Late last year the Michigan Legislature approved HB 5550, which would allow local governments to refinance their bonds in these times of fiscal distress. It was signed into law by the Governor on December 21.
A number of years ago, the state enacted legislation that prohibited the refinancing of bonds that would create a negative net present value. This generally occurs when a bond is refinanced in a way where the payoff period is extended in order to reduce current payments. HB 5550 will allow this to occur through the end of 2012. The legislation would require a public hearing before any action is taken and permission must be granted by the Department of Treasury. This legislation does not impact bonds that received voter approval; instead it would be more likely used for bonds involving sewer or water projects or other forms of infrastructure.
Act No. 321
Public Acts of 2010
Approved by the Governor December 21, 2010
Filed with the Secretary of State December 21, 2010
EFFECTIVE DATE: December 21, 2010
STATE OF MICHIGAN
REGULAR SESSION OF 2010
Introduced by Rep. Mayes
ENROLLED HOUSE BILL No. 5550
AN ACT to amend 2001 PA 34, entitled “An act relative to the borrowing of money and the issuance of certain debt and securities; to provide for tax levies and sinking funds; to prescribe powers and duties of certain departments, state agencies, officials, and employees; to impose certain duties, requirements, and filing fees upon political subdivisions of this state; to authorize the issuance of certain debt and securities; to prescribe penalties; and to repeal acts and parts of acts,” by amending section 611 (MCL 141.2611), as amended by 2002 PA 500.
The People of the State of Michigan enact:
Sec. 611. (1) Except as provided in section 515 or subsection (2), a municipality shall not refund all or any part of its outstanding securities by issuing a refunding security unless the net present value of the principal and interest to be paid on the refunding security, including the cost of issuance, and taking into account an agreement entered into pursuant to section 317, is less than the net present value of the principal and interest to be paid on the outstanding security being refunded as calculated using a method approved by the department. However, when a municipality is issuing refunding securities for outstanding variable interest rate securities, as determined by the department the net present value calculation shall use the appropriate current fixed interest rate and the fixed interest rate that would have been available for the outstanding variable interest rate securities when originally issued if the outstanding variable interest rate securities had been issued as fixed interest rate securities or shall use another procedure determined by the department.
(2) A municipality may, under procedures established by the department, obtain an exception from the requirements of subsection (1) if the department determines a reasonable basis for that exception exists. As used in this subsection, reasonable basis means 1 or more of the following:
(a) The refunding is required by a state or federal agency.
(b) The refunding is necessary to reduce or eliminate requirements of ordinances or covenants applicable to the existing outstanding security.
(c) The refunding is necessary to avoid a potential default on an outstanding security.
(d) The refunding of a short-term municipal security issued under section 413.
(e) A municipality may issue a refunding security to refund all or any part of its outstanding securities before December 31, 2012 if those securities are not secured by the unlimited full faith and credit pledge of the municipality and the refunding is approved by the department. The municipality shall hold a public hearing before submitting a request to the department pursuant to this subdivision. The municipality shall publish notice of the hearing in a newspaper of general circulation in the municipality not less than 30 days before the hearing. After the hearing, the municipality may prepare and submit to the department a request to issue a refunding security pursuant to this subdivision. The department shall not unreasonably withhold approval. The department shall have 90 days from the date it receives a completed request to issue a refunding security pursuant to this subdivision to approve or deny the request. If the department fails to approve or deny the request within 90 days of receiving the completed request, the municipality’s request is deemed approved by the department. If the department denies the request, it shall advise the municipality in writing of the reasons for the denial.
This act is ordered to take immediate effect.
Clerk of the House of Representatives
Secretary of the Senate