PRINTER'S NO. 3554
No. 2485 Session of 1984
INTRODUCED BY FRYER, PIEVSKY, A. C. FOSTER, JR. AND LEVI,
SEPTEMBER 24, 1984
REFERRED TO COMMITTEE ON LOCAL GOVERNMENT, SEPTEMBER 24, 1984
AN ACT
1 Amending the act of July 12, 1972 (P.L.781, No.185), entitled,
2 as amended, "An act providing debt limits for local
3 government units, including municipalities and school
4 districts; providing the methods of incurring, evidencing,
5 securing and collecting debt; defining the powers and duties
6 of the Department of Community Affairs and certain other
7 public officers and agencies with respect thereto; exercising
8 the inherent legislative authority of the General Assembly by
9 providing additional over-all limitations on the incurring of
10 lease rental and other obligations for the acquisition of
11 capital assets to be repaid from the general tax revenues of
12 such local government units; imposing penalties for filing
13 false or untrue statements or refusing to give information
14 with respect to proceedings for the incurring of debt; and
15 conferring jurisdiction on the Commonwealth Court with
16 respect to certain proceedings relating to the incurring of
17 debt," further providing for the issue of short-term notes
18 not to exceed one fiscal year.
19 The General Assembly of the Commonwealth of Pennsylvania
20 hereby enacts as follows:
21 Section 1. Section 102(a)(1) and (c)(2) of the act of July
22 12, 1972 (P.L.781, No.185), known as the Local Government Unit
23 Debt Act, reenacted and amended April 28, 1978 (P.L.124, No.52),
24 are amended and a clause is added to read:
25 Section 102. Definitions.--(a) As used in this act with
1 respect to classifications of debt unless the context clearly
2 otherwise requires:
3 (1) "Debt" means the amount of all obligations for the
4 payment of money incurred by the local government unit, whether
5 due and payable in all events, or only upon the performance of
6 work, possession of property as lessee, rendering of services by
7 others, or other contingency, except:
8 (i) current obligations for the full payment of which
9 current revenues have been appropriated, including tax
10 anticipation notes and short-term notes, and current payments
11 for the funding of pension plans;
12 (ii) obligations under contracts for supplies, services and
13 pensions, allocable to current operating expenses of future
14 years in which the supplies are to be expended or furnished, the
15 services rendered or the pensions paid;
16 (iii) rentals or payments payable in future years under
17 leases, guaranties, subsidy contracts or other forms of
18 agreement not evidencing the acquisition of capital assets, but
19 this exception shall not apply to rentals or payments under such
20 instruments which would constitute lease rental debt but for the
21 fact that the lessor or obligee is not an entity described in
22 section 104(a)(1); and
23 (iv) interest or assumed taxes payable on bonds or notes
24 which interest or taxes is not yet overdue.
25 * * *
26 (c) As used in this act unless the context clearly otherwise
27 requires:
28 * * *
29 (2) "Bond or note" means any instrument issued by a local
30 government unit imposing an obligation for the repayment of
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1 money borrowed, but does not include a guaranty endorsed on an
2 instrument issued by an authority. Unless otherwise indicated,
3 the phrase "bonds or notes" does not include short-term notes or
4 tax anticipation notes. A bond or a note which falls within the
5 definition of "security" set forth in [Article 8 of the act of
6 April 6, 1953 (P.L.3, No.1), known as the "Uniform Commercial
7 Code,"] Division 8 of Title 13 of the Pennsylvania Consolidated
8 Statutes (relating to investment securities) shall be governed
9 by said [Article 8] Division 8 and every other bond or note,
10 including short-term notes, shall be governed by [Article 3]
11 Division 3 of Title 13 of the Pennsylvania Consolidated Statutes
12 (relating to commercial paper), except in each case as otherwise
13 provided herein.
14 * * *
15 (14.1) "Short-term notes" means notes having a term not in
16 excess of one year from the date thereof and which are issued
17 pursuant to Article V-A hereof.
18 * * *
19 Section 2. Section 105(c) of the act is amended to read:
20 Section 105. Designation of Bonds and Notes; Authority to
21 Issue.--* * *
22 (c) Notwithstanding any other law to the contrary, every
23 local government unit shall have full power and authority to
24 issue bonds or notes, and make guaranties, leases, subsidy
25 contracts or other agreements evidencing the acquisition of
26 capital assets payable out of taxes and other general revenues,
27 to provide funds for and towards the cost of or the cost of
28 completing any project or combination of projects which such
29 local government unit is authorized to own, acquire, subsidize,
30 operate or lease, or to participate in owning, acquiring,
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1 subsidizing, operating or leasing with others, to issue tax
2 anticipation notes and funding bonds or notes and short-term
3 notes as herein provided, and to contract for insurance covering
4 the risks of nonpayment of principal, interest and premium of
5 bonds, notes, tax anticipation notes, short-term notes and
6 guaranties. For the purpose of this act, unless debt evidenced
7 by a guaranty shall have been approved as electoral debt in
8 accordance with Article III of this act, such guaranty shall be
9 deemed to be nonelectoral debt if the local government unit
10 guaranties its own bonds or notes and shall be deemed to be
11 lease rental debt if it guaranties the bonds or notes of an
12 authority or another local government unit. For the purpose of
13 all other acts such guaranty shall be deemed to create debt or
14 indebtedness of the local government unit making the guaranty.
