§ 90.10 — Advance refunding of certain bonds

New York § 90.10

• Jurisdiction: New York
• Law LFN: Local Finance
• Title 7: Refunding of Bonds and Capital Notes
• Art. 2: Local Indebtedness

Text

§ 90.10 Advance refunding of certain bonds. a. As used in this\nsection:\n 1. The term "escrow contract" shall mean a contract entered into by\nand between a municipality, school district or district corporation and\na bank or trust company pursuant to paragraph i of this section.\n 2. The term "escrow holder" shall mean the bank or trust company\ndesignated as such pursuant to an escrow contract.\n 3. The term "refunding financial plan" shall mean the financial plan\nfor a refunding as set forth in the refunding bond resolution relating\nthereto.\n 4. The term "refunding bonds" shall mean refunding bonds authorized\npursuant to this section.\n 5. The term "refunding bond resolution" shall mean a resolution\nauthorizing the issuance of refunding bonds adopted pursuant to\nparagraph e of this section.\n b. 1. A municipality, school district or district corporation may\nissue serial bonds to refund all or any portion of an issue of\noutstanding serial bonds issued on or after January first, nineteen\nhundred seventy, and, in addition, a municipality or school district may\nissue serial bonds or serial bonds to refund all or any portion of an\nissue of outstanding sinking fund bonds or sinking fund bonds issued on\nor after December fifteenth, nineteen hundred eighty-one and may issue\nsinking fund bonds to refund all or any portion of an issue of\noutstanding serial bonds or sinking fund bonds, in the manner and\nsubject to the limitations and conditions set forth in this section. The\nprincipal amount of refunding bonds shall not exceed an amount\nsufficient to pay the sum of (a) the principal amount of the bonds to be\nrefunded, which is outstanding as of the date of issue of the refunding\nbonds, (b) the aggregate amount of unmatured interest payable on the\nbonds to be refunded to and including either the date or dates such\nbonds mature or, if such bonds are to be called for redemption prior to\ntheir maturities, the date or dates set for such redemption in\naccordance with the refunding financial plan, (c) redemption premiums,\nif any, payable on the bonds to be refunded as of such redemption date\nor dates, and (d) costs and expenses incidental to the issuance of the\nrefunding bonds, including the development of the refunding financial\nplan, and of executing and performing the terms and conditions of the\nescrow contract and all fees and charges of the escrow holder. In the\nevent a municipality or school district issues bonds to refund sinking\nfund bonds, and such refunding has the effect of permitting the\nmunicipality or school district to withdraw assets from a sinking fund\nestablished for such refunded bonds, then such assets shall be used to\npay principal and interest on either such refunded bonds or other bonds\nof such municipality or school district.\n 2. * (a) Refunding bonds shall be issued only in the event that the\npresent value of the total payments of both principal and interest to\nbecome due on the refunding bonds, and deducting any accrued interest or\npremium received by the issuer and not used to pay the principal of or\ninterest on the bonds to be refunded or costs of issuance of the\nrefunding bonds, excluding all such principal and interest payments to\nbe made from income received as a result of the investment of the\nproceeds from the sale of the refunding bonds, shall be less than the\npresent value of the principal and interest payments to become due at\ntheir stated maturities on the principal amount of bonds to be refunded\nwhich are outstanding as of the date of the issue of the refunding bonds\nafter deducting therefrom all costs and expenses incidental to the\nissuance of the refunding bonds, including the development of the\nrefunding financial plan, and of executing and performing the terms and\nconditions of the escrow contract and all fees and charges of the escrow\nholder, but only to the extent such costs and expenses are not paid from\nthe proceeds of the refunding bonds. The present value of debt service\npayments pursuant to the foregoing provisions of this subdivision shall\nbe computed by discounting the principal and interest payments on both\nthe refunding bonds and the bonds to be refunded from the respective\nmaturities thereof to the date of issue of the refunding bonds at a rate\nequal to the effective interest cost of the refunding bonds. The\neffective interest cost of the refunding bonds shall be that rate which\nis arrived at by doubling the semi-annual