<-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.

<-14Amending Title 53 (Municipalities Generally) of the Pennsylvania
15Consolidated Statutes, in municipal authorities, providing
16for interest rate risk and interest cost management, for the
17offense of knowingly participating in an ultra vires act of
18an authority and for the offense of knowingly filing
19materially false or misleading reports or certifications for
20an authority; and, in indebtedness and borrowing, further
21providing for definitions; and expanding the scope of
22provisions relating to interest rate risk and interest cost
23management to include first class counties and cities AND
24authorities.

25The General Assembly of the Commonwealth of Pennsylvania
26hereby enacts as follows:

<-27Section 1. Section 5607(e) of Title 53 of the Pennsylvania
28Consolidated Statutes is amended by adding a paragraph to read:

1§ 5607. Purposes and powers.

2* * *

3(e) Prohibition.--

4* * *

5(4) No authority may enter into an interest rate
6management agreement, including a swap, interest rate cap,
7collar, corridor, ceiling and floor agreement, forward
8agreement and float agreement.

9* * *

10Section 2. Title 53 is amended by adding sections to read:

<-11Section 1. Title 53 of the Pennsylvania Consolidated 
12Statutes is amended by adding sections to read:

13§ 5608.1. Interest rate risk and interest rate cost management.

14Notwithstanding any other provision of this chapter,
15municipal authorities shall be subject to the provisions of
16Subchapter F of Chapter 82 (relating to interest rate risk and
17interest cost management).

18§ 5624. Knowingly participating in an ultra vires act of an
19authority.

20(a) General rule.--Any officer or any member of the
21governing body of any authority or any member of a law firm or a
22financial advisor firm who assists <-or provides advice to an
23authority and who knowingly participates in an ultra vires act
24of an authority <-an authority in performing an ultra vires act
25commits a misdemeanor of the second degree and shall, upon
26conviction, be sentenced to pay a fine of not more than $5,000
27or to imprisonment for not more than two years, or both.

28(b) Prohibition.--A law firm or financial advisor firm which
29has had a member convicted under subsection (a) shall be
30prohibited for two years from assisting an authority with or

1providing advice to an authority for any activity under this
2chapter.

<-3(c) Definition.--An act is an "ultra vires act" when the
4municipal authority is without authority to perform the act or
5when the act is not explicitly prohibited, but is in excess of
6the powers granted to the municipal authority.

<-7(c) Definitions.--As used in this section, the following
8words and phrases shall have the meanings given to them in this
9subsection unless the context clearly indicates otherwise:

10"Financial advisor." A person, firm or other entity
11experienced in various aspects of debt and financial
12transactions who is retained by a local government unit to
13advise it with respect to structuring or repaying debt. The term
14does not include a lender, underwriter or other entity
15purchasing the bonds or notes of a local government unit.

16"Ultra vires act." An act that a reasonable person would
17know the municipal authority is without statutory authority or
18power to perform. The reasonable person shall have comparable
19education, experience and information to the person assisting
20the municipal authority in performing the act.

21§ 5625. Knowingly filing materially false or misleading reports
22or certifications for an authority.

23(a) General rule.--Any officer or any member of the
24governing body of any authority <-or any lawyer, financial
25advisor, engineer, architect or any other individual who
26knowingly files a materially false or misleading report or
27certification with the Secretary of the Commonwealth <-department
28commits a misdemeanor of the second degree and shall, upon
29conviction, be sentenced to pay a fine of not more than $5,000
30or to imprisonment for not more than two years, or both.

<-1(b) Aiding or abetting.--Any officer or any member of the
2governing body of any authority or any member of a law firm or a
3financial advisor firm who assists or provides advice to an
4authority and who aids or abets in the commission of the offense
5under subsection (a) commits a misdemeanor of the second degree
6and shall, upon conviction, be sentenced to pay a fine of not
7more than $5,000 or to imprisonment for not more than two years,
8or both.

9(c) Prohibition.--A law firm or financial advisor firm which
10has had a member convicted under subsection (b) <-(b)
11Prohibition.--The company or firm having a member or employee
12convicted under subsection (a) shall be prohibited for two years
13from assisting an authority with or providing advice to an
14authority for any activity under this chapter.