15 Section 3. Section 413 of the act is amended to read:
16 Section 413. Lost, Stolen, Destroyed or Mutilated Bonds or
17 Notes.--If any temporary or definitive bond or note (including
18 any tax anticipation note or short-term note) lawfully issued
19 under this act or under applicable law prior to the effective
20 date of this act shall become mutilated or be destroyed, stolen
21 or lost, the local government unit shall execute and any sinking
22 fund depositary, fiscal agent or trustee for bondholders shall,
23 if required, authenticate and deliver a new bond or note, with
24 appropriate coupons attached in the case of a bond or note in
25 coupon form, of like series and principal amount as the bond or
26 note and attached coupons, if any, so mutilated, destroyed,
27 stolen or lost, upon surrender and cancellation of such
28 mutilated bond or note and attached coupons, if any, or in lieu
29 of and in substitution for the bond or note and coupons, if any,
30 destroyed, stolen or lost, upon filing with the local government
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1 unit, or if so provided in the bond ordinance, with the sinking
2 fund depositary, fiscal agent or trustee, evidence satisfactory
3 to it, that such bond or note and attached coupons, if any, have
4 been destroyed, stolen or lost and proof of ownership thereof
5 and upon furnishing of satisfactory indemnity and complying with
6 such other reasonable regulations as the local government unit
7 shall prescribe, and paying any reasonable expenses, including
8 counsel fees, as the local government unit or the sinking fund
9 depositary, fiscal agent or trustee may incur. Mutilated bonds
10 or notes and appurtenant coupons, if any, surrendered shall be
11 cancelled. The new bonds or notes and coupons, if any, so issued
12 shall be independent obligations and all limitations and debt
13 limits shall be deemed increased to the extent necessary to
14 validate such new bonds or notes and any appurtenant coupons.
15 Section 4. The introductory paragraph of section 414 of the
16 act is amended to read:
17 Section 414. Evidence of Signatures of Holders and of
18 Ownership of Bonds, Notes [and], Tax Anticipation Notes and
19 Short-Term Notes.--Any request, consent or other instrument
20 which may be required or permitted to be executed by the holders
21 of bonds or notes (including tax anticipation notes or short-
22 term notes) may be in one or more instruments of similar tenor,
23 and shall be signed or executed by such holders in person or by
24 their attorneys appointed in writing. Proof of (i) the execution
25 of any such instrument, or of an instrument appointing any such
26 attorney, or (ii) the holding by any person of bonds or notes or
27 coupons appertaining thereto, shall be sufficient for the
28 purposes of this act and any proceeding thereunder if made in
29 the following manner:
30 * * *
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1 Section 5. Section 415 of the act is amended to read:
2 Section 415. Ordinances and Resolutions Are Contracts with
3 Holders of Bonds, Notes, [and] Tax Anticipation Notes and Short-
4 Term Notes.--Except as otherwise provided in any ordinance or
5 resolution authorizing or awarding bonds or notes or tax
6 anticipation notes or short-term notes, the terms thereof and of
7 this act as in effect when such bonds or notes were authorized
8 shall constitute a contract between the local government unit
9 and the holders from time to time of such bonds and notes
10 subject to modification by the vote of a majority of the holders
11 or such larger portion thereof as may be provided in the bond or
12 note.
13 Section 6. Section 509 of the act, amended May 22, 1981
14 (P.L.54, No.19), is amended to read:
15 Section 509. Unfunded Debt.--For the [purpose] purposes of
16 this article and of Article V-A, unfunded debt shall mean
17 obligations of the same or one or more prior years incurred for
18 current expenses (including tax anticipation notes and short-
19 term notes), due and owing or judgments against the local
20 government unit entered by a court of competent jurisdiction
21 after adversary proceedings, for the payment of either of which
22 category the taxes and other revenues remaining to be collected
23 in the fiscal year and funds on hand will not be sufficient
24 without a curtailment of municipal services to an extent
25 endangering the health or safety of the public or proper
26 education of school children, and the local government unit
27 either may not legally levy a sufficient tax for the balance of
28 the fiscal year, or a sufficient tax, if legally leviable, would
29 not be in the public interest. Unfunded debt shall not, however,
30 include debt incurred under this act nor obligations in respect
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1 of a project or part of a project as defined in section
2 102(c)(12) or incurred in respect of the cost of a project as
3 defined in section 107.
4 Section 7. The act is amended by adding an article to read:
5 ARTICLE V-A
6 Short-Term Notes
7 Section 501-A. Power to Issue Short-Term Notes; Use of
8 Proceeds.--(a) Notwithstanding any other provision of the act,
9 a local government unit shall have the power and authority, by
10 resolution of its governing body, to:
11 (1) Borrow money from time to time in anticipation of the
12 receipt of current taxes and current revenues.
13 (2) Evidence the obligation by short-term notes,
14 appropriately designated.
15 (3) Authorize, issue and sell such short-term notes in the
16 manner and subject to the limitations provided therefor in this
17 article.
18 The proceeds of the short-term notes shall be used for current
19 expenses of the local government unit. The short-term notes
20 shall be repaid out of funds derived from the source or sources
21 in anticipation of which they were issued or from any moneys
22 otherwise legally available for such purpose. Limitations
23 imposed by this act on the incurring of nonelectoral debt shall
24 not apply to the obligations evidenced by short-term notes.