interest rate (compounded\nsemi-annually) necessary to discount the debt service payments on the\nrefunding bonds from the maturity dates thereof to the date of issue of\nthe refunding bonds and to the bona fide initial public offering price\nincluding estimated accrued interest, or, if there is no public\noffering, to the price bid including estimated accrued interest. In the\ncase of the city of New York, notwithstanding any other provision of law\nto the contrary, for purposes of calculating the present value of debt\nservice and calculating savings in connection with the issuance of\nrefunding bonds, (i) the effective interest rate and debt service\npayable on variable rate bonds in connection with which, and to the\nextent that, the city of New York has entered into an interest rate\nexchange or similar agreement pursuant to which such city makes payments\nbased on a fixed rate and receives payments based on a variable rate\nthat shall be found by the finance board of such city to be equivalent\nover time to the variable rate paid on the related variable rate bonds,\nshall be calculated assuming that the rate of interest on such variable\nrate bonds is the fixed rate payable by such city on such interest rate\nexchange or similar agreement for the scheduled term of such agreement;\n(ii) the effective interest rate and debt service on variable rate bonds\nin connection with which, and to the extent that, the city of New York\nhas not entered into such an interest rate exchange or similar agreement\nshall be calculated assuming that interest on such variable interest\nrate bonds is payable at a rate or rates as shall be found by the\nfinance board of such city; (iii) the effective interest rate and debt\nservice on any bonds subject to optional or mandatory tender shall be\ncalculated assuming that such bonds are remarketed following any such\ntender at a rate or rates as shall be found by the finance board of the\ncity of New York; and (iv) otherwise, the effective interest rate and\ndebt service on any bonds shall be calculated at a rate or rates\ndetermined by the finance board of the city of New York. Notwithstanding\nany other provision of law to the contrary, in the case of the city of\nNew York, for calculating the present value of debt service and\ncalculating savings in connection with the issuance of refunding bonds,\nthe refunding of variable rate debt instruments with new variable rate\ndebt instruments shall be excluded from any such requirements, if so\ndetermined by the finance board of such city.\n * NB Effective until July 15, 2026\n * (a) Refunding bonds shall be issued only in the event that the\npresent value of the total payments of both principal and interest to\nbecome due on the refunding bonds, and deducting any accrued interest or\npremium received by the issuer and not used to pay the principal of or\ninterest on the bonds to be refunded or costs of issuance of the\nrefunding bonds, excluding all such principal and interest payments to\nbe made from income received as a result of the investment of the\nproceeds from the sale of the refunding bonds, shall be less than the\npresent value of the principal and interest payments to become due at\ntheir stated maturities on the principal amount of bonds to be refunded\nwhich are outstanding as of the date of the issue of the refunding bonds\nafter deducting therefrom all costs and expenses incidental to the\nissuance of the refunding bonds, including the development of the\nrefunding financial plan, and of executing and performing the terms and\nconditions of the escrow contract and all fees and charges of the escrow\nholder, but only to the extent such costs and expenses are not paid from\nthe proceeds of the refunding bonds. The present value of debt service\npayments pursuant to the foregoing provisions of this subdivision shall\nbe computed by discounting the principal and interest payments on both\nthe refunding bonds and the bonds to be refunded from the respective\nmaturities thereof to the date of issue of the refunding bonds at a rate\nequal to the effective interest cost of the refunding bonds. The\neffective interest cost of the refunding bonds shall be that rate which\nis arrived at by doubling the semi-annual interest rate (compounded\nsemi-annually) necessary to discount the debt service payments on the\nrefunding bonds from the maturity dates thereof to the date of issue of\nthe refunding bonds and to the bona fide initial public offering price\nincluding estimated accrued interest, or, if there is no public\noffering, to the price bid including estimated accrued interest.