§ 22.10 — Sinking fund bonds of municipalities and school districts

New York § 22.10

• Jurisdiction: New York
• Law LFN: Local Finance
• Title 2: Local Obligations: Types Thereof
• Art. 2: Local Indebtedness

Text

§ 22.10 Sinking fund bonds of municipalities and school districts. a.\nAny municipality or school district may issue sinking fund bonds for any\nobject or purpose for which serial bonds may be issued.\n b. Sinking fund bonds shall mature at a date not later than the\nexpiration of the period of probable usefulness of the object or purpose\nfor which they are authorized to be issued, as computed from the date of\nsuch bonds or, if bond anticipation notes shall have been issued in\nanticipation thereof, from the date of the earliest note or notes so\nissued; provided, however, that such bonds shall not mature at a date\nthat is later than fifty years from the date of such bonds or, if bond\nanticipation notes shall have been issued in anticipation thereof, from\nthe date of the earliest note or notes so issued. Sinking fund bonds may\nbe referred to as "term bonds".\n c. Sinking fund bonds shall be redeemed through annual contributions\nto sinking funds established by the municipality or school district\nissuing such sinking fund bonds. Each annual contribution shall be at\nleast equal to the amount required, if any, to enable the sinking fund\nto redeem, on the date of the contribution, the same amount of\nindebtedness as would have been paid and then be payable if such\nindebtedness had been financed entirely by the issuance of serial bonds,\nexcept, if an issue of sinking fund bonds is combined for sale with an\nissue of serial bonds, for the same object or purpose, then the amount\nof each such annual contribution shall be at least equal to the amount\nrequired, if any, to enable the sinking fund to redeem, on the date of\neach such annual contribution, (i) the amount which would be required to\nbe paid annually if such indebtedness had been issued entirely as serial\nbonds, less (ii) the amount of indebtedness, if any, to be paid during\nsuch year on the portion of such indebtedness actually issued as serial\nbonds. There shall be established within a sinking fund established by\na municipality or school district an account for the amortization and\nredemption of each issue of sinking fund bonds issued by such\nmunicipality or school district. At the time of the issuance of sinking\nfund bonds, the municipality or school district issuing such bonds shall\nestablish and deliver to the state comptroller a schedule setting forth\nthe amount required to be on deposit in the account established for the\nredemption of such bonds for each year following the year of issuance of\nsuch bonds until the year in which all the bonds of such issue are to be\nredeemed. Each account shall be maintained at or above the amount\nrequired to be on deposit pursuant to such schedule less the principal\namount of sinking fund bonds acquired pursuant to subparagraph (e) of\nsubdivision four of paragraph d of this section or purchased by or on\nbehalf of the municipality or school district and thereupon cancelled or\npaid or for payment of which funds have been duly transferred to the\nfiscal agent of the municipality or school district that issued the\nbonds redeemable from such account. Not less than fifteen days nor more\nthan thirty days prior to the date on which the annual contribution\nshall be made, the municipality or school district shall calculate the\namount expected to be on deposit in the sinking fund on such date and\nshall certify such amount to the state comptroller. The municipality or\nschool district shall annually appropriate for deposit in the sinking\nfund an amount equal to the difference between the amount required to be\non deposit in the sinking fund in accordance with the provisions of this\nparagraph and the amount on deposit therein on the date the annual\ncontribution is to be made.\n d. Sinking funds shall be maintained and managed by the state\ncomptroller pursuant to the provisions set forth below:\n 1. (a) Moneys deposited and retained in each account in the sinking\nfunds to be maintained and managed by the state comptroller shall vest\nimmediately in the state comptroller in trust for the benefit of the\nholders of the bonds for which such account was established. Payments\nand transfers from the sinking funds and the accounts therein shall not\nbe subject to appropriation by the legislature. The state comptroller\nshall have custody of the securities and other assets in the sinking\nfunds; provided, however, that, subject to the rights of the owners of\nthe bonds, the state comptroller may contract with a bank or trust\ncompany for the maintenance, management and custody of the sinking\nfunds. Such bank or trust company shall have an office and be authorized\nto do business in the state and shall maintain a combined capital and\nsurplus of not less than seventy-five million dollars or shall be the\nwholly-owned subsidiary of a corporation which maintains a combined\ncapital and surplus of not less than seventy-five million dollars.