PRIOR PRINTER'S NOS. 1183, 1513
PRINTER'S NO. 1735
THE GENERAL ASSEMBLY OF PENNSYLVANIA
INTRODUCED BY FOLMER, TEPLITZ, EICHELBERGER, BLAKE, BOSCOLA, BROWNE, YUDICHAK, WOZNIAK AND SOLOBAY, JUNE 7, 2013
AS AMENDED ON THIRD CONSIDERATION, JANUARY 28, 2014
1Amending Title 53 (Municipalities Generally) of the Pennsylvania
2Consolidated Statutes, in municipal authorities, providing
3for interest rate risk and interest cost management<-, for the
4offense of knowingly participating in an ultra vires act of
5an authority and for the offense of knowingly filing
6materially false or misleading reports or certifications for
7an authority; and, in indebtedness and borrowing, further
8providing for definitions; and expanding the scope of
9provisions relating to interest rate risk and interest cost
10management to include first class counties and cities and
16§ 5608.1. Interest rate risk and interest rate cost management.
17Notwithstanding any other provision of this chapter,
18municipal authorities shall be subject to the provisions of
19Subchapter F of Chapter 82 (relating to interest rate risk and
20interest cost management).
1(a) General rule.--Any officer or any member of the
2governing body of any authority or any member of a law firm or a
3financial advisor firm who assists an authority in performing an
4ultra vires act commits a misdemeanor of the second degree and
5shall, upon conviction, be sentenced to pay a fine of not more
6than $5,000 or to imprisonment for not more than two years, or
8(b) Prohibition.--A law firm or financial advisor firm which
9has had a member convicted under subsection (a) shall be
10prohibited for two years from assisting an authority with or
11providing advice to an authority for any activity under this
16"Financial advisor." A person, firm or other entity
17experienced in various aspects of debt and financial
18transactions who is retained by a local government unit to
19advise it with respect to structuring or repaying debt. The term
20does not include a lender, underwriter or other entity
21purchasing the bonds or notes of a local government unit.
22"Ultra vires act." An act that a reasonable person would
23know the municipal authority is without statutory authority or
24power to perform. The reasonable person shall have comparable
25education, experience and information to the person assisting
26the municipal authority in performing the act.
1advisor, engineer, architect or any other individual who
2knowingly files a materially false or misleading report or
3certification with the department commits a misdemeanor of the
4second degree and shall, upon conviction, be sentenced to pay a
5fine of not more than $5,000 or to imprisonment for not more
6than two years, or both.
7(b) Prohibition.--The company or firm having a member or
8employee convicted under subsection (a) shall be prohibited for
9two years from assisting an authority with or providing advice
10to an authority for any activity under this chapter.
11(c) Definition.--As used in this section, the term
12"financial advisor" means a person, firm or other entity
13experienced in various aspects of debt and financial
14transactions who is retained by a local government unit to
15advise it with respect to structuring or repaying debt. The term
16does not include a lender, underwriter or other entity
17purchasing the bonds or notes of a local government unit.
21§ 8002. Definitions.
22* * *
23(c) Other definitions.--Subject to additional definitions
24contained in subsequent provisions of this subpart which are
25applicable to specific provisions of this subpart, the following
26words and phrases when used in this subpart shall have the
27meanings given to them in this section unless the context
28clearly indicates otherwise:
29* * *
30"Interest rate management plan." A written plan prepared or
3(1) A schedule listing the amount of debt outstanding
4for each outstanding debt issue of the local government unit
5and the expected annual debt service on that debt. In the
6case of variable rate debt, the schedule shall set forth the
7estimated annual debt service thereon and annual debt service
8on the debt calculated at the maximum rate specified for the
9variable rate debt.
13(3) A schedule [listing] illustrating the following:
14(i) In dollars, all consulting, advisory, brokerage
15or similar fees, paid or payable by the local government
16unit in connection with the qualified interest rate
17management agreement, and [a schedule of] any finder's
18fees, consulting fees or brokerage fees, paid or payable
19by the other party in connection with the qualified
20interest rate management agreement.
