AN ACT Relating to state and local government
finance; adding a new chapter to Title 39 RCW; and declaring an emergency.
BE
IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:
NEW SECTION. Sec. 1.
LEGISLATIVE FINDINGS AND DECLARATIONS.
The legislature finds and declares that the issuance by state and local
governments of bonds and other obligations, and the investment of moneys in
connection with these obligations, involve exposure to changes in interest
rates; that a number of financial instruments are available to lower the net
cost of these borrowings, to increase the net return on these investments, or
to reduce the exposure of state and local governments to changes in interest
rates; that these reduced costs and increased returns for state and local
governments will benefit taxpayers and ratepayers; and that the legislature
desires to provide state and local governments with express statutory authority
to take advantage of these instruments. In recognition of the complexity of
these financial instruments, the legislature desires that this authority be
subject to certain limitations, and be granted for an initial period of two
years.
NEW SECTION. Sec. 2.
DEFINITIONS. Unless the context clearly requires otherwise, the definitions in
this section apply throughout this chapter:
(1) "Financial advisor" means a
financial services or financial advisory firm:
(a) With recognized knowledge and experience in
connection with the negotiation and execution of payment agreements;
(b) That is acting solely as financial advisor
to the governmental entity in connection with the execution of the payment
agreement and the issuance or incurring of any related obligations, and not as
a principal, placement agent, purchaser, underwriter, or other similar party,
and that does not control, nor is it controlled by or under common control
with, any such party;
(c) That is compensated for its services in
connection with the execution of payment agreements, either directly or
indirectly, solely by the governmental entity; and
(d) Whose compensation is not based on a
percentage of the notional amount of the payment agreement or of the principal
amount of any related obligations.
(2) "Governmental entity" means state
government or local government.
(3) "Local government" means any
city, county, port district, or public utility district, or any joint operating
agency formed under RCW 43.52.360, that has or will have outstanding
obligations in an aggregate principal amount of at least one hundred million
dollars as of the date a payment agreement is executed or is scheduled by its
terms to commence or had at least one hundred million dollars in gross revenues
during the preceding calendar year.
(4) "Obligations" means bonds, notes,
bond anticipation notes, commercial paper, or other obligations for borrowed
money, or lease, installment purchase, or other similar financing agreements or
certificates of participation in such agreements.
(5) "Payment agreement" means a
written agreement which provides for an exchange of payments based on interest
rates, or for ceilings or floors on these payments, or an option on these
payments, or any combination, entered into on either a current or forward
basis.
(6) "State government" means (a) the
state of Washington, acting by and through its state finance committee, (b) the
Washington health care facilities authority, (c) the Washington higher
education facilities authority, (d) the Washington state housing finance
commission, or (e) the state finance committee upon adoption of a resolution
approving a payment agreement on behalf of any state institution of higher
education as defined under RCW 28B.10.016: PROVIDED, That such approval shall
not constitute the pledge of the full faith and credit of the state, but a
pledge of only those funds specified in the approved agreement.
NEW SECTION. Sec. 3.
AUTHORITY TO ENTER INTO PAYMENT AGREEMENTS. (1) Subject to subsections (2) and
(3) of this section, any governmental entity may enter into a payment agreement
in connection with, or incidental to, the issuance, incurring, or carrying of
specific obligations, for the purpose of managing or reducing the governmental
entity's exposure to fluctuations or levels of interest rates. No governmental
entity may carry on a business of acting as a dealer in payment agreements.
(2) No governmental entity may enter into a
payment agreement under this chapter unless it first:
(a) Finds and determines, by ordinance or
resolution, that the payment agreement, if fully performed by all parties
thereto, will (i) reduce the amount or duration of its exposure to changes in
interest rates; or (ii) result in a lower net cost of borrowing with respect to
the related obligations, or a higher net rate of return on investments made in
connection with, or incidental to, the issuance, incurring, or carrying of
those obligations;
(b) Obtains, on or prior to the date of
execution of the payment agreement, a written certification from a financial
advisor that (i) the terms and conditions of the payment agreement and any
ancillary agreements, including without limitation, the interest rate or rates
and any other amounts payable thereunder, are commercially reasonable in light
of then existing market conditions; and (ii) the finding and determination
contained in the ordinance or resolution required by (a) of this subsection is
reasonable.
(3) Prior to selecting the other party to a
payment agreement, a governmental entity shall solicit and give due
consideration to proposals from at least two entities that meet the criteria
set forth in section 4(2) of this act. Such solicitation and consideration
shall be conducted in such manner as the governmental entity shall determine is
reasonable.
NEW SECTION. Sec. 4.
PAYMENT AGREEMENTS‑-TERMS. (1) Subject to subsections (2), (3), and (4)
of this section, payment agreements entered into by any governmental entity may
include those payment, term, security, default, remedy, termination, and other
terms and conditions, and may be with those parties, as the governmental entity
deems reasonably necessary or desirable.