25 (b) The local government unit shall have the power and
26 authority to enter into agreements with any banks, trust
27 companies, investment banking firms or other institutions or
28 persons in the United States having the power to enter into the
29 same and to:
30 (1) Purchase or underwrite an issue or series of issues of
19840H2485B3554 - 7 -
1 short-term notes;
2 (2) Enter into any purchase, loan or credit agreements, draw
3 moneys pursuant to any such agreements on the terms and
4 conditions set forth therein, and to issue short-term notes as
5 evidence of borrowings made under any such agreements;
6 (3) Appoint an issuing and paying agent or agents with
7 respect to short-term notes;
8 (4) Do such other acts as may be necessary or appropriate to
9 provide for the payment when due of the interest on and
10 principal of such short-term notes.
11 (c) The authority to issue short-term notes provided in this
12 article shall be alternative to the authority granted a local
13 government unit in this act to issue bonds or notes or tax
14 anticipation notes and is not limited by any of such other
15 provisions except as specifically provided in this article.
16 Section 502-A. Limitation on Amount of Short-Term Notes.--No
17 local government unit shall authorize or issue short-term notes
18 which in the aggregate shall exceed eighty-five per cent of the
19 estimated amount of the then uncollected taxes, income, revenue,
20 cash receipts, and other moneys of the local government unit to
21 be collected or received during the term of such short-term
22 notes and pledged for the payment of such short-term notes and
23 the interest thereon. Said estimate shall be made pursuant to
24 section 506-A. In computing the aggregate amount of short-term
25 notes outstanding at any time for the purpose of the limitation
26 imposed by this section, allowance shall be made for such short-
27 term notes as have already been fully paid and for amounts
28 already paid into appropriate sinking funds, if any.
29 Section 503-A. Limitation on Stated Maturity Date of Short-
30 Term Notes and Other Terms of Short-Term Notes.--(a) No short-
19840H2485B3554 - 8 -
1 term notes shall be stated to mature beyond one year from the
2 date of issuance.
3 (b) Short-term notes shall:
4 (1) Be issued in such denominations.
5 (2) Be subject to such rights of prior redemption.
6 (3) Have such privileges of interchange and registration.
7 (4) Be dated.
8 (5) Be in registered or bearer form with or without coupons.
9 (6) Be payable in such coin or currency as at the place and
10 at the time of payment shall be legal tender for the payment of
11 public and private debts.
12 (7) Be payable at such place or places, one of which shall
13 be within this Commonwealth.
14 The terms of the short-term notes shall be as the governing
15 body of the issuing local government unit may determine by
16 resolution.
17 Section 504-A. Contents of Short-Term Note Resolution.--(a)
18 The resolution authorizing the issuance of short-term notes
19 shall fix the aggregate principal amount of the short-term notes
20 to be issued or, if applicable, the maximum principal amount
21 which may be outstanding at any time, the maximum term and
22 interest rate or rates to be borne thereby (or procedures for
23 establishing such rate or rates from time to time), the manner
24 of sale, form, terms, conditions, and the covenants thereof.
25 (b) The resolution authorizing the issuance of short-term
26 notes may provide for the subsequent issuance of refunding
27 short-term notes to refund any outstanding short-term notes. The
28 resolution shall specify such other terms and conditions with
29 respect to the refunding of short-term notes thereby authorized
30 for issuance as the governing body of the issuing local
19840H2485B3554 - 9 -
1 government unit may determine.
2 Section 505-A. Security for Short-Term Notes.--(a) Any
3 taxes, income, revenue, cash receipts or other moneys of the
4 local government unit to be collected or received during the
5 term of the short-term notes may be pledged to the payment of
6 such short-term notes and the interest thereon. The resolution
7 authorizing the issuance of the short-term notes shall specify
8 which taxes, income, revenue, cash receipts or other moneys are
9 pledged for the payment thereon. The pledge, lien and charge
10 shall be fully perfected as against the local government unit,
11 all creditors thereof, and all third parties in accordance with
12 the terms of such resolution from and after the filing, of a
13 financing statement or statements in accordance with Division 9
14 of Title 13 of the Pennsylvania Consolidated Statutes (relating
15 to secured transactions). For the purpose of such filing, the
16 fiscal agent or paying agent designated in the short-term notes
17 may act as the representative of noteholders and, in such
18 capacity, execute and file the financing statement or statements
19 and any continuation or termination statements as secured party.
20 The authorizing resolution may establish one or more sinking
21 funds and provide for periodic or other deposits therein, and
22 may contain such covenants or other provisions as the local
23 government unit shall determine. The amount of any short-term
24 notes issued in compliance with this act shall be general
25 obligations of the local government unit and, if the same shall
26 not be paid within the fiscal year in which such notes mature,
27 shall be deemed to be nonelectoral debt enforceable in the
28 manner of a general obligation which unless funded pursuant to
29 Article V of this act, shall be included in the budget of the
30 local government unit for the ensuing fiscal year and shall be
19840H2485B3554 - 10 -
1 payable from the taxes and revenues of such ensuing year
2 notwithstanding that the amount thereof shall cause the
3 nonelectoral debt of such local government unit to exceed the
4 limitations of Article II.
5 (b) Any holder of short-term notes issued by a first class
6 school district or the sinking fund depositary of the applicable
7 sinking fund, if any, shall have the right to enforce the pledge
8 of, security interest in and lien and charge on, any pledged
9 taxes, income, revenue, cash receipts and other moneys of the
10 first class school district against all State and local public
11 officials in possession of any of such taxes, income, revenue,
12 cash receipts and other moneys at any time which may be
13 collected directly from such officials upon notice by such
14 holder or depositary for application to the payment thereof as
15 and when due or for deposit in the applicable sinking fund at
16 the times and in the amounts specified in such short-term notes.
