1Amending Title 53 (Municipalities Generally) of the Pennsylvania
2Consolidated Statutes, further providing for the prohibition
3of interest rate management agreements for authorities;
4providing for the offense of knowingly participating in an
5ultra vires act of an authority and for the offense of
6knowingly filing materially false or misleading reports or
7certifications for an authority; further providing for
8definitions; providing for the prohibition of interest rate
9management agreements for local government units; further
10providing for scope of unfunded debt and for treatment of
11costs upon refunding; and repealing provisions relating to
12interest rate risk and interest rate cost management for
13local government units.

14The General Assembly of the Commonwealth of Pennsylvania
15hereby enacts as follows:

16Section 1. Section 5607(e) of Title 53 of the Pennsylvania
17Consolidated Statutes is amended by adding a paragraph to read:

18§ 5607. Purposes and powers.

19* * *

20(e) Prohibition.--

21* * *

22(4) No authority may enter into an interest rate
23management agreement, including a swap, interest rate cap,

1collar, corridor, ceiling and floor agreement, forward
2agreement and float agreement.

3* * *

4Section 2. Title 53 is amended by adding sections to read:

5§ 5624. Knowingly participating in an ultra vires act of an
6authority.

7(a) General rule.--Any officer or any member of the
8governing body of any authority or any member of a law firm or a
9financial advisor firm who assists or provides advice to an
10authority and who knowingly participates in an ultra vires act
11of an authority commits a misdemeanor of the second degree and
12shall, upon conviction, be sentenced to pay a fine of not more
13than $5,000 or to imprisonment for not more than two years, or
14both.

15(b) Prohibition.--A law firm or financial advisor firm which
16has had a member convicted under subsection (a) shall be
17prohibited for two years from assisting an authority with or
18providing advice to an authority for any activity under this
19chapter.

20(c) Definition.--An act is an "ultra vires act" when the 
21municipal authority is without authority to perform the act or 
22when the act is not explicitly prohibited, but is in excess of 
23the powers granted to the municipal authority.

24§ 5625. Knowingly filing materially false or misleading reports
25or certifications for an authority.

26(a) General rule.--Any officer or any member of the
27governing body of any authority who knowingly files a materially
28false or misleading report or certification with the Secretary
29of the Commonwealth commits a misdemeanor of the second degree
30and shall, upon conviction, be sentenced to pay a fine of not

1more than $5,000 or to imprisonment for not more than two years,
2or both.

3(b) Aiding or abetting.--Any officer or any member of the
4governing body of any authority or any member of a law firm or a
5financial advisor firm who assists or provides advice to an
6authority and who aids or abets in the commission of the offense
7under subsection (a) commits a misdemeanor of the second degree
8and shall, upon conviction, be sentenced to pay a fine of not
9more than $5,000 or to imprisonment for not more than two years,
10or both.

11(c) Prohibition.--A law firm or financial advisor firm which
12has had a member convicted under subsection (b) shall be
13prohibited for two years from assisting an authority with or
14providing advice to an authority for any activity under this
15chapter.

16Section 3. The definition of "debt" in subsection (a) and
17the definitions of "independent financial advisor," "interest
18rate management plan" and "qualified interest rate management
19agreement" in subsection (c) of section 8002 of Title 53 are
20amended to read:

21§ 8002. Definitions.

22(a) Classification of debt.--With respect to classifications
23of debt and subject to additional definitions contained in
24subsequent provisions of this subpart which are applicable to
25specific provisions of this subpart, the following words and
26phrases when used in this subpart shall have the meanings given
27to them in this section unless the context clearly indicates
28otherwise:

29"Debt." The amount of all obligations for the payment of
30money incurred by the local government unit, whether due and

1payable in all events, or only upon the performances of work,
2possession of property as lessee, rendering of services by
3others or other contingency, except the following:

4(1) Current obligations for the full payment of which
5current revenues have been appropriated, including tax
6anticipation notes, and current payments for the funding of
7pension plans.