\n * NB Effective July 15, 2026\n (b) Notwithstanding the provisions of subparagraph (a) of this\nsubdivision, the city of New York may also issue refunding bonds (i) if\nthe bond to be refunded contains a covenant referring to the existence\nof the New York state emergency financial control board for the city of\nNew York or any other covenant relating to matters other than the prompt\npayment of principal and interest on the obligation when due, and the\nrefunding bond omits or modifies any such covenant or (ii) if the bond\nto be refunded is guaranteed by the federal government.\n (c) Notwithstanding the provisions of subparagraph (a) of this\nsubdivision, in the case of refunding bonds sold to the New York state\nenvironmental facilities corporation and purchased for deposit in the\nwater pollution control revolving fund established pursuant to section\ntwelve hundred eighty-five-j of the public authorities law and for which\nan allocation has been established pursuant to section 17-1909 of the\nenvironmental conservation law, the present value of the projected total\nallocation payable to the issuer of the refunding bonds or available to\nmake principal and interest payments on the refunding bonds shall be\nsubtracted from the present value of the total payments of the principal\nand interest to become due on the refunding bonds in determining the\npresent value savings attributable to the issuance of such refunding\nbonds pursuant to subparagraph (a) of this subdivision.\n (d) Notwithstanding the provisions of subparagraph (a) of this\nsubdivision, in the case of refunding bonds sold to the New York state\nenvironmental facilities corporation and purchased for deposit in the\ndrinking water revolving fund established pursuant to section twelve\nhundred eighty-five-m of the public authorities law and for which an\nallocation has been established pursuant to section eleven hundred\nsixty-two of the public health law, the present value of the projected\ntotal allocation payable to the issuer of the refunding bonds or\navailable to make principal and interest payments on the refunding bonds\nshall be subtracted from the present value of the total payments of the\nprincipal and interest to become due on the refunding bonds in\ndetermining the present value savings attributable to the issuance of\nsuch refunding bonds pursuant to subparagraph (a) of this subdivision.\n (e) Notwithstanding the provisions of subparagraph (a) of this\nsubdivision, a school district may also issue refunding bonds to refund\nbonds if the bonds were issued by a school district prior to December\nfirst two thousand one, or prior to thirty days after the effective date\nof this subdivision, whichever is later, for the purpose of financing\nfacilities that were eligible for building aid pursuant to subdivision\nsix of section thirty-six hundred two of the education law, and for\nwhich the aid apportionment payable in the two thousand two--two\nthousand three and two thousand three--two thousand four school years\nfor approved expenditures for debt service are subsequently reduced as a\nresult of the application of assumed amortization to unpaid principal\noutstanding as of July first, two thousand two.\n 3. Refunding bonds may be issued at any time subsequent to the\nissuance of the bonds to be refunded.\n c. 1. The last installment of each separate series of refunding serial\nbonds, and the maturity date of any refunding sinking fund bonds, shall\noccur not later than the expiration of the maximum period of probable\nusefulness permitted by law at the time of the issuance of the refunding\nbonds or the bonds to be refunded for the object or purpose for which\nsuch bonds to be refunded were issued, or in the alternative, the\nweighted average remaining period of probable usefulness of the objects\nor purposes (or classes of objects or purposes) financed with each\nseries of bonds to be refunded or the weighted average remaining period\nof probable usefulness of all objects or purposes (or classes of objects\nor purposes) financed with all of the bonds to be refunded. Such period\nshall be computed from the date of issuance of such bonds to be refunded\nor from the date of the first bond anticipation note issued in\nanticipation thereof, whichever date is the earlier.