\n (b) In performing his duties hereunder, the state comptroller shall\nhave no obligation to follow the directions of any bondholder or group\nof bondholders nor to take any action on behalf of the bondholders,\nincluding, without limitation, the obligation to take any action against\nthe municipality or the school district for nonpayment of an annual\ncontribution. The state comptroller shall be required to perform only\nsuch duties as are set forth in this section and no implied covenants or\nobligations shall be read into this section. The state comptroller shall\nnot be liable for any error of judgment made in good faith nor for any\naction taken or omitted to be taken by him in good faith. The state\ncomptroller makes no representations as to the validity or sufficiency\nof the bonds redeemable with amounts on deposit in the sinking funds,\nand shall not be accountable for the use or application of the proceeds\nof such bonds or of any excess in the sinking funds. The municipalities\nand school districts shall deliver to the state comptroller such\ncertificates and documents as he shall by regulation or otherwise\nrequest. A determination made or action taken by the state comptroller\nunder this section shall be final unless it is shown that such\ndetermination or action was arbitrary and capricious or an abuse of\ndiscretion.\n (c) In connection with any claim, demand, suit, or judgment against\nthe state comptroller in connection with the exercise or performance of\nany of his powers or duties under this section, the state comptroller\nshall be entitled to representation by private counsel of his choice in\nany civil judicial proceeding whenever the attorney general determines\nbased upon his investigation and review of the facts and circumstances\nof the case that representation by the attorney general would be\ninappropriate. The attorney general shall notify the state comptroller\nin writing of such determination. The provisions of this subparagraph\nshall be in addition to and shall not supplant the indemnification or\nother benefits conferred upon the state comptroller by section seventeen\nof the public officers law or otherwise, or any further indemnification\nor other benefits that may be hereafter conferred by any such law. The\nprovisions of this subparagraph shall inure only to the state\ncomptroller, shall not enlarge or diminish the rights of any other\nparty, and shall not impair, limit or modify the rights and obligations\nof any insurer under any policy of insurance.\n 2. As soon as practicable after a municipality or school district on\nwhose behalf the state comptroller is maintaining and managing a sinking\nfund notifies the state comptroller of its intention to redeem sinking\nfund bonds redeemable from an account in such sinking fund prior to or\nat maturity, the state comptroller shall transfer the requested funds in\naccordance with the instructions of such municipality or school\ndistrict.\n 3. Subject to the provisions of subdivision six of this paragraph, the\nstate comptroller shall, as soon as practicable following the request of\nthe municipality or school district, (i) transfer to such municipality\nor school district any amounts in any account in the sinking fund held\non its behalf determined by the municipality or school district and\ncertified by it to the state comptroller to be over and above the amount\nrequired to be maintained in such account pursuant to paragraph c of\nthis section or (ii) transfer or credit the excess in one account to\nanother account within a sinking fund established by such municipality\nor school district. Such request shall not be made more than once in\nany twelve month period.\n 4. (a) Moneys in any sinking fund shall be invested in any of the\nfollowing:\n (i) Direct obligations of the United States of America or obligations\nthe principal of and interest on which are unconditionally guaranteed by\nthe United States of America.