17 Any State or local public official in possession of any of such
18 taxes, income, revenue, cash receipts and other moneys shall
19 make payment, against receipt therefor, directly to such holder
20 of such short-term notes or to such depositary upon such notice
21 and shall thereby be discharged from any further liability or
22 responsibility for such taxes, income, revenue, cash receipts
23 and other moneys. If such payment shall be to a holder of short-
24 term notes, it shall be made against surrender of the notes to
25 the payor for delivery to the first class school district in the
26 case of payment in full, otherwise it shall be made against
27 production of the notes to the payor for notation thereon of the
28 amount of the payment. The provisions of this subsection with
29 respect to the enforceability and collection of taxes, income,
30 revenue, cash receipts and other moneys which secure short-term
19840H2485B3554 - 11 -
1 notes of a first class school district shall supersede any
2 contrary or inconsistent statutory provision or rule of law.
3 This subsection shall be construed and applied to fulfill the
4 legislative purpose of clarifying and facilitating temporary
5 borrowings by a first class school district by assuring to
6 holders of short-term notes the full and immediate benefit of
7 the security for such notes without delay, diminishment or
8 interference based on any statute, decision, ordinance or
9 administration rule or practice.
10 Section 506-A. Certification as to Pledged Funds to Be
11 Collected.--Prior to each authorization of short-term notes,
12 authorized officers of the local government unit shall make an
13 estimate of the pledged moneys to be received during the period
14 when such notes will be outstanding from any pledged taxes then
15 levied and assessed and any pledged income, revenue, cash
16 receipts or other moneys including, without limitation,
17 subsidies or reimbursements to be received. Such estimate shall
18 take due account of the past and anticipated collection
19 experience of the local government unit and of current economic
20 conditions. The estimate shall be certified by such authorized
21 officers of the local government unit and their written
22 certificate, dated as of a date not more than thirty days prior
23 to, and not later than, the date of the authorization of the
24 notes, shall be filed with the department as provided in section
25 508-A.
26 Section 507-A. Sale of Short-Term Notes.--Short-term notes
27 may be sold at public, private, or invited sale as the governing
28 body of the local government unit may determine. Any public sale
29 shall be advertised and conducted in the manner and subject to
30 the conditions provided for a public sale of bonds in Article
19840H2485B3554 - 12 -
1 VII of this act, except as specifically modified by this
2 article. The governing body of the local government unit shall
3 award the sale of the short-term notes by resolution to
4 specified purchasers at a specified price, not less than the
5 principal amount thereof. At the time of delivery of each issue,
6 series or subseries of short-term notes, authorized officers of
7 the local government unit shall certify to the original
8 purchasers thereof that the amount of all such short-term notes
9 to remain outstanding will not exceed the limitations of section
10 502-A calculated, however, from the date of such certificate to
11 the respective maturity dates of all such short-term notes to
12 remain outstanding. Such certificate need not be filed with the
13 department but a copy thereof shall be retained by the local
14 government unit until such series of short-term notes shall have
15 been paid in full.
16 Section 508-A. Condition Precedent to Validity of Short-Term
17 Notes.--No short-term note shall be valid or obligatory in the
18 hands of an original purchaser thereof until certified copies of
19 the authorizing and awarding resolution, the certificate as to
20 the pledged taxes and revenues remaining to be collected or
21 received, and a true copy of the accepted proposal for the
22 purchase of the short-term notes shall have been filed with the
23 department. No approval of the department shall be required.
24 Section 8. Section 605 of the act is amended to read:
25 Section 605. Execution of Bonds or Notes.--Bonds or notes
26 (including tax anticipation notes and short-term notes) shall be
27 signed by such officers of the local government unit, and coupon
28 bond shall have attached thereto interest coupons bearing the
29 facsimile signature of such officer of the local government
30 unit, and such bonds or notes may be sealed with the seal of the
19840H2485B3554 - 13 -
1 local government unit or a facsimile thereof, all as may be
2 determined by the governing body. Bonds or notes may provide
3 that they shall not be valid nor enforceable, unless
4 authenticated by a specified bank, bank and trust company or
5 trust company. If any one signature on a bond or note (including
6 the signature of the authenticating party) shall be manual, all
7 other signatures may be by facsimile. If any officer whose
8 signature, or a facsimile of whose signature, shall appear on
9 any notes, bonds or coupons shall cease to be such officer
10 before the delivery of such notes or bonds, such signature, or
11 such facsimile, shall nevertheless be valid and sufficient for
12 all purposes as if he had remained in office until such
13 delivery, and, also, any note, bond or coupon may bear the
14 facsimile signature of, or may be signed by, such persons as at
15 the actual time of the execution of such note, bond or coupon
16 shall be the proper officers to sign although at the date of
17 such instrument such persons may not have been such officers.
18 Section 9. Section 606 of the act, amended May 22, 1981
19 (P.L.54, No.19), is amended to read:
20 Section 606. Pledge of Revenues.--The governing body of any
21 local government unit which has determined to issue any revenue
22 bonds or notes, or any guaranteed revenue bonds or notes, may
23 provide, by ordinance, for such pledges of or priorities in such
24 rentals, revenues, receipts, rates and charges to be received
25 from projects of the issuing local government unit as may be
26 desirable. Such pledge or priority shall be perfected as a
27 security interest against all creditors of the local government
28 unit and all third parties, in accordance with the terms of such
29 ordinance, from and after the filing of a financing statement or
30 statements in accordance with [the Uniform Commercial Code]
19840H2485B3554 - 14 -
1 Division 9 of Title 13 of the Pennsylvania Consolidated Statutes
2 (relating to secured transactions). For the purpose of such
3 filing the sinking fund depositary may act as representative of
4 the bond or note holders and, in such capacity, execute and file
5 the financing statement and any continuation or termination
6 statements as secured party.
