Bill Text: MS HB1187 | 2012 | Regular Session | Introduced
Bill Title: Bonds; require governmental entity to file a bond financing review form with State Auditor before bonds may be issued.
Spectrum: Partisan Bill (Republican 1-0)
Status: (Failed) 2012-03-06 - Died In Committee [HB1187 Detail]
Download: Mississippi-2012-HB1187-Introduced.html
MISSISSIPPI LEGISLATURE
2012 Regular Session
To: S.C. Accountblty/Efficiency/Transparency; Ways and Means
By: Representative Rogers (14th)
House Bill 1187
AN ACT TO PROVIDE FOR FULL DISCLOSURE AND TRANSPARENCY IN THE ISSUANCE OF BONDS BY A GOVERNMENTAL ENTITY; TO REQUIRE THE GOVERNING AUTHORITY OF A GOVERNMENTAL ENTITY TO FILE A BOND FINANCING REVIEW FORM WITH THE STATE AUDITOR'S OFFICE BEFORE THE OFFICIAL AWARD OF A BOND ISSUE; TO PROVIDE FOR THE INFORMATION THAT MUST BE CONTAINED IN A BOND FINANCING REVIEW FORM; TO REQUIRE A GOVERNMENTAL ENTITY TO OBTAIN PROFESSIONAL ADVICE IN PREPARING THE BOND FINANCING REVIEW FORM; TO REQUIRE A GOVERNMENTAL ENTITY TO FILE WITH THE STATE AUDITOR CERTAIN REPORTS PERTAINING TO ALL BOND ISSUES OF THAT GOVERNMENTAL ENTITY; TO REQUIRE THE STATE AUDITOR TO MAINTAIN SUCH REPORTS; TO IMPOSE A PENALTY FOR THE FAILURE OF THE CLERK, SECRETARY, OR OTHER PERSON CHARGED WITH THE DUTY OF MAKING SUCH REPORTS, TO MAKE SUCH REPORTS AS REQUIRED UNDER THE ACT, OR TO MAKE SUCH REPORTS IN THE MANNER PRESCRIBED BY THE STATE AUDITOR; AND FOR RELATED PURPOSES.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MISSISSIPPI:
SECTION 1. As used in this act, the following words and phrases shall have the meanings ascribed below, unless the context clearly indicates otherwise:
(a) "Bond financing agreement" means an agreement or other document relating to the sale or issuance of bonds including, but not limited to, a bond purchase agreement, a loan agreement, a refinancing agreement, or documents providing for bonds sold or issued.
(b) "Bonds" mean bonds, notes, or certificates of indebtedness of any kind, issued or entered into on behalf of any governmental entity in which the total outstanding indebtedness incurred at any one time exceeds Two Hundred Fifty Thousand Dollars ($250,000.00), including refinancing or refunding bonds involving variable rate debt instruments.
(c) "Business day" means a day, other than a Saturday or a Sunday, on which commercial banking institutions are open for business in the State of Mississippi and on which the payment system of the Federal Reserve System is operational.
(d) "Capital expenditure" means any cost or expense of a type that is properly chargeable to a capital account under general federal income tax principles.
(e) "General obligation indebtedness" means a bond financing agreement which, according to its terms, will be repaid from any funds at the disposal of any governmental entity.
(f) "General operating expense" means any expense incurred by any governmental entity in the general operation and function of the governmental entity, including salaries and other associated expenses, but not including a capital expenditure or expense.
(g) "Governing authority" means the legislative body of a governmental entity.
(h) "Governmental entity" means a municipality, county, road district, school district, drainage district, utility district, fire district, solid waste authority, regional solid waste authority, housing authority, regional housing authority, county cooperative service district, or other political subdivision or instrumentality of this state.
(i) "Limited obligation indebtedness" means bonds which, according to their terms, are required to be paid solely from the proceeds of a specific tax, fee, license, charge or other specific revenue stream.
(j) "Net present value savings" means the projected cost savings to any governmental entity resulting from refinancing any bonds, by comparing the net present value of the costs of the bonds proposed for refunding, including the original costs of issuance and the payment of principal and interest on the bonds proposed for refunding, with the net present value of the costs of the proposed bonds, including the costs of issuance and refinancing and the payment of principal and interest on the proposed bonds.