8(2) Obligations under contracts for supplies, services
9and pensions allocable to current operating expenses of
10future years in which the supplies are to be expended or
11furnished, the services rendered or the pensions paid.

12(3) Rentals or payments payable in future years under
13leases, guaranties, subsidy contracts or other forms of
14agreement not evidencing the acquisition of capital assets.
15This exception shall not apply to rentals or payments under
16any instruments which would constitute lease rental debt but
17for the fact that the lessor or obligee is not an entity
18described in section 8004(a)(1) (relating to when lease or
19other agreement evidences acquisition of capital asset).

20(4) Interest or assumed taxes payable on bonds or notes
21which interest or taxes are not yet overdue.

22[(5) Obligations incurred and payments, including
23periodic scheduled payments and termination payments, payable
24pursuant to a qualified interest rate management agreement.]

25* * *

26(c) Other definitions.--Subject to additional definitions
27contained in subsequent provisions of this subpart which are
28applicable to specific provisions of this subpart, the following
29words and phrases when used in this subpart shall have the
30meanings given to them in this section unless the context

1clearly indicates otherwise:

2 * * *

3["Independent financial advisor." A person or entity
4experienced in the financial aspects and risks of interest rate
5management agreements who is retained by a local government unit
6to advise the local government unit with respect to a qualified
7interest rate management agreement. The independent financial
8advisor may not be the other party or an affiliate or agent of
9the other party on a qualified interest rate management
10agreement with respect to which the independent financial
11advisor is advising a local government unit. For purposes of
12sections 8281(b)(2) and (e)(5) (relating to qualified interest
13rate management agreements), the independent financial advisor
14may be retained by a public authority.

15"Interest rate management plan." A written plan prepared or
16reviewed by an independent financial advisor with respect to a
17qualified interest rate management agreement, which includes:

18(1) A schedule listing the amount of debt outstanding
19for each outstanding debt issue of the local government unit
20and the expected annual debt service on that debt. In the
21case of variable rate debt, the schedule shall set forth the
22estimated annual debt service thereon and annual debt service
23on the debt calculated at the maximum rate specified for the
24variable rate debt.

25(2) A schedule listing the notional amounts outstanding
26of each previously executed qualified interest rate
27management agreement which is then in effect.

28(3) A schedule listing all consulting, advisory,
29brokerage or similar fees, paid or payable by the local
30government unit in connection with the qualified interest

1rate management agreement, and a schedule of any finder's
2fees, consulting fees or brokerage fees, paid or payable by
3the other party in connection with the qualified interest
4rate management agreement.

5(4) A schedule listing the estimated and maximum
6periodic scheduled payments to be paid by the local
7government unit and to be received by the local government
8unit from the other party in each year during the term of the
9qualified interest rate management agreement.

10(5) An analysis of the interest rate risk, basis risk,
11termination risk, credit risk, market-access risk and other
12risks of entering into the qualified interest rate management
13agreement. This paragraph includes schedules of the estimated
14and maximum scheduled periodic payments which would be due
15under the qualified interest rate management agreement.

16(6) An analysis of the interest rate risk, basis risk,
17termination risk, credit risk, market-access risk and other
18risks to the local government unit of the net payments due
19for all debt outstanding and all qualified interest rate
20management agreements of the local government unit. This
21paragraph includes schedules of the estimated and maximum net
22payments of total debt service and scheduled, periodic, net
23payments, which would be due under all of the qualified
24interest rate management agreements.

25(7) The local government unit's plan to monitor interest
26rate risk, basis risk, termination risk, credit risk, market-
27access risk and other risks. This paragraph includes the
28valuation of the market or termination value of all
29outstanding qualified interest rate management agreements.]