7 Section 10. Section 608 of the act is amended to read:
8 Section 608. Negotiable Qualities of Bonds and Notes.--(a)
9 Bonds or notes issued pursuant to this act, including tax
10 anticipation notes and short-term notes, which have all the
11 qualities and incidents of securities under [Article 8 of the
12 Uniform Commercial Code] Division 8 of Title 13 of the
13 Pennsylvania Consolidated Statutes (relating to investment
14 securities) shall be negotiable instruments.
15 (b) Such bonds and notes issued pursuant to this act which
16 are not securities shall have all the qualities and incidents of
17 commercial paper under [Article 3 of the Uniform Commercial
18 Code] Division 3 of the Pennsylvania Consolidated Statutes
19 (relating to investment securities) and shall be negotiable
20 instruments notwithstanding any references therein to the terms
21 of the authorizing bond ordinance or any trust indenture, deed
22 of trust or other agreement, or any variations in the rate of
23 interest provided in such note, or any limitations upon the
24 funds from which or limitations as to the bonds with which the
25 notes may be paid, or any restriction upon the remedies of the
26 holders.
27 Section 11. Section 609 of the act is amended to read:
28 Section 609. Temporary Bonds or Notes or Interim Receipts.--
29 Pending the preparation of definitive bonds or notes, including
30 tax anticipation notes and short-term notes, temporary bonds or
19840H2485B3554 - 15 -
1 notes or interim receipts may be issued in such form and
2 containing such terms and such provisions for exchange for
3 definitive bonds or notes as the local government unit may
4 determine.
5 Section 12. Section 706 of the act, amended May 22, 1981
6 (P.L.54, No.19), is amended to read:
7 Section 706. Required Bid Security.--In the case of public
8 sale, bid security shall be given by each bidder, shall be in
9 cash or by certified or official bank check payable to the local
10 government unit, and shall be not less than two per cent of the
11 principal amount of the bonds or notes to be purchased. The bid
12 security of the unsuccessful bidder or bidders shall be returned
13 to each unsuccessful bidder, without interest in accordance with
14 written instructions of the bidder conforming to the official
15 notice of sale, promptly upon an award of the bonds or notes or
16 upon the rejection of all bids. The bid security of the
17 successful bidder shall be retained by the treasurer of the
18 local government unit and (with or without allowance for
19 interest as the official notice of sale may specify) shall be
20 applied on the purchase price when the bonds or notes are
21 actually delivered and paid for, retained as liquidated damages
22 if the bidder defaults, or returned to the bidder with interest
23 at the judgment rate if, after an acceptance of the proposal,
24 the bonds or notes are not issued for any reason not
25 constituting a default by the bidder. Unless required by the
26 local governing body, no bid security shall be required in the
27 case of tax anticipation notes, bond anticipation notes, short-
28 term notes or notes to be issued under section 409.
29 Section 13. Section 801 of the act is amended to read:
30 Section 801. Certification to Department of Bond or Note
19840H2485B3554 - 16 -
1 Transcript or Lease, Guaranty, Subsidy Contract or Other
2 Agreement.--The governing body of each local government unit
3 shall, before any bonds or notes (except tax anticipation notes
4 issued pursuant to section 501 and notes representing small
5 borrowings issued pursuant to section 409 and short-term notes
6 issued pursuant to section 501-A) are actually delivered to the
7 initial purchasers, or before becoming bound on any lease,
8 guaranty, subsidy contract or other agreement, evidencing lease
9 rental debt cause to be certified to the department, under the
10 signature of the clerk or secretary of the governing body and
11 its corporate seal, a complete and accurate copy of the
12 proceedings had for the incurring of debt, as provided in
13 section 411 of this act. The provisions of this section shall
14 not be construed to eliminate the filing requirements of
15 sections 204, 205, 206, 506 [and 508], 508 and 508-A.
