See other bills
under the
same topic
PRINTER'S NO. 476
THE GENERAL ASSEMBLY OF PENNSYLVANIA
SENATE BILL
No.
342
Session of
2015
INTRODUCED BY FOLMER, BLAKE, EICHELBERGER, TEPLITZ, VULAKOVICH,
VANCE, YUDICHAK, SCHWANK, GORDNER, BOSCOLA AND BROWNE,
FEBRUARY 20, 2015
REFERRED TO LOCAL GOVERNMENT, FEBRUARY 20, 2015
AN ACT
Amending Title 53 (Municipalities Generally) of the Pennsylvania
Consolidated Statutes, in municipal authorities, providing
for interest rate risk and interest cost management; and, in
indebtedness and borrowing, further providing for
definitions; and expanding the scope of provisions relating
to interest rate risk and interest cost management to include
authorities.
The General Assembly of the Commonwealth of Pennsylvania
hereby enacts as follows:
Section 1. Title 53 of the Pennsylvania Consolidated
Statutes is amended by adding a section to read:
§ 5608.1. Interest rate risk and interest rate cost management.
Notwithstanding any other provision of this chapter,
municipal authorities shall be subject to the provisions of
Subchapter F of Chapter 82 (relating to interest rate risk and
interest cost management).
Section 2. The definitions of "interest rate management
plan" and "local government unit" in section 8002(c) of Title 53
are amended to read:
§ 8002. Definitions.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
* * *
(c) Other definitions.--Subject to additional definitions
contained in subsequent provisions of this subpart which are
applicable to specific provisions of this subpart, the following
words and phrases when used in this subpart shall have the
meanings given to them in this section unless the context
clearly indicates otherwise:
* * *
"Interest rate management plan." A written plan prepared or
reviewed by an independent financial advisor with respect to a
qualified interest rate management agreement, which includes:
(1) A schedule listing the amount of debt outstanding
for each outstanding debt issue of the local government unit
and the expected annual debt service on that debt. In the
case of variable rate debt, the schedule shall set forth the
estimated annual debt service thereon and annual debt service
on the debt calculated at the maximum rate specified for the
variable rate debt.
(2) A schedule listing the notional amounts outstanding
of each previously executed qualified interest rate
management agreement which is then in effect.
(3) A schedule [listing] illustrating the following:
(i) In dollars, all consulting, advisory, brokerage
or similar fees, paid or payable by the local government
unit in connection with the qualified interest rate
management agreement, and [a schedule of] any finder's
fees, consulting fees or brokerage fees, paid or payable
by the other party in connection with the qualified
interest rate management agreement.
(ii) The maximum counterparty margin or spread to be
20150SB0342PN0476 - 2 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
included on the qualified interest rate management
agreement and a calculation of the present value thereof.
(4) A schedule listing the estimated and maximum
periodic scheduled payments to be paid by the local
government unit and to be received by the local government
unit from the other party in each year during the term of the
qualified interest rate management agreement.
(5) An analysis of the interest rate risk, basis risk,
termination risk, credit risk, market-access risk and other
risks of entering into the qualified interest rate management
agreement. This paragraph includes schedules of the estimated
and maximum scheduled periodic payments which would be due
under the qualified interest rate management agreement.
(6) An analysis of the interest rate risk, basis risk,
termination risk, credit risk, market-access risk and other
risks to the local government unit of the net payments due
for all debt outstanding and all qualified interest rate
management agreements of the local government unit. This
paragraph includes schedules of the estimated and maximum net
payments of total debt service and scheduled, periodic, net
payments, which would be due under all of the qualified
interest rate management agreements.
(7) The local government unit's plan to monitor interest
rate risk, basis risk, termination risk, credit risk, market-
access risk and other risks. This paragraph includes the
valuation of the market or termination value of all
outstanding qualified interest rate management agreements.