30* * *

1["Qualified interest rate management agreement." An
2agreement, including a confirmation evidencing a transaction
3effected under a master agreement, entered into by a local
4government unit in accordance with and fulfilling the
5requirements of section 8281 (relating to qualified interest
6rate management agreements), which agreement in the judgment of
7the local government unit is designed to manage interest rate
8risk or interest cost of the local government unit on any debt a
9local government unit is authorized to incur under this subpart,
10including, but not limited to, swaps, interest rate caps,
11collars, corridors, ceiling and floor agreements, forward
12agreements, float agreements and other similar arrangements
13which in the judgment of the local government unit will assist
14the local government unit in managing the interest rate risk or
15interest cost of the local government unit.]

16 * * *

17Section 4. Title 53 is amended by adding a section to read:

18§ 8010. Interest rate management agreements prohibited.

19All local government units are prohibited from entering into
20interest rate management agreements, including swaps, interest
21rate caps, collars, corridors, ceiling and floor agreements,
22forward agreements and float agreements.

23Section 5. Sections 8129 and 8242(a) of Title 53 are amended
24to read:

25§ 8129. Scope of unfunded debt.

26For the purpose of this subchapter, "unfunded debt" means 
27obligations of the same or one or more prior years incurred for 
28current expenses, including tax anticipation notes [and 
29payments, including termination payments, required to be made 
30under qualified interest rate management agreements,] due and
 

1owing or judgments against the local government unit entered by 
2a court after adversary proceedings[, including a judgment under 
3section 8283(b)(2)(i) (relating to remedies),] for the payment 
4of either of which category the taxes and other revenues 
5remaining to be collected in the fiscal year and funds on hand 
6will not be sufficient without a curtailment of municipal 
7services to an extent endangering the health or safety of the 
8public or proper public education, and the local government unit 
9either may not legally levy a sufficient tax for the balance of 
10the fiscal year, or a sufficient tax, if legally leviable, would 
11not be in the public interest. Unfunded debt does not, however, 
12include debt incurred under this subpart or obligations in 
13respect of a project or part of a project as incurred in respect 
14of the cost of a project.

15§ 8242. Treatment of costs upon refunding.

16(a) General rule.--In any refunding, a principal amount of
17refunding bonds or notes or obligations evidencing lease rental
18debt equal to the sum of the following:

19(1) the call premium payable on the bonds, notes or
20obligations being refunded;

21(2) the discount allowed on the sale of the refunding
22bonds, notes or obligations;

23[(2.1) any funds borrowed in order to pay any
24termination payment required to be paid under a qualified
25interest rate management agreement in which the notional
26amount is identified as corresponding to all or any portion
27of the bond or note being refunded;]

28(3) any funds borrowed to pay interest on bonds, notes
29or obligations being refunded; and

30(4) the costs of issue and sale of the refunding bonds,

1notes or obligations;

2may be considered as interest on the refunding bonds, notes or
3obligations and may be separately stated in all reporting of
4debt and in all computation of debt limits and, if so considered
5and reported by the local government unit, shall not be
6considered as electoral, nonelectoral or lease rental debt. In
7subsequent debt statements, any such separately stated principal
8amount of bonds, notes or obligations shall be reported as being
9amortized in the same proportion as the series of which they are
10a part.

11* * *

12Section 6. Subchapter F of Chapter 82 of Title 53 is
13repealed:

14[SUBCHAPTER F

15INTEREST RATE RISK AND INTEREST COST MANAGEMENT

16§ 8281. Qualified interest rate management agreements.

17(a) General rule.--

18(1) Except as set forth in paragraph (4),
19notwithstanding any other law to the contrary, a local
20government unit may negotiate and enter into qualified
21interest rate management agreements consistent with the
22provisions of this subchapter.

23(2) The local government unit must authorize and award
24by resolution each qualified interest rate management
25agreement or any confirmation of a transaction. The
26resolution is subject to section 8003(a) and (b) (relating to
27advertisement and effectiveness of ordinances) but may be
28valid and effective for all purposes immediately upon
29adoption or as otherwise provided in the resolution.

30(3) A local government unit has the power to contract

1for insurance covering the risks of nonpayment of amounts due
2under qualified interest rate management agreements.