(k) "Swap agreement" means an agreement commonly known as and of the following:
(i) An interest rate swap agreement, an interest rate cap agreement, an interest rate floor agreement, an interest rate collar agreement, or any other similar agreement, including an option to enter into any of the foregoing.
(ii) Any combination of any of the foregoing.
(iii) A master agreement for any of the foregoing, together with all supplements.
(l) Variable rate debt instruments: means variable rate bonds, variable rate refunding bonds and interest rate exchange or similar agreements which result in a governmental entity effectively paying interest at a rate or rates which vary from time to time.
SECTION 2. After July 1, 2012, no governmental entity may issue bonds or be obligated to pay the principal or interest on bonds that constitute or create an obligation, debt, or charge against the credit or taxing power of the governmental entity, unless the governmental entity has satisfied the requirements of the provisions of this act.
SECTION 3. (1) Before the official award of a bond issue, the governing authority of a governmental entity shall execute and file with the State Auditor's Office a bond financing review form, in addition to any and all other documents presented for examination and execution of the bond issue. The bond financing review form shall be prepared by the State Auditor's Office and, at a minimum, shall include statements to the effect that:
(a) The governing authority has considered whether it can satisfy its financial obligations for the life of the bonds.
(b) In the case of limited obligation indebtedness, the governing authority has identified the source for the debt service payments for the life of the bonds, and in the case of general obligation indebtedness, the governing authority has indicated that the full faith and credit of the governmental entity has been pledged for the debt service payments for the life of the bonds.
(c) The governing authority has considered the period of usefulness of the improvement or property for which the bonds are to be issued in light of the duration of the term of the bonds under the bond financing agreement.
(d) The governing authority acknowledges that bond proceeds, or any advance payments directly or indirectly related to the bond issue, shall not be used for general operating expenses of the governmental entity.
(e) The governing authority has received from the bond underwriter, bond counsel, issuer's counsel, trustee, financial advisor, and any others associated with the issuance of bonds, an itemized listing of their respective fees and all other costs which shall not be subject to change before the sale or issuance of bonds.
(f) The governing authority has received from the bond underwriter a clear and understandable written proposal explaining all details of the proposed bond issue, its repayment schedule, and any external factors which could affect the total cost to the governmental entity if it issues the bonds.
(g) The governing authority has considered the effect, if any, that the bonds will have on the constitutional debt limit of the governmental entity.
(h) The governing authority has received from the bond underwriter information demonstrating that the estimated interest rate on the bonds is reasonable, and that, if information regarding similar recent bond issuances is available, the interest rates are comparable with other similar issuances based on current bond market conditions on the date of execution of the bond financing agreement.
(2) If the proceeds of the proposed bonds are to be used, in whole or in part, for the purpose of refinancing or refunding outstanding bonds, then the bond financing review form shall also include statements to the effect that:
(a) The governing authority understands how the issuance of refunding bonds may extend the initial debt repayment period of the governmental entity and the total cost paid by the governmental entity by the end of the refunding period.
(b) The governing authority has considered whether the refunding bonds will create net present value savings for the governmental entity, including the costs of refinancing.
(3) If there is a swap agreement issued by a bank or other entity, including the Mississippi Development Bank, the bond financing review form shall include statements to the effect that:
(a) The governing authority finds and determines, and certifies to the counterparty, that the swap agreement is entered into for the sole purpose of hedging against an interest rate regarding a bond issue arising in connection with or incidental to the proper activities of the governmental entity and not for an investment purpose to try to generate income or to manage cash flow with an upfront payment.
(b) The governing authority has reviewed, or had explained to it by the adviser selected under Section 5 of this act, all documentation provided pertaining to the swap agreement.
(c) The governing authority has designated one of its employees or officials who will have primary responsibility for the consideration, execution, and monitoring of interest rate swaps and financial hedges entered into by the governmental entity. The designated employee or official must be other than any official, employee, agent or contractor of the bank or entity issuing the swap agreement, including the Mississippi Development Bank.
(d) The governing authority has determined whether the obligations of the governmental entity under the swap agreement constitute a general obligation indebtedness of the governmental entity and has made a finding that the source of payment is sufficient.
(e) The governing authority has sought and received specific information disclosing the potential risks inherent in the swap agreement including those risks commonly referred to in the derivatives industry as basis risk, tax risk, interest rate risk, counterparty risk, termination risk, market-access risk, rollover or anticipation risk, and credit risk.