<-15(c) Definition.--As used in this section, the term
16"financial advisor" means a person, firm or other entity
17experienced in various aspects of debt and financial
18transactions who is retained by a local government unit to
19advise it with respect to structuring or repaying debt. The term
20does not include a lender, underwriter or other entity
21purchasing the bonds or notes of a local government unit.

<-22Section 3. The definition of "debt" in subsection (a) and
23the definitions of "independent financial advisor," "interest
24rate management plan" and "qualified interest rate management
25agreement" in subsection (c) of section 8002 of Title 53 are
26amended to read:

27§ 8002. Definitions.

28(a) Classification of debt.--With respect to classifications
29of debt and subject to additional definitions contained in
30subsequent provisions of this subpart which are applicable to

1specific provisions of this subpart, the following words and
2phrases when used in this subpart shall have the meanings given
3to them in this section unless the context clearly indicates
4otherwise:

5"Debt." The amount of all obligations for the payment of
6money incurred by the local government unit, whether due and
7payable in all events, or only upon the performances of work,
8possession of property as lessee, rendering of services by
9others or other contingency, except the following:

10(1) Current obligations for the full payment of which
11current revenues have been appropriated, including tax
12anticipation notes, and current payments for the funding of
13pension plans.

14(2) Obligations under contracts for supplies, services
15and pensions allocable to current operating expenses of
16future years in which the supplies are to be expended or
17furnished, the services rendered or the pensions paid.

18(3) Rentals or payments payable in future years under
19leases, guaranties, subsidy contracts or other forms of
20agreement not evidencing the acquisition of capital assets.
21This exception shall not apply to rentals or payments under
22any instruments which would constitute lease rental debt but
23for the fact that the lessor or obligee is not an entity
24described in section 8004(a)(1) (relating to when lease or
25other agreement evidences acquisition of capital asset).

26(4) Interest or assumed taxes payable on bonds or notes
27which interest or taxes are not yet overdue.

28[(5) Obligations incurred and payments, including
29periodic scheduled payments and termination payments, payable
30pursuant to a qualified interest rate management agreement.]

1* * *

2(c) Other definitions.--Subject to additional definitions
3contained in subsequent provisions of this subpart which are
4applicable to specific provisions of this subpart, the following
5words and phrases when used in this subpart shall have the
6meanings given to them in this section unless the context
7clearly indicates otherwise:

8 * * *

9["Independent financial advisor." A person or entity
10experienced in the financial aspects and risks of interest rate
11management agreements who is retained by a local government unit
12to advise the local government unit with respect to a qualified
13interest rate management agreement. The independent financial
14advisor may not be the other party or an affiliate or agent of
15the other party on a qualified interest rate management
16agreement with respect to which the independent financial
17advisor is advising a local government unit. For purposes of
18sections 8281(b)(2) and (e)(5) (relating to qualified interest
19rate management agreements), the independent financial advisor
20may be retained by a public authority.

21"Interest rate management plan." A written plan prepared or
22reviewed by an independent financial advisor with respect to a
23qualified interest rate management agreement, which includes:

24(1) A schedule listing the amount of debt outstanding
25for each outstanding debt issue of the local government unit
26and the expected annual debt service on that debt. In the
27case of variable rate debt, the schedule shall set forth the
28estimated annual debt service thereon and annual debt service
29on the debt calculated at the maximum rate specified for the
30variable rate debt.

1(2) A schedule listing the notional amounts outstanding
2of each previously executed qualified interest rate
3management agreement which is then in effect.

4(3) A schedule listing all consulting, advisory,
5brokerage or similar fees, paid or payable by the local
6government unit in connection with the qualified interest
7rate management agreement, and a schedule of any finder's
8fees, consulting fees or brokerage fees, paid or payable by
9the other party in connection with the qualified interest
10rate management agreement.

11(4) A schedule listing the estimated and maximum
12periodic scheduled payments to be paid by the local
13government unit and to be received by the local government
14unit from the other party in each year during the term of the
15qualified interest rate management agreement.

16(5) An analysis of the interest rate risk, basis risk,
17termination risk, credit risk, market-access risk and other
18risks of entering into the qualified interest rate management
19agreement. This paragraph includes schedules of the estimated
20and maximum scheduled periodic payments which would be due
21under the qualified interest rate management agreement.