\n (ii) Certificates of deposit issued by commercial banks or trust\ncompanies maintaining their principal place of business in this state\nwhich maintain, or the corporations of which they are wholly-owned\nsubsidiaries maintain, a combined capital and surplus of not less than\nseventy-five million dollars; provided that any such investment in\ncertificates of deposit shall be secured by direct obligations of the\nUnited States of America or the state or by obligations the principal of\nand interest on which are unconditionally guaranteed by the United\nStates of America or the state in a principal amount with a fair market\nvalue at least equal at all times to the principal amount at maturity of\nsuch certificates of deposit, and provided further that such collateral\nsecurities shall be physically delivered by the bank or trust company\nissuing the certificate of deposit to the state comptroller or to a bank\nor trust company designated pursuant to section sixty-five of the state\nfinance law as his agent (which designated bank or trust company shall\nnot be an issuer of certificates of deposit for the purposes of this\nsection) unless such collateral securities are issued in book-entry\nform, in which case the state comptroller shall take such other action\nas may be necessary to obtain title to or a perfected security interest\nin such collateral securities.\n (iii) With the consent of the municipality or school district on whose\nbehalf a sinking fund is held, securities of or guaranteed by the state\nof New York or obligations of political subdivisions and public benefit\ncorporations thereof, other than obligations of such municipality or\nschool district.\n (iv) Deposit accounts (other than certificates of deposit) at the\nbanks or trust companies described in subdivision one of this paragraph;\nprovided that the amounts on deposit in such accounts are secured at all\ntimes by direct obligations of the United States of America or the state\nor by obligations the principal of and interest on which are\nunconditionally guaranteed by the United States of America or the state\nin an amount with a fair market value at least equal at all times to the\namount of such deposits; and provided further that such collateral\nsecurities shall be physically delivered for retention to the state\ncomptroller or a bank or trust company designated pursuant to section\nsixty-five of the state finance law as his agent (which designated bank\nor trust company shall not be the bank or trust company at which such\naccount is located) unless such collateral securities are issued in\nbook-entry form, in which case the state comptroller shall take such\nother action as may be necessary to obtain title to or a perfected\nsecurity interest in such collateral securities.\n (b) For purposes of making any investment of amounts pursuant to this\nsection, the state comptroller may consolidate moneys in any sinking\nfund or account in a sinking fund with moneys in any other sinking fund\nor account in the same or any other sinking fund and may transfer an\ninterest in an investment from one sinking fund or account to another\nwithout liquidating the investment, but only if all such investments are\nauthorized or consented to for such sinking funds, and all such\ninvestments shall be credited on a pro-rata basis to the appropriate\nsinking funds and accounts. The allocable amount of income or interest\nearned and gains realized in excess of losses suffered due to the\ninvestment of amounts on deposit in any account in a sinking fund shall\nbe deposited upon receipt in such account. All investments made pursuant\nto this section shall mature or be redeemable at the option of the\nholder thereof on such dates and in such amounts as may be necessary to\npay principal of any sinking fund bonds when due, whether at maturity or\nby redemption prior to maturity.\n (c) Each municipality and school district shall provide the state\ncomptroller with information and opinions of counsel necessary to insure\nthat the municipality or school district complies with any restrictions\nimposed by applicable federal law on the yield payable on investments in\na sinking fund. In order to comply with such yield restrictions, the\nstate comptroller shall, at the direction of the municipality or school\ndistrict, invest the amounts on deposit in any account of a sinking fund\nof such municipality or school district in obligations described in\nclause (iii) of subparagraph (a) of subdivision four of this paragraph,\nthe interest on which is exempt from federal income taxes. The state\ncomptroller is authorized to promulgate rules and regulations as he\ndeems appropriate to implement the provisions of this paragraph.\n (d) The state comptroller may engage the services of such consultants\nand counsel as he may deem necessary to assist in performing the\nfunctions required to be performed by him under this section.\n (e) The state comptroller shall, at the instruction of any\nmunicipality or school district on whose behalf the state comptroller is\nmaintaining and managing a sinking fund, use his best efforts to apply\nfunds in any account within such sinking fund to purchase bonds\nredeemable from such account.