16 Section 14. Section 808 of the act is amended to read:
17 Section 808. Invalidity of Bonds, Notes, Tax Anticipation
18 Notes, Short-Term Notes, Leases or Other Instruments Which are
19 Delivered without Compliance with Requirements or Conditions
20 Precedent to Issuance or Delivery.--In all cases in which the
21 approval of the department is required by this act prior to the
22 issuance of bonds or notes or the execution of a lease,
23 guaranty, subsidy contract or other agreement evidencing lease
24 rental debt, in the case of small borrowings evidenced by notes
25 in respect of which compliance with the conditions of section
26 409 is required, and in the case of tax anticipation notes in
27 respect of which compliance with the conditions of sections 506,
28 507 and 508 is required, and in the case of short-term notes in
29 respect of which compliance with the conditions of sections 506-
30 A and 508-A is required, if such bonds or notes or such lease or
19840H2485B3554 - 17 -
1 other instrument shall be sold, or executed, and delivered prior
2 to receipt of actual or deemed approval under section 804 or
3 806, or as the case may be, without compliance with applicable
4 conditions of issuance, or prior to a required filing with the
5 department, as aforesaid, such bonds, notes, lease or other
6 instrument shall be invalid and of no effect in the hands of or
7 for the security of the holder of such bonds or notes or of the
8 obligations secured by such lease or other instrument, except to
9 the extent provided in this section [808]. If the bonds or notes
10 or the obligations secured by such lease or other instrument
11 shall be held by a bona fide purchaser (other than an initial
12 purchaser or member of an underwriting or selling group) for
13 value without actual notice of a lack of such prior approval,
14 filing or compliance as the case may be, and such bonds, notes
15 or other obligations shall contain a recital that such prior
16 approval, filing or compliance was received, made or observed,
17 then such bonds, notes, lease or other instrument shall be valid
18 and enforceable in accordance with their terms and any
19 applicable debt limits shall be deemed increased to the extent
20 necessary to validate and keep valid such bonds, notes, lease or
21 other instrument, but not for the purpose of reducing the
22 liability of any person under this section. The local government
23 unit shall be entitled to recover all interest and principal or
24 other amounts payable thereon or thereunder from the initial
25 purchasers and the individuals, including the officers of the
26 local government unit, responsible for making the unapproved or
27 unauthorized delivery. Notwithstanding the invalidity of the
28 instruments as to them, the initial purchasers and such
29 individuals shall be entitled to credit, in any action
30 determining such invalidity or for the recovery provided by the
19840H2485B3554 - 18 -
1 preceding sentence for the amount of:
2 (1) Any proceeds of the sale of the instruments still held
3 unexpended by the local government unit; and
4 (2) The lesser of either: (i) the cost or fair market value,
5 whichever is the lesser, of any capital project or part thereof
6 or interest therein acquired by the local government unit by an
7 expenditure of a portion or all of the proceeds of such bonds,
8 notes or other obligations; or (ii) the remaining nonelectoral
9 borrowing capacity of the local government unit.
10 Section 15. Section 809(a) of the act, amended May 22, 1981
11 (P.L.54, No.19), is amended to read:
12 Section 809. Finality of Proceedings; Validity of Bonds,
13 Notes, Tax Anticipation Notes, Short-Term Notes, Leases,
14 Guaranties, Subsidy Contracts or Other Agreements.--(a) Where a
15 certificate of approval has been issued by the department or has
16 been deemed issued under section 806, or, in the case of tax
17 anticipation notes where the filing with the department required
18 by section 508 has occurred, or, in the case of short-term notes
19 where the filing with the department required by section 508-A
20 has occurred, and no petition for a declaratory order or
21 complaint has been filed within the applicable time limits
22 specified in section 901, or when after a petition for a
23 declaratory order or complaint has been filed, the proceedings
24 have been approved finally by the department, and no appeal to
25 court has been taken, or an appeal to court has been taken, and
26 the proceedings have been approved finally by the court or the
27 appeal has been dismissed, the validity of the proceedings, the
28 right of the local government unit lawfully to issue its bonds
29 or notes or to enter into a lease, guaranty, subsidy contract or
30 other agreement evidencing lease rental debt pursuant to such
19840H2485B3554 - 19 -
1 proceedings, and the validity and due enforceability of the
2 bonds, notes or other instruments in accordance with their terms
3 shall not thereafter be inquired into judicially, in equity, at
4 law, or by civil or criminal proceedings, or otherwise, either
5 directly or collaterally. The effect of the approval by the
6 department, or by the court on appeal, or, in the case of tax
7 anticipation notes, the effect of filing in compliance with
8 section 508, or, in the case of short-term notes, the effect of
9 filing in compliance with section 508-A, shall be to ratify,
10 validate and confirm such proceedings absolutely, including the
11 lawful nature of the project and, in the case of tax
12 anticipation notes or short-term notes, the accuracy of the
13 estimates contained in the certificate as to taxes and revenues
14 or pledged funds to be collected, notwithstanding any defect or
15 error in such proceedings, except as specifically provided
16 hereinafter in this section, and any debt limit imposed by this
17 act shall be deemed increased to the extent necessary to
18 validate such debt or obligation. Nothing herein contained
19 shall, however, free an initial purchaser of bonds or notes from
20 liability to a local government unit for the payment of the
21 consideration agreed in the contract of sale, or make all such
22 bonds or notes valid and enforceable in the hands of an initial
23 purchaser unless the issuer shall have received a substantial
24 consideration for the series as a whole.
25 * * *
26 Section 16. Section 901 of the act, amended May 22, 1981
27 (P.L.54, No.19), is amended to read:
28 Section 901. Petitions for Declaratory Orders and Complaints
29 to the Department; Exclusive Jurisdiction of Department.--(a)
30 Where proceedings for the incurring of debt represented by bonds
19840H2485B3554 - 20 -
1 or notes or by a lease, guaranty, subsidy contract or other
2 agreement evidencing the acquisition of a capital asset, for the
3 issuance of tax anticipation notes, for the issuance of short-
4 term notes, or for the exclusion of debt as self-liquidating or
5 subsidized, have been taken by a local government unit, such
6 local government unit, or any taxpayer of the local government
7 unit, or other interested party may file with the department a
8 petition for a declaratory order asserting the validity or a
9 complaint asserting the invalidity of such proceedings, or any
10 part thereof. Any such complaint asserting the invalidity of
11 such proceedings or part thereof taken under section 409 may be
12 filed at any time not later than one year after final adoption
13 of the resolution authorizing the debt. Any such complaint
14 asserting the invalidity of such proceedings or part thereof
15 excluding debt as self-liquidating under section 205 or
16 authorizing tax anticipation notes under Article V or
17 authorizing short-term notes under Article V-A may be filed at
18 any time not later than fifteen days after the filing with the
19 department of the documents required by section 205 or of the
20 proceedings pursuant to section 506 or 506-A, as the case may
21 be. Any such complaint asserting the invalidity of any such
22 proceedings or part thereof in cases in which, under this act,
23 the approval or deemed approval of the department is required,
24 may be filed with the department at any time not later than the
25 later of (i) fifteen days after the date of the submission of
26 the proceedings by the local government unit to the department
27 for approval even though such proceeding may be subject to
28 correction as provided in section 805 or otherwise or (ii) five
29 days after the date of the last submission of any such corrected
30 document or certification to the department.