22(6) An analysis of the interest rate risk, basis risk,
23termination risk, credit risk, market-access risk and other
24risks to the local government unit of the net payments due
25for all debt outstanding and all qualified interest rate
26management agreements of the local government unit. This
27paragraph includes schedules of the estimated and maximum net
28payments of total debt service and scheduled, periodic, net
29payments, which would be due under all of the qualified
30interest rate management agreements.

1(7) The local government unit's plan to monitor interest
2rate risk, basis risk, termination risk, credit risk, market-
3access risk and other risks. This paragraph includes the
4valuation of the market or termination value of all
5outstanding qualified interest rate management agreements.]

6* * *

7["Qualified interest rate management agreement." An
8agreement, including a confirmation evidencing a transaction
9effected under a master agreement, entered into by a local
10government unit in accordance with and fulfilling the
11requirements of section 8281 (relating to qualified interest
12rate management agreements), which agreement in the judgment of
13the local government unit is designed to manage interest rate
14risk or interest cost of the local government unit on any debt a
15local government unit is authorized to incur under this subpart,
16including, but not limited to, swaps, interest rate caps,
17collars, corridors, ceiling and floor agreements, forward
18agreements, float agreements and other similar arrangements
19which in the judgment of the local government unit will assist
20the local government unit in managing the interest rate risk or
21interest cost of the local government unit.]

22 * * *

23Section 4. Title 53 is amended by adding a section to read:

24§ 8010. Interest rate management agreements prohibited.

25All local government units are prohibited from entering into
26interest rate management agreements, including swaps, interest
27rate caps, collars, corridors, ceiling and floor agreements,
28forward agreements and float agreements.

29Section 5. Sections 8129 and 8242(a) of Title 53 are amended
30to read:

1§ 8129. Scope of unfunded debt.

2For the purpose of this subchapter, "unfunded debt" means 
3obligations of the same or one or more prior years incurred for 
4current expenses, including tax anticipation notes [and 
5payments, including termination payments, required to be made 
6under qualified interest rate management agreements,] due and 
7owing or judgments against the local government unit entered by 
8a court after adversary proceedings[, including a judgment under 
9section 8283(b)(2)(i) (relating to remedies),] for the payment 
10of either of which category the taxes and other revenues 
11remaining to be collected in the fiscal year and funds on hand 
12will not be sufficient without a curtailment of municipal 
13services to an extent endangering the health or safety of the 
14public or proper public education, and the local government unit 
15either may not legally levy a sufficient tax for the balance of 
16the fiscal year, or a sufficient tax, if legally leviable, would 
17not be in the public interest. Unfunded debt does not, however, 
18include debt incurred under this subpart or obligations in 
19respect of a project or part of a project as incurred in respect 
20of the cost of a project.

21§ 8242. Treatment of costs upon refunding.

22(a) General rule.--In any refunding, a principal amount of
23refunding bonds or notes or obligations evidencing lease rental
24debt equal to the sum of the following:

25(1) the call premium payable on the bonds, notes or
26obligations being refunded;

27(2) the discount allowed on the sale of the refunding
28bonds, notes or obligations;

29[(2.1) any funds borrowed in order to pay any
30termination payment required to be paid under a qualified

1interest rate management agreement in which the notional
2amount is identified as corresponding to all or any portion
3of the bond or note being refunded;]

4(3) any funds borrowed to pay interest on bonds, notes
5or obligations being refunded; and

6(4) the costs of issue and sale of the refunding bonds,
7notes or obligations;

8may be considered as interest on the refunding bonds, notes or
9obligations and may be separately stated in all reporting of
10debt and in all computation of debt limits and, if so considered
11and reported by the local government unit, shall not be
12considered as electoral, nonelectoral or lease rental debt. In
13subsequent debt statements, any such separately stated principal
14amount of bonds, notes or obligations shall be reported as being
15amortized in the same proportion as the series of which they are
16a part.

17* * *

18Section 6. Subchapter F of Chapter 82 of Title 53 is
19repealed:

20[SUBCHAPTER F

21INTEREST RATE RISK AND INTEREST COST MANAGEMENT

22§ 8281. Qualified interest rate management agreements.

23(a) General rule.--

24(1) Except as set forth in paragraph (4),
25notwithstanding any other law to the contrary, a local
26government unit may negotiate and enter into qualified
27interest rate management agreements consistent with the
28provisions of this subchapter.