\n 2. The first installment of each separate series of refunding bonds\nshall mature not later than the date of the first stated maturity of the\nbonds to be refunded next following the date of issue of the refunding\nbonds. When the finance board has determined to provide for a\nsubstantially level or declining annual debt service schedule for the\nrefunding bonds, as provided in subdivision three of this paragraph, the\ndetermination of whether annual debt service is substantially level or\ndeclining shall not take into account the year which includes the first\nprincipal installment of the refunding bonds, provided that the first\nprincipal installment, when added to the amount of interest payable\nwithin one year of its accrual that would accrue on the entire refunding\ndebt or series of refunding bonds in one calendar year, shall be no more\nthan five percent less than the greatest aggregate amount of debt\nservice due in any other year.\n 3. No annual installment of each separate series of refunding bonds\nshall be more than fifty per centum in excess of the smallest prior\ninstallment unless the finance board of the municipality, school\ndistrict or district corporation issuing the bonds has determined to use\na substantially level or declining annual debt service schedule for the\nrefunding bonds. The amounts of annual installments of the refunding\nbonds may be determined without reference to the stated maturities of\nthe bonds to be refunded.\n 4. In the event the bonds to be refunded were separately authorized\nfor different objects or purposes, which separately authorized bonds\nwere consolidated for purposes of sale and sold as a single issue\npursuant to paragraph c of section 57.00 of this chapter, each component\nissue included in such consolidated issue shall be considered as a\nseparate issue for the purposes of the provisions of subdivisions one,\ntwo and four of this paragraph, notwithstanding that the refunding bonds\nare sold as a single issue.\n 5. Refunding bonds may be issued as two or more separate series.\n d. Bond anticipation notes shall not be issued in anticipation of the\nsale of refunding bonds.\n e. The issuance of refunding bonds shall be authorized by a "refunding\nbond resolution". Such a resolution shall contain, in substance, at\nleast the following:\n 1. The maximum amount of refunding bonds authorized to be issued\npursuant thereto.\n 2. A determination that such maximum amount of refunding bonds\nauthorized to be issued does not exceed the limitation imposed by\nsubdivision one of paragraph b of this section.\n 3. The amount and a description of the outstanding bonds to be\nrefunded.\n 4. A statement of the maximum period or periods of probable usefulness\npermitted by law at the time of the issuance of the bonds to be refunded\nfor the object or purpose or objects or purposes for which such bonds to\nbe refunded were issued.\n 5. The financial plan for the refunding proposed, showing the sources\nand amounts of all moneys required to accomplish such refunding, and\nexcept where such refunding bonds are issued by the city of New York\npursuant to subparagraph (b) of subdivision two of paragraph b of this\nsection an estimate of the present value of the total debt service\nsavings anticipated, computed in accordance with subparagraph (a) of\nsubdivision two of paragraph b of this section.\n f. 1. Any refunding bonds issued to refund bonds which are\nadditionally secured by a pledge of any specific moneys pursuant to any\ngeneral or special law, at the option of the finance board, may be\nadditionally secured to the same extent and in the same manner as the\nbonds to be refunded effective upon the date of issue of such refunding\nbonds, subject only to any rights of the holders of such bonds to be\nrefunded.\n 2. Refunding bonds may be sold at either public or private sale, but\nthey shall not be sold on option or on a deferred payment plan,\nprovided, however, that if such bonds are sold at private sale, the\nterms and conditions of such sale shall be approved by the state\ncomptroller. Refunding bonds sold at private sale shall bear interest at\nsuch rate or rates, not exceeding the maximum rate, if any, fixed by\nparagraph b of section 57.00 of this chapter, as may be determined by\nthe finance board. Refunding bonds may be sold at private sale at a\ndiscount in the same manner as authorized by paragraph e of section\n57.00 of this chapter. The cost of such discount, together with other\ncosts of the issuance of obligations, shall be deemed a part of the cost\nof the objects or purposes for which such obligations are issued.