19840H2485B3554 - 21 -
1 If a petition for a declaratory order or complaint shall be
2 filed in respect of proceedings requiring the approval of the
3 department after the submission of the proceedings to the
4 department but prior to approval, disapproval or deemed
5 approval, the department shall not be deemed to have approved
6 the proceedings during the pendency of the matter before the
7 department.
8 (b) Exclusive jurisdiction is hereby conferred on the
9 department to hear and determine all procedural and substantive
10 matters arising from the proceedings of a local government unit
11 taken pursuant to this act, including without limitation, the
12 regularity of the proceedings, the validity of the bonds, notes,
13 tax anticipation notes, short-term notes or other obligations of
14 the local government unit, and the legality of the purpose for
15 which such obligations are to be issued. If a local government
16 unit shall file a petition for a declaratory order with the
17 department, relating to such proceedings, the department may
18 require such service by publication on taxpayers as the
19 circumstances warrant. In all other respects the proceedings
20 before the department shall be governed by regulations of the
21 department. The department shall have the power, after
22 appropriate proceedings in accordance with such regulations, to
23 approve or disapprove the proceedings of the local government
24 unit or to direct correction as provided in section 805. A
25 determination by the department under this act shall, except as
26 provided in this subsection, be conclusive and binding as to all
27 procedural and substantive matters which were or could have been
28 presented to the department hereunder. All determinations by the
29 department under this act are reviewable as provided in 2
30 Pa.C.S. Ch. 7 (relating to judicial review).
19840H2485B3554 - 22 -
1 Section 17. Section 1001(a) of the act is amended to read:
2 Section 1001. Creation of Sinking Funds and Deposits
3 Therein, Reserves and Surplus Funds.--(a) Every local
4 government unit having outstanding any bonds or notes, other
5 than tax anticipation notes, short-term notes, and [other than]
6 notes issued under section 409, shall create forthwith, subject
7 to the terms of any existing contracts with the holders of such
8 bonds or notes, and every local government unit hereafter
9 issuing any bonds or notes shall create simultaneously with or
10 prior to the delivery of the bonds or notes, and thereafter
11 maintain until such bonds or notes are paid in full a sinking
12 fund (i) for the aggregate or for one or more issues or series
13 of its general obligation bonds and notes, and (ii) separately
14 for each project or combination of projects financed by revenue
15 or guaranteed revenue bonds or notes as to which different
16 revenues are pledged. If a sinking fund is established for more
17 than one issue of bonds, a separate debt service account for
18 each issue may be established in the sinking fund. The sinking
19 fund shall be maintained with a bank, trust company or bank and
20 trust company located and lawfully conducting a banking or trust
21 business in the Commonwealth of Pennsylvania and appointed from
22 time to time as sinking fund depositary.
23 * * *
24 Section 18. Section 1003 of the act is amended to read:
25 Section 1003. Duty of Treasurer.--It shall be the duty of
26 the treasurer of each local government unit to deposit into the
27 applicable sinking fund or other fund the moneys to be deposited
28 therein pursuant to the pledge or covenant made or adopted by
29 the local government unit at the times and in the amounts
30 provided in such pledge or covenant or, if no pledge or covenant
19840H2485B3554 - 23 -
1 has been made or adopted, as provided in the appropriations made
2 by the governing body. If no appropriation of moneys shall have
3 been made, or if it shall appear that, as a result of other
4 expenditures, the appropriated revenues will not be received in
5 sufficient amounts in time to make the deposits required to be
6 made for the payment of the taxes assumed and the interest on
7 and principal of general obligation bonds and notes, or the
8 amount due on a guaranty of guaranteed revenue bonds or notes or
9 on a guaranty of any authority or other local government unit
10 obligation, it shall be the duty of the treasurer to pay into
11 the applicable sinking fund, or other fund, that portion of each
12 receipt of tax moneys and other available revenues, subject, in
13 the case of a limited guaranty, to the terms thereof, as will
14 result in the deposit of sufficient moneys in the sinking fund
15 or other fund to pay the taxes assumed and the principal of and
16 interest on the bonds or notes, or to meet the guaranty
17 obligation of the local government unit as and when the same
18 shall become due and payable. The governing body of a local
19 government unit may issue its tax anticipation notes under
20 Article V of this act or its short-term notes under Article V-A
21 of this act to provide all or any part of any moneys needed for
22 deposit in such sinking funds or other funds.