29(2) The local government unit must authorize and award
30by resolution each qualified interest rate management

1agreement or any confirmation of a transaction. The
2resolution is subject to section 8003(a) and (b) (relating to
3advertisement and effectiveness of ordinances) but may be
4valid and effective for all purposes immediately upon
5adoption or as otherwise provided in the resolution.

6(3) A local government unit has the power to contract
7for insurance covering the risks of nonpayment of amounts due
8under qualified interest rate management agreements.

9(4) The authority granted in this subchapter shall not
10apply to any local government unit which has been declared
11distressed by the Department of Community and Economic
12Development.

13(b) Requirements for resolution.--The resolution authorizing
14and awarding a qualified interest rate management agreement or
15authorizing a transaction under the agreement must include in
16the resolution or as an appendix to the resolution all of the
17following:

18(1) A copy of the qualified interest rate management
19agreement or confirmation of the transaction under the
20qualified interest rate management agreement in substantially
21the form to be executed pursuant to the resolution.

22(2) The interest rate management plan meeting the
23requirements under this subpart:

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

25(ii) if the local government unit is incurring
26indebtedness under this chapter which has or will be
27issued to a public authority that has entered into or
28will enter into an interest rate management agreement
29meeting the requirements of a qualified interest rate
30management agreement under this subpart, adopted by that

1public authority.

2(3) A statement of the manner of the award of the
3qualified interest rate management agreement under subsection
4(e).

5(c) Contents of qualified interest rate management
6agreements.--In addition to other provisions approved by the
7local government unit, a qualified interest rate management
8agreement must contain all of the following:

9(1) The covenant of the local government unit to make
10payments required by the qualified interest rate management
11agreement and the covenants authorized by section 8282
12(relating to covenant to pay amounts due under qualified
13interest rate management agreements).

14(2) The notional amount of the qualified interest rate
15management agreement and the principal amount of bonds or
16notes or lease rental debt, or portions of the notional or
17principal amounts, issued or to be issued by the local
18government unit under this subpart or guaranteed by the local
19government unit under this subpart, to which the agreement
20relates.

21(3) The term of any qualified interest rate management
22agreement, which must not exceed the latest maturity date of
23the bonds or notes referenced in the qualified interest rate
24management agreement.

25(4) A provision requiring the termination of the
26agreement if all debt to which the qualified interest rate
27management agreement relates is no longer outstanding.

28(5) The maximum annual interest rate which the local
29government unit may pay thereunder.

30(6) A provision that the maximum net payments by fiscal

1year of a local government unit shall not exceed the maximum
2interest rate specified in the qualified interest rate
3management agreement for:

4(i) periodic scheduled payments, not including any
5termination payments, due under the qualified interest
6rate management agreement; and

7(ii) the interest on the bonds or notes to which the
8qualified interest rate management agreement relates.

9(7) The source of payment of the payment obligations of
10the local government unit, which must be either general
11revenues or revenues specifically identified in the
12agreement.

13(8) A provision addressing the actions to be taken if
14the credit rating of the other party changes.

15(9) A provision that periodic scheduled payments due
16under the qualified interest rate management agreement and
17debt service due on the related bonds or notes or payments
18due under the related instrument evidencing lease rental debt
19or guaranty of the local government unit shall be senior in
20right and priority of payment to termination payments due
21under the qualified interest rate management agreement.

22(d) Other provisions of the qualified interest rate
23management agreement.--The qualified interest rate management
24agreement may include:

25(1) A covenant to include any termination payment or
26similar payment for a qualified interest rate management
27agreement in its current budget at any time during a fiscal
28year or in a budget adopted in a future fiscal year.

29(2) A provision that the following shall be equally and
30ratably payable and secured under the applicable covenants

1authorized in section 8282:

2(i) Periodic scheduled payments due under the
3qualified interest rate management agreement; and

4(ii) Any of the following to which the agreement
5relates:

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

7(B) payment under an instrument evidencing lease
8rental debt; or

9(C) payment under a guaranty of the local
10government unit.

11(3) A provision that the qualified interest rate
12management agreement may be terminated at the option of the
13local government unit without cause but that the qualified
14interest rate management agreement may not be terminated at
15the option of the other party to the qualified interest rate
16management agreement without cause.