3(4) The authority granted in this subchapter shall not
4apply to any local government unit which has been declared
5distressed by the Department of Community and Economic
6Development.

7(b) Requirements for resolution.--The resolution authorizing
8and awarding a qualified interest rate management agreement or
9authorizing a transaction under the agreement must include in
10the resolution or as an appendix to the resolution all of the
11following:

12(1) A copy of the qualified interest rate management
13agreement or confirmation of the transaction under the
14qualified interest rate management agreement in substantially
15the form to be executed pursuant to the resolution.

16(2) The interest rate management plan meeting the
17requirements under this subpart:

18(i) adopted by the local government unit; or

19(ii) if the local government unit is incurring
20indebtedness under this chapter which has or will be
21issued to a public authority that has entered into or
22will enter into an interest rate management agreement
23meeting the requirements of a qualified interest rate
24management agreement under this subpart, adopted by that
25public authority.

26(3) A statement of the manner of the award of the
27qualified interest rate management agreement under subsection
28(e).

29(c) Contents of qualified interest rate management
30agreements.--In addition to other provisions approved by the

1local government unit, a qualified interest rate management
2agreement must contain all of the following:

3(1) The covenant of the local government unit to make
4payments required by the qualified interest rate management
5agreement and the covenants authorized by section 8282
6(relating to covenant to pay amounts due under qualified
7interest rate management agreements).

8(2) The notional amount of the qualified interest rate
9management agreement and the principal amount of bonds or
10notes or lease rental debt, or portions of the notional or
11principal amounts, issued or to be issued by the local
12government unit under this subpart or guaranteed by the local
13government unit under this subpart, to which the agreement
14relates.

15(3) The term of any qualified interest rate management
16agreement, which must not exceed the latest maturity date of
17the bonds or notes referenced in the qualified interest rate
18management agreement.

19(4) A provision requiring the termination of the
20agreement if all debt to which the qualified interest rate
21management agreement relates is no longer outstanding.

22(5) The maximum annual interest rate which the local
23government unit may pay thereunder.

24(6) A provision that the maximum net payments by fiscal
25year of a local government unit shall not exceed the maximum
26interest rate specified in the qualified interest rate
27management agreement for:

28(i) periodic scheduled payments, not including any
29termination payments, due under the qualified interest
30rate management agreement; and

1(ii) the interest on the bonds or notes to which the
2qualified interest rate management agreement relates.

3(7) The source of payment of the payment obligations of
4the local government unit, which must be either general
5revenues or revenues specifically identified in the
6agreement.

7(8) A provision addressing the actions to be taken if
8the credit rating of the other party changes.

9(9) A provision that periodic scheduled payments due
10under the qualified interest rate management agreement and
11debt service due on the related bonds or notes or payments
12due under the related instrument evidencing lease rental debt
13or guaranty of the local government unit shall be senior in
14right and priority of payment to termination payments due
15under the qualified interest rate management agreement.

16(d) Other provisions of the qualified interest rate
17management agreement.--The qualified interest rate management
18agreement may include:

19(1) A covenant to include any termination payment or
20similar payment for a qualified interest rate management
21agreement in its current budget at any time during a fiscal
22year or in a budget adopted in a future fiscal year.

23(2) A provision that the following shall be equally and
24ratably payable and secured under the applicable covenants
25authorized in section 8282:

26(i) Periodic scheduled payments due under the
27qualified interest rate management agreement; and

28(ii) Any of the following to which the agreement
29relates:

30(A) the debt service due on the bonds or notes;

1(B) payment under an instrument evidencing lease
2rental debt; or

3(C) payment under a guaranty of the local
4government unit.

5(3) A provision that the qualified interest rate
6management agreement may be terminated at the option of the
7local government unit without cause but that the qualified
8interest rate management agreement may not be terminated at
9the option of the other party to the qualified interest rate
10management agreement without cause.