24(4) A schedule listing the estimated and maximum
25periodic scheduled payments to be paid by the local
26government unit and to be received by the local government
27unit from the other party in each year during the term of the
28qualified interest rate management agreement.
1risks of entering into the qualified interest rate management
2agreement. This paragraph includes schedules of the estimated
3and maximum scheduled periodic payments which would be due
4under the qualified interest rate management agreement.
5(6) An analysis of the interest rate risk, basis risk,
6termination risk, credit risk, market-access risk and other
7risks to the local government unit of the net payments due
8for all debt outstanding and all qualified interest rate
9management agreements of the local government unit. This
10paragraph includes schedules of the estimated and maximum net
11payments of total debt service and scheduled, periodic, net
12payments, which would be due under all of the qualified
13interest rate management agreements.
14(7) The local government unit's plan to monitor interest
15rate risk, basis risk, termination risk, credit risk, market-
16access risk and other risks. This paragraph includes the
17valuation of the market or termination value of all
18outstanding qualified interest rate management agreements.
19* * *
20"Local government unit." A county, county institution
21district, city, borough, incorporated town, township, school
22district or any similar, general or limited purpose unit of
23local government or any unit created by joint action of two or
24more local government units which is authorized to be created by
25law. [The] Except as otherwise provided under Subchapter F of
26Chapter 82 (relating to interest rate risk and interest cost
27management) the term does not include a city or county of the
28first class, an authority as defined in this section or any unit
29created by joint action of two or more local government units
30which have not been granted by statute the power to issue bonds.
1The term includes school districts of the first class presently
2operating under a home rule charter or home rule charter
3supplement, and the provisions of this subpart shall govern over
4inconsistent charter provisions.
5* * *
6Section 3. Section <-8281(b)(2) <-8281(a)(1), (b)(2) and (c)(4)
7of Title 53 are amended, subsections (a) and (c) are amended by
8adding paragraphs and the section is amended by adding a
9subsection to read:
10§ 8281. Qualified interest rate management agreements.
11(a) General rule.--
<-12(1) Except as set forth in paragraph (4),
13notwithstanding any other law to the contrary, a local
14government unit may negotiate and enter into qualified
15interest rate management agreements consistent with the
16provisions of this subchapter. A local government unit may
17only authorize a qualified interest rate management agreement
18under this subchapter.
19* * *
20(5) No payments shall be made to or on behalf of a local
21government unit by the other party to a qualified interest
22rate management agreement except periodic scheduled payments
23and termination payments.
24(6) Periodic scheduled payments on a qualified interest
25rate management agreement must commence not later than <-three
26years after the date of the confirmation associated with the
<-27one year after the effective date of the qualified interest
28rate management agreement.
1a qualified interest rate management agreement shall be
<-2substantially similar to the index or basis used for
3calculating the interest due on the associated debt of the
4local government unit. <-a fixed or variable rate of interest
5determined using either an index published by the Securities
6Industry and Financial Markets Association or an index that
7references the London Interbank Offered Rate.
8(8) At the time a qualified interest rate management
9agreement is entered into, the sum of the notional amount
10thereof<-, taking into account any netting of offsetting
11transactions, and all other qualified interest rate
12management agreements entered into or guaranteed, and then in
13effect of a local government unit, shall not exceed 50% of
14the total principal amount of the aggregate nonelectoral debt
15plus lease rental debt <-capacity of the local government unit
16then outstanding. <-This paragraph shall not apply to a
17regional financial authority that is primarily engaged in
18lending to local government units.
19(9) Scheduled periodic payments and termination payments
20received by a local government unit on a qualified interest
21rate management agreement shall be deposited in a payment
22account to pay periodic swap payments or to pay principal and
23interest on the debt related to the qualified interest rate
25(10) The scheduled expiration date of a qualified
26interest rate management agreement shall not exceed ten years
27from the date of the related confirmation unless the
28qualified interest rate management agreement contains a
29provision allowing the local government unit to terminate the
30same at any time after ten years from the date of the related
1confirmation without making a termination payment.