17(e) Award of qualified interest rate management
18agreements.--

19(1) The local government unit shall establish a process
20for selecting other parties before entering into a qualified
21interest rate management agreement.

22(2) The local government unit shall establish
23qualifications for other parties before entering into a
24qualified interest rate management agreement. The
25qualifications shall include a rating for the other party of
26at least the third highest rating category from a nationally
27recognized rating agency.

28(3) A qualified interest rate management agreement must
29be awarded by public sale, private sale by negotiation or
30private sale by invitation.

1(4) The local government unit shall select the qualified
2interest rate management agreement which the local government
3unit determines is in its best financial interest. The
4qualified interest rate management agreement selected must
5contain financial terms and conditions which in the opinion
6of the independent financial advisor to the local government
7unit are fair and reasonable to the local government unit as
8of the date of award.

9(5) The local government unit may satisfy the
10requirements of paragraph (4) by obtaining a finding from an
11independent financial advisor to the public authority that
12the financial terms and conditions of the agreement are fair
13and reasonable to the public authority as of the date of the
14award if all of the following apply:

15(i) The local government unit is incurring
16indebtedness under this chapter which has or will be
17issued to a public authority.

18(ii) In connection with the incurring of debt under
19subparagraph (i), the local government unit will become
20obligated for all or a portion of the public authority's
21costs under an interest rate management agreement.

22§ 8282. Covenant to pay amounts due under qualified interest
23rate management agreements.

24(a) Contents.--The local government unit shall include in a
25qualified interest rate management agreement a covenant that the
26local government unit shall do the following:

27(1) Include the periodic scheduled amounts payable in
28respect of the qualified interest rate management agreement
29for each fiscal year in its budget for that fiscal year.

30(2) Appropriate those amounts from its general or

1specially pledged revenues for the payment of amounts due
2under the qualified interest rate management agreement.

3(b) Pledge.--

4(1) Except as set forth in paragraph (2), the local
5government unit may pledge its full faith, credit and taxing
6power for the budgeting, appropriation and payment of
7periodic scheduled payments due under a qualified interest
8rate management agreement.

9(2) A local government unit may not make a pledge under
10paragraph (1) if the payment obligations of the local
11government unit under the qualified interest rate management
12agreement are limited as to payment to specified revenues of
13the local government unit.

14(c) Security interest.--If the periodic scheduled payment
15obligations of the local government unit are specified in the
16qualified interest rate management agreement to be made from
17specified revenues of the local government unit, the local
18government unit may include in the qualified interest rate
19management agreement a covenant granting a security interest in
20those revenues to secure its periodic scheduled payment
21obligations under the agreement. The security interest shall be
22perfected under section 8147 (relating to pledge of revenues).

23§ 8283. Remedies.

24(a) Failure to budget amounts due under a qualified interest
25rate management agreement.--

26(1) This subsection applies if a local government unit
27fails or refuses to budget for any fiscal year a periodic
28scheduled payment:

29(i) due in that year pursuant to the provisions of a
30qualified interest rate management agreement; and

1(ii) payable from the general revenues of the local
2government unit.

3(2) If a local government unit commits a failure or
4refusal under paragraph (1), the following apply:

5(i) The other party to the interest rate management
6agreement may bring an enforcement action in a court of
7common pleas.

8(ii) After a hearing held upon notice to the local
9government unit as the court may direct, if the court
10finds a failure or refusal under paragraph (1), the court
11may, by order of mandamus, require the treasurer of the
12local government unit to pay to the other party out of
13the first tax money or other available revenue or money
14thereafter received in the fiscal year by the treasurer
15the periodic scheduled payments due pursuant to the
16provisions of the qualified interest rate management
17agreement. The order shall be subject to section 8281(c)
18(8) (relating qualified interest rate management
19agreements).

20(iii) Any priority on incoming tax money accorded to
21a separate sinking fund for tax anticipation notes under
22the authority of section 8125 (relating to security for
23tax anticipation notes and sinking fund) shall not be
24affected by an order under subparagraph (ii) until the
25sum on deposit in each sinking fund equals the money
26which should have been budgeted or appropriated for each
27series.

28(b) Failure to pay amounts due under a qualified interest
29rate management agreement.--

30(1) This subsection applies if:

1(i) a local government unit fails to pay any amount
2due under a qualified interest rate management agreement
3when it becomes due and payable; and

4(ii) the failure continues for 30 days.

