§ 56 — Call provision in state bonds; refunding state bonds

New York § 56

• Jurisdiction: New York
• Law STF: State Finance
• Art. 5: Borrowing By the State

Text

§ 56. Call provision in state bonds; refunding state bonds. 1.\nWhenever in the comptroller's opinion it is to the advantage of the\nstate the comptroller when issuing and selling any bonds of the state\nmay reserve to the state on such conditions as the comptroller may deem\nadvisable and proper the privilege of refunding or of redeeming all or\nany part of such bonds prior to the date on which they shall be due and\npayable.\n 2. Whenever the comptroller shall have reserved to the state the right\nto redeem or refund state bonds pursuant to subdivision one of this\nsection, he shall be authorized to issue refunding bonds in accordance\nwith the provisions of this subdivision. Such bonds may be issued prior\nto the first date on which he shall have reserved the right to refund or\nredeem the bonds to be refunded.\n (a) Refunding bonds shall be issued only when the comptroller shall\nhave certified that, as a result of the refunding, there will be a debt\nservice savings to the state on a present value basis as a result of the\nrefunding transaction and that either (i) the refunding will benefit\nstate taxpayers over the life of the refunding bonds by achieving an\nactual debt service savings each year or state fiscal year during the\nterm to maturity of the refunding bonds when debt service on the\nrefunding bonds is expected to be paid from legislative appropriations\nor (ii) debt service on the refunding bonds shall be payable in annual\ninstallments of principal and interest which result in substantially\nlevel or declining debt service payments pursuant to paragraph (b) of\nsubdivision two of section fifty-seven of this article. Such\ncertification by the comptroller shall be conclusive as to matters\ncontained therein after the refunding bonds have been issued.\n For purposes of determining whether there is a debt service savings on\na present value basis the present value of the total payments of both\nprincipal and interest to become due on the refunding bonds, after\ndeducting any accrued interest or premium received by the state and not\nused to pay the principal of or interest on the bonds to be refunded or\ncosts of issuance of the refunding bonds, excluding all such principal\nand interest payments to be made from income received as a result of the\ninvestment of the proceeds from the sale of the refunding bonds, shall\nbe less than the present value of the principal and interest payments to\nbecome due at their stated maturities on the principal amount of bonds\nto be refunded which are outstanding as of the date of the issue of the\nrefunding bonds after deducting therefrom all costs and expenses\nincidental to the issuance of the refunding bonds, including the\ndevelopment of the refunding plan, and of executing and performing the\nterms and conditions of the escrow contract and all fees and charges of\nthe escrow holder, but only to the extent such costs and expenses are\nnot paid from the proceeds of the refunding bonds. The present value of\ndebt service payments pursuant to the foregoing provisions of this\nsubdivision shall be computed by discounting the principal and interest\npayments on both the refunding bonds and the bonds to be refunded from\nthe respective maturities thereof to the date of issue of the refunding\nbonds at a rate equal to the effective interest cost of the refunding\nbonds. The effective interest cost of the refunding bonds shall be that\nrate which is arrived at by doubling the semi-annual interest rate\n(compounded semi-annually) necessary to discount the debt service\npayments on the refunding bonds from the maturity dates thereof to the\ndate of issue of the refunding bonds and to the bona fide initial public\noffering price including estimated accrued interest, or, if there is no\npublic offering, to the price bid including estimated accrued interest.\n (b) The proceeds of refunding bonds, including any premium received on\nthe sale thereof, and any amounts that may be appropriated by the\nlegislature for the purposes thereof, shall be deposited directly in an\nescrow fund created pursuant to this section, and amounts in such escrow\nfund, and income earned thereon, shall be used only (i) to redeem the\nbonds to be refunded, (ii) to pay debt service on the refunding bonds or\non the bonds to be refunded, (iii) to pay the costs of administering\nsuch fund, (iv) to pay any direct or indirect costs of issuing the\nrefunding bonds and (v) to make any other payments required to be made\nwith respect to the refunding transaction.\n (c) Amounts deposited in each escrow fund, with the income earned\nthereon, when invested as directed by this subdivision, shall be\nsufficient to pay (i) all costs of issuance of the refunding bonds, (ii)\nall debt service on the refunding bonds or on the bonds to be refunded\nuntil and including the date that the bonds to be refunded are to be\nredeemed, except, at the option of the state comptroller, debt service\nscheduled to be paid from appropriations in effect on the date of\nissuance of the refunding bonds, (iii) all costs of administering the\nescrow fund, if any, (iv) the principal of and any premium due on the\nbonds to be refunded on the date they are to be redeemed, and (v) any\nother payments required to be made in connection with the refunding\ntransaction.