Regular Session 2015-2016 Senate Bill 0340 P.N. 2098

PRIOR PRINTER'S NOS. 0474, 1382, 1608

PRINTER'S NO. 2098

THE GENERAL ASSEMBLY OF PENNSYLVANIA

SENATE BILL

No.

340

Session of

2015

INTRODUCED BY EICHELBERGER, BLAKE, FOLMER, TEPLITZ, VULAKOVICH,

VANCE, SCHWANK, BOSCOLA, YUDICHAK AND BROWNE,

FEBRUARY 20, 2015

AS AMENDED ON SECOND CONSIDERATION, SEPTEMBER 27, 2016

AN ACT

Amending Title 53 (Municipalities Generally) of the Pennsylvania

Consolidated Statutes, in indebtedness and borrowing, further

providing for definitions, for classification and authority

to issue bonds and notes, for cost of project and for

exclusion of other self-liquidating debt to determine net

nonelectoral debt or net lease rental debt; providing for

preliminary filings with the department prior to the issuance

of certain debt; further providing for small borrowing for

capital purposes, for debt statement, for submission to

department, for certificate of approval of transcript, for

effect of failure of timely action by department and for

records of department; and providing for duties of

participants in transactions relating to incurring debt and

issuing bonds and notes.

The General Assembly of the Commonwealth of Pennsylvania

hereby enacts as follows:

Section 1. The definition of "self-liquidating debt" in

section 8002(b) of Title 53 of the Pennsylvania Consolidated

Statutes is amended and subsection (c) is amended by adding

definitions to read:

§ 8002. Definitions.

* * *

(b) Exclusions from debt.--With respect to exclusions from

any particular category of debt and subject to additional

definitions contained in subsequent provisions of this subpart

which are applicable to specific provisions of this subpart, the

following words and phrases when used in this subpart shall have

the meanings given to them in this section unless the context

clearly indicates otherwise:

"Self-liquidating debt." Debt payable solely from rents,

rates or other charges to the ultimate users of the project, to

be financed in whole or in part by that debt, or payable solely

from special levies or assessments of benefits lawfully

earmarked exclusively for that purpose. The term also includes

debt or any portion thereof at the time qualified as self-

liquidating pursuant to this subpart, whether or not solely

payable from those sources. The term "ultimate users" includes

the local government unit itself only where its use of the

project is incidental to the use of the project by other users.

A debt with respect to which debt service payments have been

made under a guaranty of the debt shall not be considered self-

liquidating.

* * *

contained in subsequent provisions of this subpart which are

applicable to specific provisions of this subpart, the following

words and phrases when used in this subpart shall have the

meanings given to them in this section unless the context

clearly indicates otherwise:

* * *

"Financial advisor." A person retained directly by a local

government unit who for compensation engages in the business of

advising that local government unit, either directly or in

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writing, as to the value of securities, bonds or notes or as to

the advisability of investing in, purchasing or selling

securities, bonds or notes. The term does not include an

attorney, accountant or engineer whose performance of such

services is solely incidental to the practice of his profession.

The term does not include a lender, underwriter or other entity

purchasing the bonds or notes of a local government unit.

* * *

"Working capital." An amount which constitutes, under

generally accepted accounting principles, the cost of the day-

to-day operations of the project as well as a proper allowance

for contingencies , for a period not to exceed one year after

completion of the project. Working capital for periods exceeding

one year shall be treated as unfunded debt under sections 8129

(relating to scope of unfunded debt) and 8130 (relating to

approval by court to fund unfunded debt). Reimbursements under a

guaranty or amounts to be used to address budgetary deficits of

a local government unit or for other purposes not related to the

construction or operation of the project do not constitute

reasonable working capital in connection with the incurring of

debt under this subpart.

Section 2. Sections 8005(c) and (d), 8007 and 8026(a)(5) of

Title 53 are amended to read:

§ 8005. Classification and authority to issue bonds and notes.