23 Section 19. Section 1201 of the act, amended May 22, 1981
24 (P.L.54, No.19), is amended to read:
25 Section 1201. Failure to Budget Debt Service.--If a local
26 government unit having outstanding any general obligation bonds
27 or notes or guaranteed revenue bonds or notes, lease rental debt
28 or guaranty of authority obligations fails or refuses to make
29 adequate provision in its budget for any fiscal year for the
30 sums payable in respect of such bonds or notes, lease rental or
19840H2485B3554 - 24 -
1 guaranty in such year or shall fail to appropriate or pay the
2 moneys necessary in such year for the payment of the amount of
3 the lease rental or guaranty, as the case may be, of the
4 maturing principal of and the interest on such bonds or notes or
5 any of them, or any tax anticipation notes, or any short-term
6 notes, or any sinking fund obligation for such bonds or notes or
7 tax anticipation notes or short-term notes, or guaranty or the
8 lease rental payment coming due in the fiscal year of such
9 budget or for which such appropriations or payments should have
10 been made, then at the suit of the holder of any bond, note, or
11 tax anticipation note, or short-term note, or coupon or
12 guaranty, or the holder of any authority obligation secured by a
13 lease evidencing the acquisition of a capital asset or of any
14 taxpayer of the local government unit, the court of common pleas
15 shall, after a hearing held upon such notice to the local
16 government unit as the court may direct, and upon a finding of
17 such failure or neglect, by writ of mandamus, require the
18 treasurer of the local government unit, and it shall be the duty
19 of such treasurer, to pay into the sinking fund for each series
20 of bonds or notes then outstanding, or for each guaranty or
21 lease rental payment, the first tax moneys or other available
22 revenues or moneys thereafter received in such fiscal year by
23 such treasurer, equally and ratably for each series for which
24 provision has not been made in proportion to debt service for
25 such year on each such series then outstanding, or the amounts
26 due upon guaranties or as payments with respect to lease rental
27 debt, as the case may be, (except that any priority on incoming
28 tax moneys accorded to a separate sinking fund for tax
29 anticipation notes under the authority of section 505, or for
30 short-term notes under the authority of section 505-A, shall not
19840H2485B3554 - 25 -
1 be affected by this provision), until the sum on deposit in each
2 sinking fund shall equal the moneys that should have been
3 budgeted or appropriated for each such series.
4 Section 20. Section 1202 of the act, repealed in part,
5 October 5, 1980 (P.L.693, No.142), is amended to read:
6 Section 1202. Failure to Pay Principal or Interest.--(a) If
7 a local government unit fails or neglects to pay or cause to be
8 paid the interest or principal on any of its general obligation
9 bonds or notes, or tax anticipation notes, or short-term notes,
10 as the same becomes due and payable whether at the stated
11 maturity date or upon an unrevoked call for prior redemption, or
12 to perform its payment obligations with respect to any lease
13 rental debt or guaranteed revenue bonds or notes, and such
14 failure shall continue for thirty days, the holder thereof
15 shall, subject to priorities created under sections 505, 505-A,
16 1201 and 1203 of this act and to any limitations upon individual
17 rights of action properly provided in the bond ordinance or any
18 indenture, have the right to recover the amount due in an action
19 in the court of common pleas. The judgment recovered shall have
20 an appropriate priority upon the moneys next coming into the
21 treasury of the local government unit and shall be a judgment
22 upon which funding bonds may be issued pursuant to Article V of
23 this act.
24 (b) If a local government unit fails or neglects to pay or
25 cause to be paid the principal of or the interest upon any
26 revenue bond or note as the same shall become due, whether at
27 the stated maturity or upon call for prior redemption, the
28 holder thereof shall, subject to priorities created under
29 sections 505, 505-A, 1202 and 1203 of this act and to any
30 limitations upon individual rights of action properly provided
19840H2485B3554 - 26 -
1 in the bond ordinance or any indenture, have the right to
2 recover the amount due in an action in the court of common pleas
3 but the judgment shall be limited to payment out of the
4 assessments, revenues, rates, rents, tolls and charges from the
5 project which are pledged for the payment of such bonds or
6 notes.
7 Section 21. Section 1303 of the act is amended to read:
8 Section 1303. Exemption of Bonds and Notes from Taxation in
9 Pennsylvania.--The Commonwealth does hereby pledge to and agree
10 with any person, firm, or corporation or Federal Agency
11 subscribing to or acquiring any bonds or notes, including tax
12 anticipation notes and short-term notes issued by any local
13 government unit pursuant to the provisions of this act or the
14 act approved June 25, 1941, as amended, that such bonds or
15 notes, their transfer and the income therefrom (including any
16 profits made on the sale thereof) shall at all times be free
17 from taxation for State and local purposes within the
18 Commonwealth of Pennsylvania, but this exemption shall not
19 extend to gift, estate, succession or inheritance taxes or any
20 other taxes not levied directly on the bonds or notes, the
21 transfer thereof, the income therefrom, or the realization of
22 profits on the sale thereof.
23 Section 22. Section 1304 of the act is amended to read:
24 Section 1304. Exclusive Method of Borrowing on Bonds or
25 Notes, Including Tax Anticipation Notes and Short-Term Notes.--
26 Hereafter a local government unit, as defined in this act, may
27 borrow money on bonds or notes, including tax anticipation notes
28 and short-term notes, only as provided in this act, it being the
29 intention that this act shall provide an exclusive and uniform
30 system on the subjects covered by this act: Provided, however,
19840H2485B3554 - 27 -
1 That school districts of the first class may for their first
2 four full fiscal years following the effective date of this act
3 borrow on tax anticipation notes and other short term borrowing
4 authority in accordance with prior law.
5 Section 23. This act shall take effect immediately.
I14L53RZ/19840H2485B3554 - 28 -