5(2) If there is a failure under paragraph (1), the other
6party to the qualified interest rate management agreement may
7bring an action in a court of common pleas to recover the
8amount due. This paragraph is subject to:

9(i) the priorities under sections 8125 and 8281(c)
10(8); and

11(ii) any limitations upon rights of action properly
12provided in the qualified interest rate management
13agreement.

14(3) The judgment recovered under paragraph (2) shall:

15(i) have an appropriate priority upon the money next
16coming into the treasury of the local government unit;
17and

18(ii) be a judgment upon which funding bonds may be
19issued pursuant to Ch. 81 Subch. B (relating to tax
20anticipation notes and funding debt).

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

22(1) This subsection applies if a board of directors of a
23school district fails to pay or to provide for the payment of
24periodic scheduled payments, not including any termination
25payments, due pursuant to the provisions of a qualified
26interest rate management agreement.

27(2) A party to a qualified interest rate management
28agreement must notify the Secretary of Education of a failure
29under paragraph (1).

30(3) Upon notice under paragraph (2), the following

1apply:

2(i) The secretary shall notify the Department of
3Community and Economic Development and the offending
4board of school directors.

5(ii) If the secretary finds that the amount due and
6payable by the school district has not been paid, the
7secretary shall withhold out of any State appropriation
8due the school district an amount equal to the amount due
9pursuant to the qualified interest rate management
10agreement and shall pay over the amount so withheld to
11the party to the qualified interest rate management
12agreement to whom the amount is due.

13§ 8284. Notice and retention of records.

14(a) Notice.--

15(1) The local government unit shall file with the
16Department of Community and Economic Development certified
17copies of a resolution authorizing a qualified interest rate
18management agreement, including any appendix to the
19resolution, 15 days following adoption.

20(2) If the maximum net payments by fiscal year for
21periodic scheduled payments of the local government unit, not
22including any termination payments, and interest on the bonds
23or notes to which the qualified interest rate management
24agreement relates exceed the amount of interest approved in
25proceedings of the local government unit with respect to such
26bonds or notes filed with and approved by the department, the
27local government unit shall adopt an amendment to the
28ordinance or resolution authorizing such bonds or notes
29reflecting such increase. The amendment shall be advertised
30and effective as provided in section 8003 (relating to

1advertisement and effectiveness of ordinances) and filed with
2the department. No approval by the department or filing fee
3by the local government unit shall be required for any filing
4under this subsection.

5(b) Records.--The department shall keep copies of all
6documents filed with the department under this section as long
7as a qualified interest rate management agreement is in effect.
8Documents filed with the department under this section are
9public records available for examination by any citizen of this
10Commonwealth; any party to the qualified interest rate
11management agreement; or any bondholder or noteholder, including
12holders of tax anticipation notes, of the local government unit
13filing any document pursuant to this section.

14§ 8285. Financial reporting.

15A local government unit which has entered into a qualified
16interest rate management agreement shall include in its annual
17financial statements information with respect to each qualified
18interest rate management agreement it has authorized or entered
19into, including any information required pursuant to any
20statement issued by the Governmental Accounting Standards
21Board.]

22Section 7. The amendment, addition or repeal of 53 Pa.C.S.
23§§ 5607(e), 8002(a) and (c), 8010, 8129, 8242(a), 8281, 8282,
248283, 8284 and 8285 shall not apply to qualified interest rate
25management agreements in effect prior to the effective date of
26this section.

27Section 8. This act shall take effect in 60 days.

<-28Section 2. The definitions of "interest rate management
29plan" and "local government unit" in section 8002(c) of Title 53
30are amended to read:

1§ 8002. Definitions.

2* * *

3(c) Other definitions.--Subject to additional definitions
4contained in subsequent provisions of this subpart which are
5applicable to specific provisions of this subpart, the following
6words and phrases when used in this subpart shall have the
7meanings given to them in this section unless the context
8clearly indicates otherwise:

9* * *

10"Interest rate management plan." A written plan prepared or
11reviewed by an independent financial advisor with respect to a
12qualified interest rate management agreement, which includes:

13(1) A schedule listing the amount of debt outstanding
14for each outstanding debt issue of the local government unit
15and the expected annual debt service on that debt. In the
16case of variable rate debt, the schedule shall set forth the
17estimated annual debt service thereon and annual debt service
18on the debt calculated at the maximum rate specified for the
19variable rate debt.

