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PRINTER'S NO. 1614
THE GENERAL ASSEMBLY OF PENNSYLVANIA
HOUSE BILL
No.
1307
Session of
2017
INTRODUCED BY HARKINS, SONNEY, D. COSTA AND PASHINSKI,
MAY 1, 2017
REFERRED TO COMMITTEE ON LOCAL GOVERNMENT, MAY 1, 2017
AN ACT
Amending Title 53 (Municipalities Generally) of the Pennsylvania
Consolidated Statutes, in general provisions relating to
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; in incurring debt and issuing bonds
and notes, providing for preliminary approval by department
for issuance of certain debt and further providing for small
borrowing for capital purposes, for debt statement and for
submission to department; in miscellaneous provisions,
further providing for fees for filing, 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; and making a
related repeal.
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.
* * *
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(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.
* * *
(c) Other definitions.--Subject to additional definitions
contained in subsequent provisions of this subpart which are
applicable to specific provisions of this subpart, the following
words and phrases when used in this subpart shall have the
meanings given to them in this section unless the context
clearly indicates otherwise:
* * *
"Financial advisor." A person who for compensation engages
in the business of advising a local government unit, either
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directly or in 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. 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.
* * *
(c) Authority to issue bonds and notes and lease rental
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
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,
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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 only issue a
guaranty of debt of another local government unit or an
authority 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, 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
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meeting at which the local government unit demonstrates
the 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
an authority or other 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.
§ 8007. Cost of project.
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
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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
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:
* * *
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(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 approval by department for 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
nonelectoral debt or any agreement evidencing lease rental debt,
a local government unit shall obtain a preliminary authorization
to incur debt from the department.
(b) Authorization.--Authorization shall be obtained by
filing a notice with the department in the form of a certificate
signed by two officers of the local government unit. The
department shall prescribe the form of the certificate which
shall include a basic description of the intended financing and,
as applicable, the following:
(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 or credit or other
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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) If the local government unit intends for the
proposed debt to be self-liquidating or subsidized,
information which reasonably demonstrates to the department
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 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.
(5) If the local government unit has existing debt which
was previously approved by the department as subsidized or
self-liquidating, information satisfactory to the department
that the debt continues to be treated as subsidized or self-
liquidating 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 to
the satisfaction of the department the amount of debt that
should continue to be treated as subsidized or self-
liquidating.
(6) Schedules demonstrating the estimated net debt
service impact of the transaction and a certification that
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the local government adopted or approved a plan to provide
the tax or other revenues necessary to pay the debt service
on the debt, if applicable.
(7) The debt statement required by section 8110
(relating to debt statement).
(8) A statement of the intended manner of sale of the
bonds or notes.
(9) A project cost statement detailing the intended uses
of debt proceeds.
(c) Additional information.--As part of the department's
review of a filing by a local government unit under subsection
(b), the department may request and the local government unit
shall provide additional information, including any of the
following:
(1) an explanation for costs of issuance exceeding 2% of
the principal amount of the proposed debt;
(2) an explanation for the use of more than 10% of the
proceeds of the debt for working capital; and
(3) if bonds or notes are to be sold at private sale by
negotiation, the basis for the local government unit's
finding that the bonds or notes are in the best financial
interests of the local government unit.
(d) Action by department.--If the department, upon review of
the filing made by the local government unit under subsection
(b) and any additional information provided under subsection
(c), if applicable, finds in its reasonable discretion that:
(1) The requirements are satisfied in connection with
the proposed debt, the department shall issue a preliminary
approval of the debt.
(2) The requirements are not satisfied in connection
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with the proposed debt, the department shall issue a
preliminary disapproval of the debt and the local government
may not proceed to incur the debt until the requirements are
satisfied.
(e) Timely action required.--The department shall have 30
days after receipt of the filing required under subsection (b)
to issue a preliminary approval or disapproval of the debt. If
the local government unit has submitted a certificate for
preliminary 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 30 days
of the date of receipt of the filing by the department, received
the certificate of preliminary approval, disapproval or
notification of correctable error, the filing shall be deemed to
have been preliminarily 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. No extension shall exceed
15 days.
(f) Incurrence of debt.--Upon issuance of preliminary
approval of the department, the local government unit shall have
one year to incur the debt under this subpart. The bonds or
notes shall be sold, or instruments evidencing lease rental debt
delivered, not more than two years following the date of the
preliminary approval.