* * *

debt.--Notwithstanding any other law to the contrary, every

local government unit shall have full power and authority to

issue bonds or notes, and make guaranties, leases, subsidy

contracts or other agreements evidencing the acquisition of

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capital assets payable out of taxes and other general revenues,

to provide funds for and towards the cost of or the cost of

completing any project or combination of projects which the

local government unit is authorized to own, acquire, subsidize,

operate or lease or to participate in owning, acquiring,

subsidizing, operating or leasing with others, to issue tax

anticipation notes and funding bonds or notes as provided in

this subpart and to contract for insurance covering the risks of

nonpayment of principal, interest and premium of bonds, notes,

tax anticipation notes and guaranties.

(d) Nature of guaranty procedure for issuance and

prohibitions.--The following shall apply to a guaranty:

(1) For the purpose of this subpart, unless debt

evidenced by a guaranty has been approved as electoral debt

in accordance with Subchapter C (relating to procedure for

securing approval of electors), the guaranty shall be deemed

to be nonelectoral debt if the local government unit

guaranties its own bonds or notes and shall be deemed to be

lease rental debt if it guaranties the bonds or notes of an

authority or another local government unit. For the purpose

of all other statutes, the guaranty shall be deemed to create

debt or indebtedness of the local government unit making the

guaranty.

(2) (i) A local government unit may issue a guaranty of

debt of another separate and distinct local government

unit or an authority it did not incorporate, only after

the local government unit has conducted its own due

diligence to determine the risks involved in the

transaction, including the impact of the guaranty on the

future financial condition of the local government unit,

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the financial condition of the entity seeking the

guaranty, the sources and reliability of revenue to cover

the underlying obligation and the likelihood of default

of the entity seeking the guaranty. A guaranty may only

be made by vote of the governing body after a public

meeting at which the local government unit demonstrates

such due diligence. A local government unit may only

issue a guaranty to an authority or other local

government unit for projects which are expressly

authorized by statute, including projects under section

5607 (relating to purposes and powers).

(ii) Notwithstanding the provisions of subparagraph

(i), a local government unit may not issue a guaranty to

a separate and distinct authority or local government

unit for sums due under a qualified interest rate

management agreement, nor may guaranties be issued for

projects which involve untested technology or

experimentation.

(3) A local government unit is prohibited from

collecting a fee to guaranty the debt of an authority or

another local government unit.

(4) Notwithstanding any other provision of this chapter

or any other law to the contrary, an authority or a municipal

authority in existence on the effective date of this

paragraph formed INCORPORATED by two or more local government

units for the purpose of providing loan programs FOR CAPITAL

PROJECTS for the benefit of local government units and

authorities or municipal authorities, shall not be subject to

the provisions of this section. PARAGRAPH (2).

§ 8007. Cost of project.

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The cost of a project includes the amount of all payments to

contractors or for the acquisition of a project or for lands,

easements, rights and other appurtenances deemed necessary for

the project, fees of architects, engineers, appraisers,

consultants, financial advisors and attorneys incurred in

connection with the project financing costs, costs of necessary

printing and advertising, costs of preliminary feasibility

studies and tests, cost estimates and interest on money borrowed

to finance the project, if capitalized, to the date of

completion of construction and, if deemed necessary, for one

year thereafter, amounts to be placed in reserve funds, if any,

a reasonable initial working capital for operating the project

and a proper allowance for contingencies and any amount which

constitutes, under generally accepted accounting principles, a

cost of, and which has been determined by an independent actuary

or other expert to be required for the purposes of, a reserve or

a contribution toward a combined reserve, pool or other

arrangement for losses or liabilities covered by a self-

insurance arrangement established by one or more local

government units. Costs paid, from sources other than the debt

that is to be refunded, more than two years before an issuance

of new debt to finance the costs may not be included in the

costs of a project financed by the new debt. Reimbursements

under a guaranty or amounts to be used by a local government

unit to address budgetary deficits or other purposes not related

to the project do not constitute a cost of a project in

connection with the incurring of debt under this subpart. Costs

that qualify for funding of unfunded debt under section 8130

(relating to approval by court to fund unfunded debt) may only

constitute a cost of a project if the local government unit

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complies with the requirements of section 8130.

§ 8026. Exclusion of other self-liquidating debt to determine

net nonelectoral debt or net lease rental debt.

