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05/22/2019 03:00 PM
Pennsylvania House of Representatives
https://www.legis.state.pa.us/cfdocs/Legis/CSM/showMemoPublic.cfm?chamber=H&SPick=20190&cosponId=28735
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House of Representatives
Session of 2019 - 2020 Regular Session

MEMORANDUM

Posted: March 11, 2019 11:04 AM
From: Representative Valerie S. Gaydos
To: All House members
Subject: MUNICIPAL DEBT REFORM BILL #4 - Performance Bonds
 
In the very near future I, along with Representatives Gleim, Lewis, Mihalek, and Ryan, will be introducing a series of bills on municipal government reform in conjunction with the Senate to ensure an effective and broad approach to municipal government for the 21st century.

The 2008 financial crisis in the United States and the continued concern about instability in municipal financing in other states as well as in the Commonwealth requires a fresh look at the controls, processes and governance relating to municipal debt so that the risk factors influencing municipalities are known and contained.

The package of bills will be conjoined with Ryan’s HB 320 – “Swaps” and “Derivatives” Restrictions which has already been introduced and is in the Local Government Committee, making this a total package of five (5) bills.

This bill package, which have identical companion bills in the Senate, address:

1. Municipal Debt Reform – Local Government Debt Act (Rep. Gleim)
2. Municipal Debt Reform – Ethics Commission and Municipal Authorities (Rep. Lewis)
3. Municipal Debt Reform – First Class City Swaps (Rep. Mihalek)
4. Municipal Debt Reform – Performance Bonds (Rep. Gaydos)
5. Rep. Ryan’s Swaps & Derivatives (already introduced as HB 320)

An important issue raised in the hearings on the incinerator project, which played a major role in Harrisburg’s fiscal distress, was that if the Public Works Contractors’ Bond Law of 1967 had worked as intended, Harrisburg would have avoided hundreds of millions in unsustainable debt.

The Bond Law is intended to provide security to local governments, equal to the contract amount, to avoid financial disaster if the project goes bad. In the Harrisburg case, attorneys used “loophole” language in the Law to advise the City to agree to a “security package,” which in fact provided no security whatsoever.

This legislation would close the loophole by eliminating these alternative security instruments which do not adequately protect the taxpayers. The amendment to the Bond Law would clarify that security for all levels of governments equal to the contract amount must be provided in the form of a performance bond, payment bond (for supply of materials), irrevocable letters of credit, or an escrow account.

Please join us in cosponsoring this package of Municipal Debt Reform legislation.



Introduced as HB885