteen days after the receipt of any such recommendations" is inconsistent with the budget review timeframe otherwise set forth in Paragraph d of Section 10.10 of the Local Finance Law and should be deleted so that the statute is consistent and clear. Section 2 of this bill makes a. technical amendment relating to Chapter 386 of the Laws of. 2010, which, among other things, added Local Finance Law § 29.20 to authorize municipalities, school districts and district corporations to issue deficiency notes to finance a deficiency in any fund or funds arising from revenues being less than the amount estimated in the budget for the current fiscal year. Paragraph a of Section 20.00 of the Local Finance Law, which lists by name the types of bonds and notes that a municipality, school district or district corporation may issue, also should have been amended at that time, but was not. This bill will correct that oversight. Section 3 of this bill relates to the increase from $1 million to $5 million in the maximum amount of bonds that municipalities, school districts and district corporations may sell at private sale annually, which was enacted into law by Chapter 386 of the Laws of 2010. Pursuant to Section 14 of Chapter 386 of the Laws of 2010, the increased maximum amount is scheduled to expire on June 1, 2012. Section 6 of Chapter 386 of the Laws of 2010 required the State Comptroller to prepare a report on the private sales of bonds conducted pursuant to Paragraph b of Section 63.00 of the Local Finance Law, including recommendations with respect to such private sales. Section 6 also required municipalities, school districts and district corporations to file reports of each private sale with the Comptroller. In December 2011, the Comptroller prepared a report on private sales of bonds by municipalities, school districts and district corporations as required by Chapter 386 of the Laws of 2010 (http://www.osc.state.ny.us/localgov/pubs/research/ privatesales- bond.pdf). As noted in this report, the increase in the private sale cap did not significantly increase the number of localities that issued bonds at private sale. Also, given that a number of the sales over the $1 million threshold were conducted through some form of competitive process that included the receipt of bids, it is unclear that a formal public sale, as would have been required under the law prior to the amendment in Chapter 386 of the Laws of 2010, would have yielded appre- ciably different results. The increase in the cap did give local issuers with relatively small bond issues additional options on how best to gain market access. The enhanced flexibility afforded by this private sale option also allowed issuers the opportunity to premarket their bonds to both retail and institutional investors, potentially expanding the pool of investors-. Finally, the report noted that private bond sales are particularly useful to smaller local governments that generally conduct bond sales involving smaller principal amounts and may find the cost of obtaining a bond rating and/or the cost of publishing a formal notice of sale to be economically prohibitive. In consideration of these points, the Comptroller's report recommended keeping the statutory private sale cap of $5 million in place and repealing the sunset provision. This bill would implement the recommendation made in such report. The Comptroller urges the passage of this proposed legislation.   FISCAL IMPLICATIONS FOR STATE: This bill has no significant State fiscal impact.   EFFECTIVE DATE: This act shall take effect immediately; provided, however, if section three of this act shall become a law on or after June 1, 2012 such section shall take effect immediately and shall be deemed to have been in fall force and effect on and after June 1, 2012.
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