(a) Filings with department.--Self-liquidating debt shall

not be excluded in determining net nonelectoral debt or net

lease rental debt for the purpose of establishing net debt of

either category where the debt is evidenced by general

obligation bonds or notes, by bonds, notes or other obligations

of an authority or of another local government unit or by a

guaranty until there has been filed with and approved by the

department a report to the local government unit from qualified

registered engineers or architects or other persons qualified by

experience appropriate to the project, setting forth:

* * *

(5) The estimated net revenues of the project for each

year of the remaining life of the bonds, notes or obligations

with an explanation for any assumed increase and a

computation showing, in reasonable detail, that the net

revenues, together with other available funds to be received

in respect of the project, will be sufficient in each year to

pay the annual debt service, other than capitalized debt

service, on the bonds, notes or obligations or a specified

aggregate principal amount thereof.

* * *

Section 3. Title 53 is amended by adding a section to read:

§ 8102.1. Preliminary filings with the department prior to the

issuance of certain debt.

(a) General rule.--Prior to the enactment of an ordinance

authorizing the sale or issuance of any general obligation bonds

or notes or guaranteed revenue bonds or notes constituting

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nonelectoral debt or any agreement evidencing lease rental debt,

a local government unit shall obtain proof of having filed with

the department the information and documentation required by

this section. Proof of filing for purposes of subsection (c) may

be obtained by a certified mail return receipt or other delivery

requiring signature, or a notice of receipt from the department.

(b) Required filings.--A local government unit shall file

with the department a basic description of the intended

financing and, as applicable, the following information and

documentation:

(1) Evidence that the local government unit is current

in the filing of its annual financial statements with

Commonwealth agencies under applicable State law.

(2) A description of the intended type and amount of

payment or performance bond, letter of credit or other

financial security proposed to insure the completion of the

project.

(3) Information that the local government unit is up to

date on all of its municipal securities disclosures required

under 17 CFR § 240.15c2-12 (relating to municipal securities

disclosure).

(4) A copy of the interest rate management plan prepared

or reviewed by an independent financial advisor with respect

to a proposed qualified interest rate management agreement.

(5) If the local government unit intends for the

proposed debt to be self-liquidating or subsidized, a

statement that the debt will qualify as self-liquidating or

subsidized debt, including filings required under section

8024 (relating to exclusion of subsidized debt from net

nonelectoral debt or net lease rental debt), 8025 (relating

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to exclusion of self-liquidating debt evidenced by revenue

bonds or notes to determine net nonelectoral debt) or 8026

(relating to exclusion of other self-liquidating debt to

determine net nonelectoral debt or net lease rental debt), as

applicable.

(6) If the local government unit has existing debt which

was previously approved by the department as self-liquidating

or subsidized, an explanation as to why the debt should

continue to be treated as self-liquidating or subsidized and

that no decrease in the amount to be excluded is required by

any change in circumstances, other than resulting from the

payments of the debt, or, if there has been a change in

circumstances, information demonstrating the amount of debt

that should continue to be treated as self-liquidating or

subsidized.

(7) Schedules demonstrating the estimated net debt

service impact of the transaction and information

demonstrating that the local government unit adopted or

approved a plan to provide the tax or other revenues

necessary to pay the debt service on the debt, if applicable.

(8) The debt statement required by section 8110

(relating to debt statement).

(9) A statement of the intended manner of sale of the

bonds or notes, and if bonds or notes are to be sold at

private sale by negotiation, the basis for the local

government unit's finding that selling the bonds or notes in

such manner are in the best financial interests of the local

government unit.

(10) A project cost statement detailing the intended

uses of debt proceeds.

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(11) An explanation for any costs of issuance exceeding

2% of the principal amount of the proposed debt.

(12) An explanation for the use of more than 10% of the

proceeds of the debt for working capital.

(13) (11) If a guaranty from another local government

unit is proposed as a portion of the proposed borrowing,

information demonstrating compliance with section 8005(d)

(relating to classification and authority to issue bonds and

notes).

(14) (12) The declaration required by section 8291(a)

(relating to duties of participants).