\n (d) The comptroller is authorized to establish an escrow fund in\nconnection with each issue of refunding bonds that he may sell from time\nto time, and he shall hold such funds outside the state treasury for the\npurposes enumerated in this section.\n (e) All money in each escrow fund shall be held as cash or shall be\ninvested in direct obligations of the federal government, direct\nobligations the principal and interest of which are guaranteed by the\nfederal government, or obligations the interest on which is exempt from\nfederal income taxation and which are fully secured by direct\nobligations of the federal government, having such maturities and\ninterest payment dates as required to make all payments to be made from\nthe escrow fund as they come due. The earnings on such obligations shall\nremain in the escrow fund until required to be used to pay debt service\non the refunding bonds, to pay debt service on the bonds to be refunded\nor to make other payments authorized to be made from the escrow fund.\nAny money or investments remaining in any escrow fund after all refunded\nbonds are redeemed and after all expenses related to the refunding\ntransaction have been paid shall be deposited in the general fund.\n (f) No appropriation shall be required for disbursement of moneys from\nany escrow fund created pursuant to this section, or the earnings\nthereon, for the purposes enumerated above, and the comptroller may\ncovenant, on behalf of the state, with holders of the refunding bonds\nand the bonds to be refunded that such disbursements will be made. The\ncomptroller is also authorized to enter into such other agreements with\nother persons as he deems necessary or appropriate in connection with\nany refunding transaction.\n (g) Any refunding bonds issued pursuant to this section shall be paid\nin annual installments which shall, so long as any refunding bonds are\noutstanding, be made in each year or state fiscal year in which\ninstallments were due on the bonds to be refunded and shall be in an\namount which shall result in annual debt service payments which shall be\nless in each year or state fiscal year than the annual debt service\npayments on the bonds to be refunded unless debt service on the\nrefunding bonds is payable in annual installments of principal and\ninterest which will result in substantially level or declining debt\nservice payments pursuant to paragraph (b) of subdivision two of section\nfifty-seven of this article.\n 3. The state comptroller shall have custody of the securities and\nother assets in the escrow funds created pursuant to this section;\nprovided, however, that, subject to the rights of the owners of the\nbonds, the state comptroller may contract with a bank or trust company\nfor the maintenance, management and custody of the escrow funds. Such\nbank or trust company shall have an office and be authorized to do\nbusiness in the state and shall maintain a combined capital and surplus\nof not less than seventy-five million dollars.\n 4. Except where inconsistent with the provisions of this section, the\nprovisions of section fifty-seven of this chapter governing the original\nissuance of debt shall apply to the sale of refunding debt pursuant to\nthis section.\n 5. Notwithstanding any other law, rule or regulation to the contrary,\nwithin thirty days of the delivery of any fixed rate, fixed term state\nobligations issued pursuant to sections fifty-five and fifty-seven of\nthis article, the state comptroller shall determine and certify to the\ndirector of the budget, the chairs of the senate finance committee and\nthe assembly ways and means committee, the allowable bond yield on such\nobligations as such allowable bond yield is determined pursuant to the\nprovisions of the internal revenue code of 1986, as amended. With\nrespect to any short-term series notes, flexible notes, or other notes\non which interest rates may vary from time to time, the state\ncomptroller shall determine and certify to the director of the budget\nand the chairs of the senate finance committee and the assembly ways and\nmeans committee as soon as is practicable after the maturity of such\nnotes on any state obligations issued pursuant to section fifty-five of\nthis article the allowable bond yield on such obligations as such\nallowable bond yield is determined pursuant to the provisions of the\ninternal revenue code of 1986, as amended. Prior to making of a payment\nof any rebate to the federal government, the state comptroller shall\ncertify to the director of the budget and the chairs of the senate\nfinance committee and the assembly ways and means committee the amount\nof the rebate required to be paid and the date prior to which such\nrebate must be paid in order to maintain the exemption from federal\nincome taxation of the interest paid on the obligations for which the\nrebates are being made.\n 6. Notwithstanding any other law, rule or regulation to the contrary,\nno monies shall be expended for the purpose of redeeming serial bonds to\nmaintain the exemption from federal taxation of the interest paid to\nholders of state obligations issued pursuant to sections fifty-five and\nfifty-seven of this article, issued by the state of New York until the\nstate comptroller has certified to the director of the budget and the\nchairs of the senate finance committee and the assembly ways and means\ncommittee their determination, the amount of such bonds to be redeemed\nand the date upon which such bonds are to be redeemed.\n