2(b) Requirements for resolution.--The resolution authorizing
3and awarding a qualified interest rate management agreement or
4authorizing a transaction under the agreement must include in
5the resolution or as an appendix to the resolution all of the
7* * *
13(ii) if the local government unit is incurring
14indebtedness under this chapter which has or will be
15issued to a public authority that has entered into or
16will enter into an interest rate management agreement
17meeting the requirements of a qualified interest rate
18management agreement under this subpart, [adopted]
19approved by that public authority not less than ten days
20prior to the date of the adoption of the resolution.
21* * *
22(c) Contents of qualified interest rate management
23agreements.--In addition to other provisions approved by the
24local government unit, a qualified interest rate management
25agreement must contain all of the following:
26* * *
30* * *
8(ii) Acknowledges that it has read this subpart.
9(iii) Acknowledges and agrees that a local
10government unit may only enter into a qualified interest
11rate management agreement to manage interest rate risk or
12interest cost of the local government unit on debt of the
13local government unit.
<-14(iv) Believes that the qualified interest rate
15management agreement will enable the local government
16unit to manage interest rate risk or interest cost of the
17local government unit on debt of the local government
<-26(iv) Certifies that the information provided to the
27local government unit, whether in solicitations or in
28response to requests for information from the local
29government unit as to potential positive or negative
30impacts of entering into the qualified interest rate
9(vi) Believes that the interest rate management
10agreement is consistent with the policy of the
11Commonwealth that a local government unit not enter into
12the agreement if it involves unreasonable speculation.
<-16(viii) Acknowledges that when a local government
17unit loses money on a qualified interest rate management
18agreement, it is the taxpayers of the local government
19unit that end up directly or indirectly paying for the
22(ix) Acknowledges and agrees that it will notify the
23department, in writing, promptly upon the payment to the
24other party of a termination payment by the local
25government unit, including the date and amount of the
26payment and the identity of the qualified interest rate
27management agreement under which the payment was made.
28* * *
7* * *
8(d) Definition.--As used in this section, the term "local
9government unit" has the same meaning as under section 8002
10(relating to definitions), except that the term includes <-a city
11or county of the first class and an authority.
12§ 8283. Remedies.
13* * *
14(d) Definition.--As used in this section, the term "local
15government unit" has the same meaning as under section 8002
16(relating to definitions), except that the term includes <-a city
17or county of the first class and an authority.
18§ 8284. Notice and retention of records.
19* * *
20(c) Definition.--As used in this section, the term "local
21government unit" has the same meaning as under section 8002
22(relating to definitions), except that the term includes <-a city
23or county of the first class and an authority.
24Section 5. Section 8285 of Title 53 is amended to read:
25§ 8285. Financial reporting.
26(a) General rule.--A local government unit which has entered
27into a qualified interest rate management agreement shall
28include in its annual financial statements information with
29respect to each qualified interest rate management agreement it
30has authorized or entered into, including any information
<-3(b) Quarterly report.--A local government unit that
4authorizes a qualified interest rate management agreement shall
5report on the performance of the qualified interest rate
6management agreement quarterly at a public meeting. At a
7minimum, the reporting shall include a current mark to market
8valuation of the agreement.
<-9(b) <-(c) Definition.--As used in this section, the term
10"local government unit" has the same meaning as under section
118002 (relating to definitions), except that the term includes <-a
12city or county of the first class and an authority.
<-13Section 6. The amendment or addition of sections 5608.1,
148002(c), 8281, 8282, 8283, 8284 and 8285 of Title 53 shall apply
15to interest rate management agreements entered into on or after
16the effective date of this act.
<-17Section 6. Applicability.
18The following shall apply:
22(2) This act shall not apply to any amendment,
23termination or novation of an interest rate management
24agreement where the interest rate management agreement was
25entered into prior to the effective date of this act as long
26as the term of the interest rate management agreement is not
28Section 7. This act shall take effect in 60 days.