11(e) Award of qualified interest rate management
12agreements.--

13(1) The local government unit shall establish a process
14for selecting other parties before entering into a qualified
15interest rate management agreement.

16(2) The local government unit shall establish
17qualifications for other parties before entering into a
18qualified interest rate management agreement. The
19qualifications shall include a rating for the other party of
20at least the third highest rating category from a nationally
21recognized rating agency.

22(3) A qualified interest rate management agreement must
23be awarded by public sale, private sale by negotiation or
24private sale by invitation.

25(4) The local government unit shall select the qualified
26interest rate management agreement which the local government
27unit determines is in its best financial interest. The
28qualified interest rate management agreement selected must
29contain financial terms and conditions which in the opinion
30of the independent financial advisor to the local government

1unit are fair and reasonable to the local government unit as
2of the date of award.

3(5) The local government unit may satisfy the
4requirements of paragraph (4) by obtaining a finding from an
5independent financial advisor to the public authority that
6the financial terms and conditions of the agreement are fair
7and reasonable to the public authority as of the date of the
8award if all of the following apply:

9(i) The local government unit is incurring
10indebtedness under this chapter which has or will be
11issued to a public authority.

12(ii) In connection with the incurring of debt under
13subparagraph (i), the local government unit will become
14obligated for all or a portion of the public authority's
15costs under an interest rate management agreement.

16§ 8282. Covenant to pay amounts due under qualified interest
17rate management agreements.

18(a) Contents.--The local government unit shall include in a
19qualified interest rate management agreement a covenant that the
20local government unit shall do the following:

21(1) Include the periodic scheduled amounts payable in
22respect of the qualified interest rate management agreement
23for each fiscal year in its budget for that fiscal year.

24(2) Appropriate those amounts from its general or
25specially pledged revenues for the payment of amounts due
26under the qualified interest rate management agreement.

27(b) Pledge.--

28(1) Except as set forth in paragraph (2), the local
29government unit may pledge its full faith, credit and taxing
30power for the budgeting, appropriation and payment of

1periodic scheduled payments due under a qualified interest
2rate management agreement.

3(2) A local government unit may not make a pledge under
4paragraph (1) if the payment obligations of the local
5government unit under the qualified interest rate management
6agreement are limited as to payment to specified revenues of
7the local government unit.

8(c) Security interest.--If the periodic scheduled payment
9obligations of the local government unit are specified in the
10qualified interest rate management agreement to be made from
11specified revenues of the local government unit, the local
12government unit may include in the qualified interest rate
13management agreement a covenant granting a security interest in
14those revenues to secure its periodic scheduled payment
15obligations under the agreement. The security interest shall be
16perfected under section 8147 (relating to pledge of revenues).

17§ 8283. Remedies.

18(a) Failure to budget amounts due under a qualified interest
19rate management agreement.--

20(1) This subsection applies if a local government unit
21fails or refuses to budget for any fiscal year a periodic
22scheduled payment:

23(i) due in that year pursuant to the provisions of a
24qualified interest rate management agreement; and

25(ii) payable from the general revenues of the local
26government unit.

27(2) If a local government unit commits a failure or
28refusal under paragraph (1), the following apply:

29(i) The other party to the interest rate management
30agreement may bring an enforcement action in a court of

1common pleas.

2(ii) After a hearing held upon notice to the local
3government unit as the court may direct, if the court
4finds a failure or refusal under paragraph (1), the court
5may, by order of mandamus, require the treasurer of the
6local government unit to pay to the other party out of
7the first tax money or other available revenue or money
8thereafter received in the fiscal year by the treasurer
9the periodic scheduled payments due pursuant to the
10provisions of the qualified interest rate management
11agreement. The order shall be subject to section 8281(c)
12(8) (relating qualified interest rate management
13agreements).

14(iii) Any priority on incoming tax money accorded to
15a separate sinking fund for tax anticipation notes under
16the authority of section 8125 (relating to security for
17tax anticipation notes and sinking fund) shall not be
18affected by an order under subparagraph (ii) until the
19sum on deposit in each sinking fund equals the money
20which should have been budgeted or appropriated for each
21series.