(4) The bond financing review form shall also include a statement acknowledging that all enumerated items on the review form have been considered by the governing authority, and that the governing authority has voted to enter into the bond financing agreement or swap agreement by an affirmative vote of a majority of the members of the governing authority. The statement of acknowledgment shall be signed by the president or chair of the governing authority and the adviser or consultant utilized by the governing authority under Section 5 of this act.
(5) All bond financing review forms shall be kept on file at the State Auditor's Office and shall be available for public inspection for a period of seven (7) years.
SECTION 4. (1) In addition to the requirements of Section 3 of this act, the bond financing agreement documents shall include a detailed itemization of the costs and fees which will be paid directly by the governing authority from bond proceeds under the bond financing agreement, or indirectly by the bank or entity issuing the bonds on behalf of the governmental entity, including the Mississippi Development Bank. This itemization shall include a statement acknowledging that the amounts of these costs and fees have been presented and explained to all members of the governing authority before the sale of the bonds. The acknowledgement statement shall be signed by the president or chair of the governing authority and by the authorized signatory for the bond underwriter.
(2) In connection with a swap agreement, the documentation necessary to effectuate the swap agreement shall also include a statement from the authorized signatory for the bond underwriter or authorized signatory of the provider of the swap agreement to the effect that the signatory:
(a) Has provided the governing authority with a disclosure of the potential risks inherent in the swap agreement.
(b) Has disclosed all fees associated with the swap agreement.
(c) Has provided the governing authority with documentation necessary to effectuate the swap agreement including master agreements, schedules, credit support annexes, confirmations, legal opinions, fairness opinions, and any other information necessary to comply with Section 3 of this act.
SECTION 5. In preparing the bond financing review form, the governing authority involved shall consult with and obtain advice from an attorney representing the governing authority, the financial officer or administrator of the governing authority, or, at its option, a certified public accountant regarding any and all bond or swap proposals received by the governmental entity. The person or persons utilized by the governing authority for advice and consultation shall review all documents to be included at the execution of the bond financing agreement or swap agreement.
SECTION 6. In order that there may regularly appear a record in one (1) central office of the comprehensive information pertaining to the outstanding bonded indebtedness of each governmental entity, the clerk or secretary of the governing authority of the governmental entity shall file tabulated reports of all bond issues for which all or portions thereof are outstanding, including refinancing and refunding bond issues, with the State Auditor, in such form as he may require. The first report shall be made to the State Auditor on or before August 1, 2012, and shall show the amount of each bond issue outstanding as of July 1, 2012, the purpose for which such bonds were issued, and such other information as the State Auditor may prescribe.
SECTION 7. The clerk or secretary of the governing authority of the governmental entity shall make additional and periodic reports to the State Auditor, on December 31 and June 30 of each year, showing transactions relative to bond issues, including refinancing and refunding bond issues, since the last report. These reports shall contain such information as the State Auditor may require, including, but not limited to, the following:
(a) The date of each bond issue;
(b) The amount of each bond issue;
(c) The maturity dates pertaining to each bond issue;
(d) The applicable rate of interest, whether fixed or variable;
(e) Whether swap agreements are involved;
(f) Whether the governmental entity or another entity, such as a bank or other entity, including the Mississippi Development Bank or the Mississippi Development Authority, is the issuer of the bonds;
(g) The purpose for which the bonds were issued; and (h) The amount and date of each payment made in the retirement of the bonds.
SECTION 8. On or before June 1, 2013, the State Auditor shall maintain for public review the information contained in the reports regarding bond issues as required by Section 6 and Section 7 of this act, on the Audit Department's Internet website and at the physical office location of the Audit Department. The State Auditor shall make an annual report to the Governor and the Legislature on the information obtained under the provisions of this act and such other information the State Auditor deems pertinent.
SECTION 9. If any clerk, secretary or other person shall fail to make any report to the State Auditor as required under this act, or to make a report in the manner prescribed by the State Auditor, the State Auditor shall proceed to make, or cause to be made, the report. The governing entity for which the report of its bond indebtedness pertains shall pay the cost of the State Auditor making the report. The governing entity shall recover the cost of making the report from the clerk, secretary or other person who failed to make the report. The clerk, secretary or other person who failed to make the report shall be liable on his or her official bond for the payment of the expense incurred in making the report.
SECTION 10. This act shall take effect and be in force from and after July 1, 2012.