\n g. Except where such refunding bonds are issued by the city of New\nYork pursuant to subparagraph (b) of subdivision two of paragraph b of\nthis section, no refunding bonds shall be issued pursuant to this\nsection unless the chief fiscal officer of the issuer shall have first\nfiled with the finance board a certificate, approved by the state\ncomptroller, which shall be final and conclusive upon all parties,\nsetting forth the present value of the total debt service savings to the\nissuer resulting from the issuance of the refunding bonds computed in\naccordance with the provisions of subparagraph (a) of subdivision two of\nparagraph b of this section, except that the actual amount, rather than\nan estimate, of the amount of accrued interest to be paid on such bonds\nshall be used in determining the effective interest cost thereof. The\ncertificate shall be in the form and shall contain such information as\nshall be prescribed by the state comptroller. The certificate shall not\nbe approved until ten days after the filing of such certificate in the\noffice of the state comptroller.\n h. 1. Prior to the issuance of refunding bonds, the finance board\nshall adopt a resolution electing to call in and redeem such portion of\nthe bonds to be refunded as is to be called for payment prior to the\ndate of their maturity in accordance with the refunding financial plan.\nThe resolution adopted pursuant to this paragraph shall authorize and\ndirect the escrow holder to cause notice of such call for redemption to\nbe given in the name of the issuer of such refunding bonds in the manner\nand within the times provided by paragraph a of section 53.00 of this\nchapter. If the issuer has no official newspaper, such resolution shall\ndesignate a newspaper having general circulation within the\nmunicipality, school district or district corporation for the purpose of\ngiving such notice.\n 2. Upon the issuance of the refunding bonds, the election to call in\nand redeem the bonds to be refunded and the direction to the escrow\nholder to cause notice thereof to be given contained in the resolution\nadopted pursuant to subdivision one of this paragraph, shall become\nirrevocable, and the provisions of such resolution shall constitute a\ncovenant with the holders of such refunding bonds, provided that such\nresolution may be amended from time to time as may be necessary in order\nto comply with the publication requirements of paragraph a of section\n53.00 of this chapter.\n i. 1. The finance board, or the chief fiscal officer if the finance\nboard shall delegate such duty to him, prior to the issuance of\nrefunding bonds, shall contract on behalf of the issuer with a bank or\ntrust company located and authorized to do business in this state for\nthe purpose of having such bank or trust company act as the escrow\nholder of the proceeds, inclusive of any premium, from the sale of such\nrefunding bonds, together with all income derived from the investment of\nsuch proceeds, and any other moneys to be provided by such issuer to\neffectuate the refunding financial plan. Each escrow contract shall\ncontain such terms and conditions as shall be necessary in order to\naccomplish the refunding financial plan, including, without limiting the\ngenerality of the foregoing, provisions for the escrow holder without\nfurther authorization or direction from the issuer of the refunding\nbonds, except as otherwise provided therein, (a) to make all required\npayments of principal, interest and redemption premiums to the\nappropriate paying agent with respect to either the bonds to be refunded\nor the refunding bonds, (b) to pay costs and expenses incidental to the\nissuance of the refunding bonds, including the development of the\nrefunding financial plan, and of executing and performing the terms and\nconditions of the escrow contract and all of its fees and charges as the\nescrow holder, (c) at the appropriate time or times to cause to be given\non behalf of such issuer the notice of redemption authorized to be given\npursuant to paragraph h of this section, and (d) to invest the moneys\nheld by it consistent with the provisions of the refunding financial\nplan. Each escrow contract shall be irrevocable and shall constitute a\ncovenant with the holders of the refunding bonds to which it relates.\n 2. The proceeds, inclusive of any premium, from the sale of refunding\nbonds, immediately upon receipt, shall be placed in escrow by the issuer\nwith the escrow holder in accordance with the escrow contract. All\nmoneys held by the escrow holder shall be invested only in direct\nobligations of the United States of America or in obligations the\nprincipal of and interest on which are unconditionally guaranteed by the\nUnited States of America, which obligations shall mature or be subject\nto redemption at the option of the holder thereof not later than the\nrespective dates when such moneys will be required to make payments in\naccordance with the refunding financial plan. Any such moneys remaining\nin the custody of the escrow holder after the full execution of the\nescrow contract shall be returned to the issuer of the refunding bonds\nand shall be applied by such issuer to the payment of the principal of\nor interest on the refunding bonds then outstanding, to the payment of\nany amounts required to be paid to the United States of America in\nconnection with the refunding or to the payment of or reimbursement for\nthe costs of issuance or other administrative costs incurred in\nconnection with the issuance of the refunding bonds.