(g) Review.--All determinations by the department under this
section are reviewable as provided under 2 Pa.C.S. Ch. 7
(relating to judicial review).
(h) Exemptions and special provisions.--
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(1) Small borrowing for capital purposes as provided in
section 8109 (relating to small borrowing for capital
purposes) shall be exempt from the requirements of this
section.
(2) A local government unit may obtain a single annual
preliminary authorization with regard to all such anticipated
or potential refinancing transactions that comply with
section 8244 (relating to effect of debt limits on refunding
nonelectoral bonds or notes or lease rental debt). The
department shall provide a procedure through which a local
government unit may obtain authorization, which must include
identifying current debt which the unit may seek to refund
and complying with applicable provisions of this section.
(3) A transaction which includes a qualified interest
rate management agreement shall not be exempt from the
requirements of this section.
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
or 30% of the nonelectoral debt limit as authorized in
section 8022(a) (relating to limitations on incurring of
other debt).
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* * *
§ 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.
(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
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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
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
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the extent possible.
* * *
Section 6. Sections 8203, 8204, 8206 and 8207(a) and (c) of
Title 53 are amended to read:
§ 8203. Fees for filing.
Every filing under this subpart with the department shall be
accompanied by a filing fee [as determined in section 605-A of
the act of April 9, 1929 (P.L.177, No.175), known as The
Administrative Code of 1929.] of $250, subject to the following
provisions:
(1) The filing shall be accompanied by an additional fee
of 1/32 mill on each dollar of the aggregate principal amount
of the debt relating to the filing.
(2) No submission shall constitute a filing until the
proper fee is paid. [All fees received under this section
shall be paid by the department into the State Treasury
through the Department of Revenue.]
(3) The fee shall be waived for borrowings in connection
with a plan or recovery plan under the act of July 10, 1987
(P.L.246, No.47), known as the Municipalities Financial
Recovery Act.
(4) Fees paid in connection with a filing under section
8102.1 (relating to preliminary approval by department for
issuance of certain debt) shall constitute payment of fees
due under section 8204 (relating to certificate of final
approval).
§ 8204. Certificate of final approval [of transcript].
The department shall, upon receipt of a submission under
section 8111 (relating to submission to department) containing
an application for final approval and any bond or note
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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. 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. If the debt
requires preliminary approval under section 8102.1 (relating to
preliminary approval by department for issuance of certain
debt), the certificates and filings related to preliminary
approval shall be part of the transcript and a requirement for
final approval under this section. If the debt has received
preliminary approval under section 8102.1, the department shall
provide for a procedure to expedite the processing of final
approval.
§ 8206. Effect of failure of timely action by department.
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
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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 approval by department for 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.
* * *
(c) Records open for inspection.--[The records of the
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
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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 in transactions.
§ 8291. Duties of participants in transactions.
(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 or financial
advisor 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, the source from which the attorney
or financial advisor will receive compensation for
services related to the transaction.
(ii) 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 local government unit
representatives.--
(1) An attorney or financial advisor who purports to
represent a local government unit under subsection (a) in a
transaction under this subpart shall stand in a fiduciary
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relationship to the local government unit.
(2) (i) With regard to a financial advisor who
represents a local government unit, the financial advisor
shall act in good faith and in a manner the financial
advisor reasonably believes to be in the best interests
of the local government unit, including the use of
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 an attorney licensed to practice
law in this Commonwealth, the attorney shall act as
prescribed by the Pennsylvania Supreme Court, including
the Pennsylvania Rules of Professional Conduct.
(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) In accordance with 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
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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 as to local government
unit representatives only, the fiduciary duty described in
this section shall be in addition to any duty contained in
rules promulgated by the Municipal Securities Rulemaking
Board that may apply to the attorney or financial advisor.
(c) Ultra vires acts.--An officer or member of the governing
body of a local government unit or a financial advisor or
attorney may not knowingly participate in a violation of this
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
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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. Repeals are as follows:
(1) The General Assembly declares that the repeal under
paragraph (2) is necessary to effectuate the amendment of 53
Pa.C.S. § 8203.
(2) Section 605-A of the act of April 9, 1929 (P.L.177,
No.175), known as The Administrative Code of 1929, is
repealed.
(3) 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), 8203, 8204, 8206, 8207(a) and
(c) and 8291.
Section 9. This act shall take effect in 60 days.
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