\n 5. The principal amount of sinking fund bonds required to be redeemed\non any date by payment from a sinking fund shall be reduced by the\nprincipal amount of any such sinking fund bond which has been purchased\nor redeemed and cancelled and not theretofore applied as a credit\nagainst such requirement.\n 6. The state comptroller shall be reimbursed annually by March\nfifteenth of each year for the fees and expenses of custodians of\nsecurities in a sinking fund, fees and expenses of custodians of\ncollateral securities for investments in a sinking fund, fees of banks\nand trust companies designated pursuant to subdivision one of this\nparagraph, fees and expenses of counsel other than the attorney general,\nfees and expenses of consultants, direct personnel costs of the\ndepartment of audit and control and other similar costs and related\nexpenses of maintaining and managing the sinking funds during the year\nending the preceding December thirty-first by the municipalities or\nschool districts issuing the bonds redeemable therefrom. Notwithstanding\nthe foregoing, the fees and expenses of consultants retained by the\ncomptroller shall be reimbursed by any such municipality or school\ndistrict only with its express consent. In the event that the state\ncomptroller shall not have been reimbursed as provided above, then the\nstate comptroller shall deduct the amount of the required reimbursement\nfrom any excess on deposit in a sinking fund; provided, however, that in\nno event shall the state comptroller use assets of the sinking funds\nother than the excess therein for such reimbursement. The state\ncomptroller may establish such accounts in the state special revenue\nfund as are necessary to provide for the receipt and disposition of such\npayments as may be received from municipalities and school districts\npursuant to this subdivision; provided that payments and transfers from\nsuch accounts shall be made pursuant to an appropriation provided by\nlaw.\n 7. (a) The state comptroller shall adopt such regulations as he deems\nappropriate to implement the provisions of this section, which may\ninclude, but shall not be limited to, regulations establishing:\n (A) The rights and responsibilities of the state comptroller in\nmaintaining and managing the sinking funds hereunder, which rights and\nresponsibilities may include, among others, that:\n (i) the state comptroller undertakes to perform such duties and only\nsuch duties as are specifically set forth in the statute, the\nregulations or any agreement with the municipality or school district\nand no implied covenants or obligations shall be read into the statute,\nthe regulations or into any agreement with the municipality or school\ndistrict against the state comptroller;\n (ii) the state comptroller may conclusively rely, as to the truth of\nthe statements and the correctness of the opinions expressed therein,\nupon certificates or opinions furnished to the state comptroller and\nconforming to the requirements of the statute, the regulations and any\nagreement with the municipality or school district; but in the case of\nany such certificates or opinions which are specifically required to be\nfurnished to the state comptroller pursuant to paragraph c of this\nsection, the state comptroller shall be under a duty to examine the\ncontents of the same to determine whether or not they conform to the\nrequirements of the statute, the regulations and any agreement with the\nmunicipality or school district;\n (iii) the state comptroller shall not be liable for any error of\njudgment made in good faith by him;\n (iv) the state comptroller shall not be liable with respect to any\naction taken or omitted to be taken by him in good faith in accordance\nwith the direction of the municipality or school district;\n (v) the state comptroller may rely, and shall be protected in acting\nor refraining from acting in reliance, upon any resolution, certificate,\nstatement, instrument, opinion, report, notice, request, direction,\nconsent, order, bond, debenture or other paper or document believed by\nhim to be genuine and to have been signed or presented by the proper\nparty or parties;\n (vi) any request or direction of the municipality or school district\nshall be sufficiently evidenced by a certificate signed by an authorized\nofficial of the municipality or school district and any resolution of\nthe governing body of the municipality or school district may be\nsufficiently evidenced by a copy of such resolution certified by the\nappropriate official of the municipality or school district;\n (vii) whenever the state comptroller shall deem it desirable that a\nmatter be proved or established prior to taking, suffering or omitting\nany action, the state comptroller (unless other evidence be specifically\nprescribed) may, in the absence of bad faith on his part, rely upon a\ncertificate signed by an authorized official of the municipality or\nschool district;\n (viii) the state comptroller may consult with counsel, including the\nattorney general, and the written advice of such counsel shall be full\nand complete authorization and protection in respect of any action\ntaken, suffered or omitted by it in good faith and in reliance thereon;\n (ix) the state comptroller shall not be bound to make any\ninvestigation into the facts or matters stated in any resolution,\ncertificate, statement, instrument, opinion, report, notice, request,\ndirection, consent, order, bond or other paper or document, but the\nstate comptroller, in his discretion, may make such further inquiry or\ninvestigation into such facts or matters as he may see fit, and, if the\nstate comptroller shall determine to make such further inquiry or\ninvestigation, he shall be entitled to examine the books, records and\npremises of the municipality or school district, personally or by agent\nor attorney;\n (B) Procedures for determining the value of investments in the sinking\nfunds and of the collateral securities securing such investments;\n (C) Procedures for determining and allocating administrative expenses\nrelated to maintaining and managing the sinking funds and the payment\nthereof;\n (D) Procedures for determining the amount of excesses in a sinking\nfund and when withdrawals of excesses in a sinking fund may occur, for\ntransferring moneys from a sinking fund to redeem sinking fund bonds and\nfor directing the purchase of sinking fund bonds, including the\nfrequency with which such actions may be taken;\n (E) The form and substance of reports, certificates and other material\nto be delivered by the municipality or the school district to the state\ncomptroller;\n (F) Standards for the qualification of consultants to the state\ncomptroller;\n (G) Procedures for securing amounts on deposit in the sinking funds;\n (H) Procedures for distributing the amount on deposit in a sinking\nfund if such amount is insufficient to pay any bonds when due; and\n (I) Procedures for the disposition of a sinking fund upon defeasance\nof the sinking fund bonds, if defeasance other than by payment or\npurchase by sinking fund moneys is legally permissible.\n (b) Each municipality and school district is authorized to enter into\nagreements with the state comptroller and the state comptroller is\nauthorized to enter into agreements with one or more municipality or\nschool district setting forth, with respect to the sinking funds and\neach account therein, the dates on which annual contributions to such\naccounts shall be made, the dates on which withdrawals from such\naccounts may be made, the dates on which excesses in such accounts shall\nbe calculated, any limitations on the price to be paid for the purchase\nof bonds pursuant to subparagraph (e) of subdivision four of this\nparagraph and such other matters as the state comptroller and the\nmunicipality or school district shall deem appropriate. Such agreements\nshall be subject to approval only by the chief fiscal officer and the\nfinance board of the municipality or school district.\n 8. Nothing in this section shall be construed to prevent or apply to\nthe issuance of sinking fund bonds by the city of New York pursuant to\nthe authorization contained in section 22.00 of this chapter; provided,\nhowever, that in the event the city of New York issues sinking fund\nbonds pursuant to the authorization contained in this section, all of\nthe provisions of this section shall apply.\n 9. Failure to comply with any provision of this section shall not\naffect the validity of any sinking fund bonds.\n 10. The comptroller shall annually prepare a report with respect to\nthe maintenance and management of sinking funds authorized by this\nsection. Such report, with respect to each municipality and school\ndistrict issuing sinking fund bonds pursuant to this section, shall\ninclude, but not be limited to, a summary statement of the cash and\nbonds invested in sinking funds, earnings thereon and disbursements\ntherefrom, and fees charged including information pertaining to the\nallocation of the costs of the department of audit and control of\nmanaging and maintaining such funds. Such report may also include any\nother matter which the comptroller deems advisable. Such report shall be\ndelivered not later than May thirtieth to the governor, the temporary\npresident of the senate, the speaker of the assembly, the chairman of\nthe senate finance committee, the chairman of the assembly ways and\nmeans committee and the chief fiscal officer of each such municipality\nand school district.\n