(1) The department shall have 10 days after receipt of

the filing required under subsection (b) to notify the local

government unit of receipt of a complete filing. AN

ACKNOWLEDGMENT OF A COMPLETE FILING SHALL BE VALID FOR ONE

YEAR FROM THE DATE OF ITS ISSUANCE.

(2) If the department fails to notify the local

government unit of an incomplete filing or fails to otherwise

acknowledge the receipt of a filing within 10 days, the local

government unit may proceed to incur the debt . OR MAY PRESUME

THE FILING TO BE VALID AND COMPLETE FOR ONE YEAR FROM THE

DATE THE FILING WAS SUBMITTED TO THE DEPARTMENT.

(3) If the department finds in its reasonable discretion

that the requirements are not satisfied in connection with

the proposed debt, the department shall issue a notice of

such incomplete filing and the local government unit may not

proceed to incur the debt until acknowledgment from the

department that the filing requirements of subsection (b)

have been completed.

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(d) Exempt transactions.--The following debt transactions

shall be exempt from the requirement to file preliminary

documentation under this section:

(1) Small borrowing for capital purposes as provided in

section 8109 (relating to small borrowing for capital

purposes).

(2) Transactions under Subchapter C of Chapter 82

(relating to refunding of debt) which consist exclusively of

the issuance and sale of obligations, the proceeds of which

are to be used solely for purposes specified in section

8241(b)(1) (relating to power to refund) for the payment or

redemption of outstanding obligations upon or prior to

maturity and the costs of issuing the obligations. A

refunding transaction which includes a qualified interest

rate management agreement shall not be exempt from the

requirements of this section.

(e) Review.--All determinations by the department under this

section are reviewable as provided under 2 Pa.C.S. Ch. 7

(relating to judicial review).

Section 4. Sections 8109(a)(1) and 8110(b) of Title 53 are

amended to read:

§ 8109. Small borrowing for capital purposes.

(a) General rule.--Any local government unit may incur debt

by resolution rather than by ordinance to be evidenced by notes

to provide funds for a project as defined in this subpart

without complying with the requirements of Subchapter A of

Chapter 82 (relating to Department of Community and Economic

Development) if:

(1) The aggregate amount of the debt outstanding at any

one time shall not exceed the lesser of [$125,000] $250,000

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or 30% of the nonelectoral debt limit as authorized in

section 8022(a) (relating to limitations on incurring of

other debt).

* * *

§ 8110. Debt statement.

* * *

(b) Previously excluded self-liquidating or subsidized

debt.--Where debt has previously been excluded as self-

liquidating or subsidized debt, the debt statement shall be

accompanied by a certification that indicates one of the

following:

(1) no decrease in the amounts to be excluded is

required by any change of circumstances [or, if there has

been a change, other than decreases resulting from the

payments of bonds or notes, so that less debt is to be

excluded. If it has become possible to exclude a greater

amount of debt and the local government unit desires to do

so, the debt statement shall be accompanied by appropriate

certificates supporting the revised amount to be excluded,

and a revised approval shall be obtained from the

department.]; or

(2) a decrease in the amounts to be excluded is required

due to a change in circumstances, in which case:

(i) The change in circumstance must be described. If

it has become possible to exclude a greater amount of

debt and the local government unit wants to do so, the

debt statement shall be accompanied by appropriate

certifications supporting the revised amount to be

excluded and a revised approval shall be obtained from

the department.

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(ii) No debt service payments have been made under a

guaranty of debt previously established as self-

liquidating. Debt service payments that have been made

under a guarantee of the local government unit shall no

longer be considered self-liquidating unless and until

the local government unit files with the department a new

report satisfying the requirements of section 8025

(relating to exclusion of self-liquidating debt evidenced

by revenue bonds or notes to determine net nonelectoral

debt) or 8026 (relating to exclusion of other self-

liquidating debt to determine net nonelectoral debt or

net lease rental debt), as the case may be.

Section 5. Section 8111(a) of Title 53 is amended by adding

paragraphs to read:

§ 8111. Submission to department.