(2) No governmental entity may enter into a
payment agreement under this chapter unless:
(a) The other party to the agreement has a
rating from at least two nationally recognized credit rating agencies, as of
the date of execution of the agreement, that is within the two highest
long-term investment grade rating categories, without regard to subcategories,
or the payment obligations of the party under the agreement are unconditionally
guaranteed by an entity that then has the required ratings; or
(b)(i) The other party to the agreement has a
rating from at least two nationally recognized credit rating agencies, as of
the date of execution of the agreement, that is within the three highest
long-term investment grade rating categories, without regard to subcategories,
or the payment obligations of the party under the agreement are unconditionally
guaranteed by an entity that has the required ratings; and
(ii) The payment obligations of the other party
under the agreement are collateralized by direct obligations of, or obligations
the principal and interest on which are guaranteed by, the United States of
America, that (A) are deposited with the governmental entity or an agent of the
governmental entity; and (B) maintain a market value of not less than one
hundred two percent of the net market value of the payment agreement to the
governmental entity, as such net market value may be defined and determined
from time to time under the terms of the payment agreement.
(3) No governmental entity may enter into a
payment agreement with a party who qualifies under subsection (2)(a) of this
section unless the payment agreement provides that, in the event the credit
rating of the other party or its guarantor falls below the level required by
subsection (2)(a) of this section, such party will comply with the
collateralization requirements contained in subsection (2)(b) of this section.
(4) No governmental entity may enter into a
payment agreement unless:
(a) The notional amount of the payment
agreement does not exceed the principal amount of the obligations with respect
to which the payment agreement is made; and
(b) The term of the payment agreement does not
exceed the final term of the obligations with respect to which the payment
agreement is made.
NEW SECTION. Sec. 5.
PAYMENT AGREEMENTS--PAYMENTS--CREDIT ENHANCEMENTS. (1) Subject to any
covenants or agreements applicable to the obligations issued or incurred by the
governmental entity, any payments required to be made by the governmental
entity under a payment agreement entered into in connection with the issuance,
incurring, or carrying of those obligations may be made from money set aside or
pledged to pay or secure the payment of those obligations or from any other
legally available source.
(2) Any governmental entity may enter into
credit enhancement, liquidity, line of credit, or other similar agreements in
connection with, or incidental to, the execution of a payment agreement. The
credit enhancement, liquidity, line of credit, or other similar agreement may
include those payment, term, security, default, remedy, termination, and other
terms and conditions, and may be with those parties, as the governmental entity
deems reasonably necessary or desirable.
NEW SECTION. Sec. 6.
CALCULATIONS REGARDING PAYMENT OF OBLIGATIONS--STATUS OF PAYMENTS. (1) Subject
to any covenants or agreements applicable to the obligations issued or incurred
by the governmental entity, if the governmental entity enters into a payment
agreement with respect to those obligations, then it may elect to treat the
amounts payable from time to time with respect to those obligations as the
amounts payable after giving effect to the payment agreement for the purposes
of calculating:
(a) Rates and charges to be imposed by a
revenue-producing enterprise if the revenues are pledged or used to pay those
obligations;
(b) Any taxes to be levied and collected to pay
those obligation; and
(c) Payments or debt service on those
obligations for any other purpose.
(2) A payment agreement and any obligation of
the governmental entity to make payments under the agreement in future fiscal
years shall not constitute debt or indebtedness of the governmental entity for
purposes of state constitutional and statutory debt limitation provisions if
the obligation to make any payments is contingent upon the performance of the
other party or parties to the agreement, and no moneys are paid to the
governmental entity under the payment agreement that must be repaid in future
fiscal years.
NEW SECTION. Sec. 7.
EXPIRATION DATE‑-VALIDITY OF CONTRACTS. (1) Except as provided in
subsection (3) of this section, no governmental entity may enter a payment
agreement under section 3 of this act after June 30, 1995.
(2) The termination of authority to enter
payment agreements after June 30, 1995, shall not affect the validity of any
payment agreements or other contracts entered into under section 3 of this act
on or before that date.
(3) A governmental entity may enter into a
payment agreement under and in accordance with this chapter after June 30,
1995, to replace a payment agreement that relates to specified obligations
issued on or before that date and that has terminated before the final term of
those obligations.
(4) The state finance committee shall make a
report to the appropriate legislative committees on payment agreements
authorized in this act. The report shall include the governmental entity
entering into a payment agreement, the amount of the agreement, the expected
savings resulting from the agreement, the transactions cost, and any other
information the state finance committee determines relevant. The report shall
be submitted on November 30, 1993, and December 30, 1994.
NEW SECTION. Sec. 8.
AUTHORITY CUMULATIVE. The powers conferred by this chapter are in addition to,
and not in substitution for, the powers conferred by any existing law, and the
limitations imposed by this chapter do not directly or indirectly modify,
limit, or affect the powers conferred by any existing law.
NEW SECTION. Sec. 9.
LIBERAL CONSTRUCTION. This chapter shall be liberally construed to effect its
purposes.
NEW SECTION. Sec. 10.
CAPTIONS. Captions used in this chapter do not constitute any part of the law.
NEW SECTION. Sec. 11.
SEVERABILITY. If any provision of this act or its application to any person or
circumstance is held invalid, the remainder of the act or the application of
the provision to other persons or circumstances is not affected.
NEW SECTION. Sec. 12.
LEGISLATIVE DIRECTIVE. Sections 1 through 11 of this act shall constitute a
new chapter in Title 39 RCW.
NEW SECTION. Sec. 13.
This act is necessary for the immediate preservation of the public peace,
health, or safety, or support of the state government and its existing public
institutions, and shall take effect immediately.