* * *
"Local government unit." A county, county institution
district, city, borough, incorporated town, township, school
20150SB0342PN0476 - 3 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
district or any similar, general or limited purpose unit of
local government or any unit created by joint action of two or
more local government units which is authorized to be created by
law. The term does not include a city or county of the first
class. Except as otherwise provided under Subchapter F of
Chapter 82 (relating to interest rate risk and interest cost
management) the term does not include [a city or county of the
first class,] an authority as defined in this section or any
unit created by joint action of two or more local government
units which have not been granted by statute the power to issue
bonds. The term includes school districts of the first class
presently operating under a home rule charter or home rule
charter supplement, and the provisions of this subpart shall
govern over inconsistent charter provisions.
* * *
Section 3. Section 8281(a)(1), (b)(2) and (c)(4) of Title 53
are amended, subsections (a) and (c) are amended by adding
paragraphs and the section is amended by adding a subsection to
read:
§ 8281. Qualified interest rate management agreements.
(a) General rule.--
(1) Except as set forth in paragraph (4),
notwithstanding any other law to the contrary, a local
government unit may negotiate and enter into qualified
interest rate management agreements consistent with the
provisions of this subchapter. A local government unit may
only authorize a qualified interest rate management agreement
under this subchapter.
* * *
(5) No payments shall be made to or on behalf of a local
20150SB0342PN0476 - 4 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
government unit by the other party to a qualified interest
rate management agreement except periodic scheduled payments
and termination payments.
(6) Periodic scheduled payments on a qualified interest
rate management agreement must commence not later than three
years after the date of execution of any confirmation
associated with the qualified interest rate management
agreement.
(7) The index or basis used for calculating the periodic
scheduled payments receivable by the local government unit on
a qualified interest rate management agreement shall be a
fixed or variable rate of interest determined using either an
index published by the Securities Industry and Financial
Markets Association or an index that references the London
Interbank Offered Rate. Periodic scheduled payments based
upon a London InterBank Offered Rate index or other index are
not permitted unless the interest rate on the associated debt
is also based on the same index or the index is based on the
same type of debt as the associated debt.
(8) At the time a qualified interest rate management
agreement is entered into, the sum of the notional amount
thereof and all other qualified interest rate management
agreements entered into or guaranteed, and then in effect of
a local government unit, shall not exceed 50% of the total
principal amount of the aggregate nonelectoral debt plus
lease rental debt capacity of the local government unit then
outstanding.
(9) Scheduled periodic payments and termination payments
received by a local government unit on a qualified interest
rate management agreement shall be deposited in a payment
20150SB0342PN0476 - 5 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
account to pay periodic swap payments or to pay principal and
interest on the debt related to the qualified interest rate
management agreement.
(10) The scheduled expiration date of a qualified
interest rate management agreement shall not exceed 10 years
from the date of the related confirmation unless the
qualified interest rate management agreement contains a
provision allowing the local government unit to terminate the
same at any time after 10 years from the date of the related
confirmation without making a termination payment.
(b) Requirements for resolution.--The resolution authorizing
and awarding a qualified interest rate management agreement or
authorizing a transaction under the agreement must include in
the resolution or as an appendix to the resolution all of the
following:
* * *
(2) The interest rate management plan meeting the
requirements under this subpart:
(i) [adopted] approved by the local government unit
not less than 10 days prior to the date of the
resolution; or
(ii) if the local government unit is incurring
indebtedness under this chapter which has or will be
issued to a public authority that has entered into or
will enter into an interest rate management agreement
meeting the requirements of a qualified interest rate
management agreement under this subpart, [adopted]
approved by that public authority not less than 10 days
prior to the date of the adoption of the resolution.
* * *
20150SB0342PN0476 - 6 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
(c) Contents of qualified interest rate management
agreements.--In addition to other provisions approved by the
local government unit, a qualified interest rate management
agreement must contain all of the following:
* * *
(4) A provision requiring the termination of the
agreement [if] when all debt to which the qualified interest
rate management agreement relates is no longer outstanding.