(a) General rule.--Before delivering any bonds or notes

other than notes representing small borrowings issued under

section 8109 (relating to small borrowing for capital purposes),

the local government unit shall apply for and receive or be

deemed to have received the approval of the department under

section 8204 (relating to certificate of approval of transcript)

or 8206 (relating to effect of failure of timely action by

department). The application, in such form as the department

prescribes, shall be accompanied by a transcript of the

proceedings consisting of certified copies of any of the

following, not previously filed, which are applicable:

* * *

(8) A written statement with regard to the manner of

compliance or intended compliance with the requirements of

the act of December 20, 1967 (P.L.869, No.385), known as the

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Public Works Contractors' Bond Law of 1967.

(9) An itemized statement of all estimated disbursements

for costs to be made from the proceeds of the borrowing to

the extent possible.

* * *

Section 6. Sections 8204, 8206 and 8207(a) and (c) of Title

53 are amended to read:

§ 8204. Certificate of final approval [of transcript].

(a) Examination of transcripts and filings.--

(1) The department shall, upon receipt of any bond or

note transcripts or other filings, carefully examine them to

determine whether the debt outstanding and to be outstanding

is within the applicable limitations imposed by this subpart

and whether the proceedings for incurring the debt, for

issuing and selling the bonds or notes and for excluding

self-liquidating and subsidized debt have been taken in

conformity with the Constitution of Pennsylvania and this

subpart.

(2) If the debt requires preliminary filings to be made

under section 8102.1 (relating to preliminary filings with

the department relating to the issuance of certain debt), the

preliminary filings shall become part of the transcript and

be a requirement for final approval under this section.

(b) Duty to certify.--If, upon completion of its

examination, a transcript or other filing is found by the

department to be in conformity with the Constitution of

Pennsylvania and this subpart, the department shall certify its

approval to the local government unit if required under other

provisions of this subpart.

§ 8206. Effect of failure of timely action by department.

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If the local government unit has submitted [a filing] an

application for final approval to the department by certified

mail, return receipt requested, or otherwise has an official

receipt from the department, and the local government unit has

not, within 20 days of the date of receipt of the filing by the

department, received the certificate of final approval or

disapproval or notification of correctable error, the filing

shall be deemed to have been approved for all purposes unless

the local government unit has extended the time within which the

department may act by written communication to the department or

by failure to object to a written communication from the

department requesting the extension. Extensions shall not exceed

one additional period of 20 days.

§ 8207. Records of department.

(a) Retention period.--The department shall keep all

proceedings including all applications and statements by a local

government unit under sections 8102.1 (relating to preliminary

filings with the department relating to the issuance of certain

debt), 8111 (relating to submission to department) and 8201

(relating to certification to department of bond or note

transcript or lease, guaranty, subsidy contract or other

agreement) on file for a period of not less than [four months

after issuance of its certificate of approval or disapproval and

thereafter as long as any appeal respecting the proceedings is

pending and not finally determined.] five years after the debt

issuance has been paid off by the local government unit. The

department shall also keep copies of all documents filed with

the department relating to a qualified interest rate management

agreement for as long as the qualified interest rate management

agreement is in effect.

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* * *

department shall be public records available for examination by

any citizen of this Commonwealth or any bondholders or

noteholders.] All submissions, determinations and records of the

department under this subpart, including those related to

qualified interest rate management agreements and including

correspondence with the interested parties to any debt

proceeding, shall be public records available for examination by

any citizen of this Commonwealth, any interested parties or any

bondholder or noteholder, including holders of tax anticipation

notes, of the local government unit.

Section 7. Chapter 82 of Title 53 is amended by adding a

subchapter to read:

SUBCHAPTER G

OTHER PROVISIONS

Sec.

8291. Duties of participants.

§ 8291. Duties of participants.

(a) Declaration of representation.--

(1) As a condition of participation in transactions

under Chapter 81 (relating to incurring debt and issuing

bonds and notes) and this chapter, each attorney , financial

advisor or municipal advisor registered under the Securities

Exchange Act of 1934 (48 Stat. 881, 15 U.S.C. § 78a et seq.)

who is involved in the transaction shall provide a written

declaration to the local government unit as to;

(i) Which party is being represented by the attorney

or financial advisor.