22(b) Failure to pay amounts due under a qualified interest
23rate management agreement.--

24(1) This subsection applies if:

25(i) a local government unit fails to pay any amount
26due under a qualified interest rate management agreement
27when it becomes due and payable; and

28(ii) the failure continues for 30 days.

29(2) If there is a failure under paragraph (1), the other
30party to the qualified interest rate management agreement may

1bring an action in a court of common pleas to recover the
2amount due. This paragraph is subject to:

3(i) the priorities under sections 8125 and 8281(c)
4(8); and

5(ii) any limitations upon rights of action properly
6provided in the qualified interest rate management
7agreement.

8(3) The judgment recovered under paragraph (2) shall:

9(i) have an appropriate priority upon the money next
10coming into the treasury of the local government unit;
11and

12(ii) be a judgment upon which funding bonds may be
13issued pursuant to Ch. 81 Subch. B (relating to tax
14anticipation notes and funding debt).

15(c) Failure to pay by school districts.--

16(1) This subsection applies if a board of directors of a
17school district fails to pay or to provide for the payment of
18periodic scheduled payments, not including any termination
19payments, due pursuant to the provisions of a qualified
20interest rate management agreement.

21(2) A party to a qualified interest rate management
22agreement must notify the Secretary of Education of a failure
23under paragraph (1).

24(3) Upon notice under paragraph (2), the following
25apply:

26(i) The secretary shall notify the Department of
27Community and Economic Development and the offending
28board of school directors.

29(ii) If the secretary finds that the amount due and
30payable by the school district has not been paid, the

1secretary shall withhold out of any State appropriation
2due the school district an amount equal to the amount due
3pursuant to the qualified interest rate management
4agreement and shall pay over the amount so withheld to
5the party to the qualified interest rate management
6agreement to whom the amount is due.

7§ 8284. Notice and retention of records.

8(a) Notice.--

9(1) The local government unit shall file with the
10Department of Community and Economic Development certified
11copies of a resolution authorizing a qualified interest rate
12management agreement, including any appendix to the
13resolution, 15 days following adoption.

14(2) If the maximum net payments by fiscal year for
15periodic scheduled payments of the local government unit, not
16including any termination payments, and interest on the bonds
17or notes to which the qualified interest rate management
18agreement relates exceed the amount of interest approved in
19proceedings of the local government unit with respect to such
20bonds or notes filed with and approved by the department, the
21local government unit shall adopt an amendment to the
22ordinance or resolution authorizing such bonds or notes
23reflecting such increase. The amendment shall be advertised
24and effective as provided in section 8003 (relating to
25advertisement and effectiveness of ordinances) and filed with
26the department. No approval by the department or filing fee
27by the local government unit shall be required for any filing
28under this subsection.

29(b) Records.--The department shall keep copies of all
30documents filed with the department under this section as long

1as a qualified interest rate management agreement is in effect.
2Documents filed with the department under this section are
3public records available for examination by any citizen of this
4Commonwealth; any party to the qualified interest rate
5management agreement; or any bondholder or noteholder, including
6holders of tax anticipation notes, of the local government unit
7filing any document pursuant to this section.

8§ 8285. Financial reporting.

9A local government unit which has entered into a qualified
10interest rate management agreement shall include in its annual
11financial statements information with respect to each qualified
12interest rate management agreement it has authorized or entered
13into, including any information required pursuant to any
14statement issued by the Governmental Accounting Standards
15Board.]

16Section 7. The amendment, addition or repeal of 53 Pa.C.S.
17§§ 5607(e), 8002(a) and (c), 8010, 8129, 8242(a), 8281, 8282,
188283, 8284 and 8285 shall not apply to qualified interest rate
19management agreements in effect prior to the effective date of
20this section.

21Section 8. This act shall take effect in 60 days.