* * *
(10) A certification by the other party to the qualified
interest rate management agreement in which the other party
does all of the following:
(i) Acknowledges and agrees that the local
government unit which is entering into the qualified
interest rate management agreement under this subpart is
a political subdivision of the Commonwealth.
(ii) Acknowledges that it has read this subpart.
(iii) Acknowledges and agrees that a local
government unit may only enter into a qualified interest
rate management agreement to manage interest rate risk or
interest cost of the local government unit on debt of the
local government unit.
(iv) Certifies that, in executing the transactions
under the qualified interest rate management agreement,
it has complied in all material aspects with the
applicable rules and regulations of the Commodity Futures
Trading Commission, the Securities and Exchange
Commission and the Municipal Securities Rulemaking Board
to which it is subject.
(v) Certifies that it acted in good faith and made
20150SB0342PN0476 - 7 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
full and fair disclosure of the material facts and any
conflicts of interest regarding the qualified interest
management agreement.
(vi) Represents and warrants that the rate or rates
used to calculate amounts payable by the local government
unit pursuant to the qualified interest rate management
agreement is comparable to the rate or rates that it
would have quoted to receive from or pay to, as
applicable, a similarly situated counterparty to enter
into a reasonably comparable qualified interest rate
management agreement taking into full account the terms
and conditions of the qualified interest rate management
agreement.
(vii) Acknowledges and agrees that it will notify
the department in writing promptly upon its receipt of a
termination payment by the local government unit,
including the date and amount of the payment and the
identity of the qualified interest rate management
agreement under which the payment was made.
* * *
(f) Definition.--As used in this section , the term "local
government unit" has the same meaning as under section 8002
(relating to definitions), except that the term includes an
authority.
Section 4. Sections 8282, 8283 and 8284 of Title 53 are
amended by adding subsections to read:
§ 8282. Covenant to pay amounts due under qualified interest
rate management agreements.
* * *
(d) Definition.--As used in this section , the term "local
20150SB0342PN0476 - 8 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
government unit" has the same meaning as under section 8002
(relating to definitions), except that the term includes an
authority.
§ 8283. Remedies.
* * *
(d) Definition.--As used in this section , the term "local
government unit" has the same meaning as under section 8002
(relating to definitions), except that the term includes an
authority.
§ 8284. Notice and retention of records.
* * *
(c) Definition.--As used in this section , the term "local
government unit" has the same meaning as under section 8002
(relating to definitions), except that the term includes an
authority.
Section 5. Section 8285 of Title 53 is amended to read:
§ 8285. Financial reporting.
(a) General rule.--A local government unit which has entered
into a qualified interest rate management agreement shall
include in its annual financial statements information with
respect to each qualified interest rate management agreement it
has authorized or entered into, including any information
required pursuant to any statement issued by the Governmental
Accounting Standards Board.
(b) Quarterly report.--A local government unit that
authorizes a qualified interest rate management agreement shall
report on the performance of the qualified interest rate
management agreement quarterly at a public meeting. At a
minimum, the reporting shall include a current mark to market
valuation of the agreement.
20150SB0342PN0476 - 9 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
(c) Definition.--As used in this section , the term "local
government unit" has the same meaning as under section 8002
(relating to definitions), except that the term includes an
authority.
Section 6. The amendment or addition of 53 Pa.C.S. §§
5608.1, 8002(c), 8281, 8282, 8283, 8284 and 8285:
(1) Shall apply to all qualified interest rate
management agreements entered into on or after the effective
date of this section.
(2) Shall not apply to an amendment, termination or
novation of a qualified interest rate management agreement
where the qualified interest rate management agreement was
entered into prior to the effective date of this section,
unless the term of the qualified interest rate management
agreement is extended and the qualified interest rate
management agreement continues to be in effect on or after
the effective date of this section.
Section 7. This act shall take effect in 60 days.
20150SB0342PN0476 - 10 -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18