20(2) A schedule listing the notional amounts outstanding
21of each previously executed qualified interest rate
22management agreement which is then in effect.

23(3) A schedule [listing] illustrating the following:

24(i) In dollars, all consulting, advisory, brokerage
25or similar fees, paid or payable by the local government
26unit in connection with the qualified interest rate
27management agreement, and [a schedule of] any finder's
28fees, consulting fees or brokerage fees, paid or payable
29by the other party in connection with the qualified
30interest rate management agreement.

1(ii) The maximum counterparty margin or spread to be
2included on the qualified interest rate management
3agreement and a calculation of the present value thereof.

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

9(5) An analysis of the interest rate risk, basis risk,
10termination risk, credit risk, market-access risk and other
11risks of entering into the qualified interest rate management
12agreement. This paragraph includes schedules of the estimated
13and maximum scheduled periodic payments which would be due
14under the qualified interest rate management agreement.

15(6) An analysis of the interest rate risk, basis risk,
16termination risk, credit risk, market-access risk and other
17risks to the local government unit of the net payments due
18for all debt outstanding and all qualified interest rate
19management agreements of the local government unit. This
20paragraph includes schedules of the estimated and maximum net
21payments of total debt service and scheduled, periodic, net
22payments, which would be due under all of the qualified
23interest rate management agreements.

24(7) The local government unit's plan to monitor interest
25rate risk, basis risk, termination risk, credit risk, market-
26access risk and other risks. This paragraph includes the
27valuation of the market or termination value of all
28outstanding qualified interest rate management agreements.

29* * *

30"Local government unit." A county, county institution

1district, city, borough, incorporated town, township, school
2district or any similar, general or limited purpose unit of
3local government or any unit created by joint action of two or
4more local government units which is authorized to be created by
5law. [The] Except as otherwise provided under Subchapter F of 
6Chapter 82 (relating to interest rate risk and interest cost 
7management) the term does not include a city or county of the
8first class, an authority as defined in this section or any unit
9created by joint action of two or more local government units
10which have not been granted by statute the power to issue bonds.
11The term includes school districts of the first class presently
12operating under a home rule charter or home rule charter
13supplement, and the provisions of this subpart shall govern over
14inconsistent charter provisions.

15* * *

16Section 3. Section 8281(b)(2) and (c)(4) of Title 53 are
17amended, subsections (a) and (c) are amended by adding
18paragraphs and the section is amended by adding a subsection to
19read:

20§ 8281. Qualified interest rate management agreements.

21(a) General rule.--

22* * *

23(5) No payments shall be made to or on behalf of a local
24government unit by the other party to a qualified interest
25rate management agreement except periodic scheduled payments
26and termination payments.

27(6) Periodic scheduled payments on a qualified interest
28rate management agreement must commence not later than three
29years after the date of the confirmation associated with the
30qualified interest rate management agreement.

1(7) The index or basis used for calculating the periodic
2scheduled payments receivable by the local government unit on
3a qualified interest rate management agreement shall be
4substantially similar to the index or basis used for
5calculating the interest due on the associated debt of the
6local government unit.

7(8) At the time a qualified interest rate management
8agreement is entered into, the sum of the notional amount
9thereof, taking into account any netting of offsetting
10transactions, and all other qualified interest rate
11management agreements entered into or guaranteed, and then in
12effect of a local government unit, shall not exceed 50% of
13the total principal amount of the aggregate nonelectoral debt
14plus lease rental debt capacity of the local government unit
15then outstanding. This paragraph shall not apply to a
16regional financial authority that is primarily engaged in
17lending to local government units.

18(9) Scheduled periodic payments and termination payments
19received by a local government unit on a qualified interest
20rate management agreement shall be deposited in a payment
21account to pay periodic swap payments or to pay principal and
22interest on the debt related to the qualified interest rate
23management agreement.

24(10) The scheduled expiration date of a qualified
25interest rate management agreement shall not exceed ten years
26from the date of the related confirmation unless the
27qualified interest rate management agreement contains a
28provision allowing the local government unit to terminate the
29same at any time after ten years from the date of the related
30confirmation without making a termination payment.