(ii) The source from which the attorney or financial

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advisor will receive compensation for services related to

the transaction.

(iii) Whether the compensation is dependent upon the

issuance of debt by the local government unit.

(2) A full-time employee of the local government unit

shall not be required to file a declaration under this

subsection.

(b) Fiduciary duty of representatives retained by local

government units.--

(1) An attorney or financial advisor, including an

independent financial advisor under section 8281 (relating to

qualified interest rate management agreements) who is

retained and compensated by a local government to represent

the local government unit in a transaction under this

subpart, shall stand in a fiduciary relationship to the local

government unit.

(2) (i) With regard to a financial advisor who

represents a local government unit, the term "fiduciary

duty" shall mean the duty to perform loyally, in good

faith and in a manner the financial advisor reasonably

believes to be in the best interests of the local

government unit. The financial advisor shall act with

such care, including reasonable inquiry, skill and

diligence that a person of ordinary prudence would use

under similar circumstances, and provide opinion as to

possible positive and negative impacts of a transaction.

(ii) With regard to attorneys licensed to practice

law in this Commonwealth, the fiduciary duty shall be as

prescribed by the Pennsylvania Supreme Court, including

the Pennsylvania Rules of Professional Conduct.

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(3) An attorney or financial advisor in the course of

the representation shall be entitled to rely on reasonable

representations and certifications made to the attorney or

financial advisor by architects, engineers and other persons

retained by and the officers and employees of a local

government unit.

(4) Pursuant to subsection (f) of Municipal Securities

Rulemaking Board Rule G-23 (relating to activities of

financial advisors), 17 CFR §§ 240.15Ba1-1 (relating to

definitions), 240.15Ba1-2 (relating to registration of

municipal advisors and information regarding certain natural

persons), 240.15Ba1-3 (relating to exemption of certain

natural persons from registration under section 15B(a)(1)(B)

of the act), 240.15Ba1-4 (relating to withdrawal from

municipal advisor registration), 240.15Ba1-5 (relating to

amendments to Form MA and Form MA-I), 240.15Ba1-6 (relating

to consent to service of process to be filed by non-resident

municipal advisors; legal opinion to be provided by non-

resident municipal advisors), 240.15Ba1-7 (relating to

registration of successor to municipal advisor) and

240.15Ba1-8 (relating to books and records to be made and

maintained by municipal advisors), and only as to those

representatives retained and compensated directly by the

local government unit , the fiduciary duty described in this

section shall be in addition to any duty imposed by rules

promulgated by the Municipal Securities Rulemaking Board that

may apply to the attorney or financial advisor.

body of a local government unit or a financial advisor or

attorney may not knowingly participate in a violation of this

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title.

(d) Materially false or misleading certifications.--An

officer or member of the governing body of a local government

unit or an attorney or financial advisor may not knowingly file

a materially false or misleading certification or statement with

the department under this subpart.

(e) Penalties.--

(1) An officer or member of the governing body of a

local government unit or an attorney or financial advisor who

aids or participates in the commission of an act prohibited

in subsection (c) or (d) commits a misdemeanor of the second

degree and shall, upon conviction, be sentenced to pay a fine

of not more than $5,000 or to imprisonment for not more than

two years, or both.

(2) Notwithstanding paragraph (1), a local government

may seek civil judicial redress for a violation of this

section that results in damages to the local government unit

not caused by the local government unit or its agents. A

local government unit shall prohibit or restrict the future

participation in transactions under this subpart of an

individual attorney or financial advisor who violates this

section and may also prohibit or restrict participation of a

firm that employs the attorney or financial advisor for a

period not to exceed two years.

Section 8. All acts and parts of acts are repealed insofar

as they are inconsistent with the amendment or addition of 53

Pa.C.S. §§ 8002(b) and (c), 8005(c) and (d), 8007, 8026(a)(5),

8102.1, 8111(a), 8204, 8206, 8207(a) and (c) and 8291.

Section 9. This act shall take effect in 60 days.

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