\n 3. That portion of such proceeds from the sale of refunding bonds,\ntogether with interest earned thereon and any moneys on deposit in a\nsinking fund established for the refunded bonds which is applied to the\npayment of the principal and interest on the refunded bonds pursuant to\nsubdivision one of paragraph b of this section, which shall be required\nfor the payment of the principal of and interest on the bonds to be\nrefunded, including any redemption premiums, in accordance with the\nrefunding financial plan, shall be irrevocably committed and pledged to\nsuch purpose and the holders of such bonds to be refunded shall have a\nlien upon such moneys and the investments thereof held by the escrow\nholder. All interest earned from the investment of such moneys not\nrequired for such payments on the bonds to be refunded, shall be\nirrevocably committed and pledged to the payment of the principal of and\ninterest on the refunding bonds, or such portion or series thereof as\nshall be required by the refunding financial plan, and the holders of\nsuch refunding bonds shall have a lien upon such moneys held by the\nescrow holder. The pledges and liens provided for in this subdivision\nshall become valid and binding upon the issuance of the refunding bonds\nand the moneys and investments held by the escrow holder shall\nimmediately be subject thereto without any further act. Such pledges and\nliens shall be valid and binding as against all parties having claims of\nany kind in tort, contract or otherwise against the issuer of the\nrefunding bonds irrespective of whether such parties have notice\nthereof. Neither the refunding bond resolution, the escrow contract, nor\nany other instrument relating to such pledges and liens, need be filed\nor recorded.\n j. The powers granted by this section to issue refunding bonds shall\nbe deemed to be in addition to the provisions of section 90.00 of this\nchapter, but none of the provisions of section 90.00 shall apply to any\nrefunding bonds issued pursuant to this section. All other provisions of\nthis chapter, not inconsistent with this section, relating to the\nauthorization, estoppel from contesting validity, form and contents,\nexecution and issuance of bonds, other than refunding bonds, shall apply\nto refunding bonds, except that:\n 1. The provisions of section 107.00 of this chapter shall not apply to\nthe issuance of refunding bonds.\n 2. The authorization of the issuance of refunding bonds shall not be\nsubject to a mandatory or permissive referendum.\n 3. Outstanding bonds may, with the consent of the holders thereof, be\nexchanged for refunding bonds (i) if the refunding bonds are to bear\ninterest at a rate equal to or lower than that borne by the bonds to be\nrefunded, or (ii) if, in the case of the city of New York, the annual\npayment required for principal and interest on the refunding bond is\nless than the annual payment required for principal and interest on the\nbond to be refunded, in each case such annual payments to be determined\nby dividing the total principal and interest payments due over the\nremaining life of the bond by the number of years to maturity of the\nbond, or (iii) if, in the case of the city of New York, the bond to be\nrefunded contains a covenant referring to the existence of the New York\nstate emergency financial control board for the city of New York or any\nother covenant relating to matters other than the prompt payment of\nprincipal and interest on the obligation when due, and the refunding\nbond omits or modifies any such covenant, or (iv) if, in the case of the\ncity of New York, the bond to be refunded is guaranteed by the federal\ngovernment.\n 4. All refunding bonds shall contain a recital that they are issued\npursuant to this chapter, which recital shall be conclusive evidence of\ntheir validity and of the regularity of their issuance.\n k. The authority herein granted to authorize the issuance of refunding\nbonds shall in no way be affected by the invalidity of or any\nirregularity in any proceedings authorizing the issuance of the bonds to\nbe refunded, except that refunding bonds shall not be issued to refund\nbonds adjudged invalid by the final judgment of a court of competent\njurisdiction.\n