1(b) Requirements for resolution.--The resolution authorizing
2and awarding a qualified interest rate management agreement or
3authorizing a transaction under the agreement must include in
4the resolution or as an appendix to the resolution all of the
5following:

6* * *

7(2) The interest rate management plan meeting the
8requirements under this subpart:

9(i) [adopted] approved by the local government unit
10not less than ten days prior to the date of the 
11resolution; or

12(ii) if the local government unit is incurring
13indebtedness under this chapter which has or will be
14issued to a public authority that has entered into or
15will enter into an interest rate management agreement
16meeting the requirements of a qualified interest rate
17management agreement under this subpart, [adopted]
18approved by that public authority not less than ten days 
19prior to the date of the adoption of the resolution.

20* * *

21(c) Contents of qualified interest rate management
22agreements.--In addition to other provisions approved by the
23local government unit, a qualified interest rate management
24agreement must contain all of the following:

25* * *

26(4) A provision requiring the termination of the
27agreement [if] when all debt to which the qualified interest
28rate management agreement relates is no longer outstanding.

29* * *

30(10) A certification by the other party to the qualified

1interest rate management agreement in which the other party
2does all of the following:

3(i) Acknowledges and agrees that the local
4government unit which is entering into the qualified
5interest rate management agreement under this subpart is
6a political subdivision of the Commonwealth.

7(ii) Acknowledges that it has read this subpart.

8(iii) Acknowledges and agrees that a local
9government unit may only enter into a qualified interest
10rate management agreement to manage interest rate risk or
11interest cost of the local government unit on debt of the
12local government unit.

13(iv) Believes that the qualified interest rate
14management agreement will enable the local government
15unit to manage interest rate risk or interest cost of the
16local government unit on debt of the local government
17unit.

18(v) Acknowledges that it is the policy of the
19Commonwealth that local government units not enter into
20qualified interest rate management agreements that
21involve unreasonable speculation.

22(vi) Believes that the qualified interest rate
23management agreement does not involve unreasonable
24speculation.

25(vii) Represents and warrants that its pricing of
26the qualified interest rate management agreement is fair
27and honest and in line with market standards.

28(viii) Acknowledges that when a local government
29unit loses money on a qualified interest rate management
30agreement, it is the taxpayers of the local government

1unit that end up directly or indirectly paying for the
2losses.

3(ix) Acknowledges and agrees that it will notify the
4department, in writing, promptly upon the payment to the
5other party of a termination payment by the local
6government unit, including the date and amount of the
7payment and the identity of the qualified interest rate
8management agreement under which the payment was made.

9* * *

10(f)  Definition.--As used in this section, the term "local
11government unit" has the same meaning as under section 8002
12(relating to definitions), except that the term includes a city
13or county of the first class and an authority.

14Section 4. Sections 8282, 8283 and 8284 of Title 53 are
15amended by adding subsections to read:

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

18* * *

19(d) Definition.--As used in this section, the term "local
20government unit" has the same meaning as under section 8002
21(relating to definitions), except that the term includes a city
22or county of the first class and an authority.

23§ 8283. Remedies.

24* * *

25(d) Definition.--As used in this section, the term "local
26government unit" has the same meaning as under section 8002
27(relating to definitions), except that the term includes a city
28or county of the first class and an authority.

29§ 8284. Notice and retention of records.

30* * *

1(c) Definition.--As used in this section, the term "local
2government unit" has the same meaning as under section 8002
3(relating to definitions), except that the term includes a city
4or county of the first class and an authority.

5Section 5. Section 8285 of Title 53 is amended to read:

6§ 8285. Financial reporting.

7(a) General rule.--A local government unit which has entered
8into a qualified interest rate management agreement shall
9include in its annual financial statements information with
10respect to each qualified interest rate management agreement it
11has authorized or entered into, including any information
12required pursuant to any statement issued by the Governmental
13Accounting Standards Board.

14(b) Definition.--As used in this section, the term "local
15government unit" has the same meaning as under section 8002
16(relating to definitions), except that the term includes a city
17or county of the first class and an authority.

18Section 6. The amendment or addition of sections 5608.1,
198002(c), 8281, 8282, 8283, 8284 and 8285 of Title 53 shall apply
20to interest rate management agreements entered into on or after
21the effective date of this act.

22Section 7. This act shall take effect in 60 days.