H-4285.1  _______________________________________________

                          HOUSE BILL 3099

          _______________________________________________

State of Washington      56th Legislature     2000 Regular Session

By Representatives Dunshee, Barlean, Murray, Reardon, Koster and Lovick

Read first time 01/31/2000.  Referred to Committee on Capital Budget.

Allowing state and local governments to continue to lower their exposure to interest rate fluctuations with respect to financial obligations.

    AN ACT Relating to extending provisions on interest rates on government bonds; amending RCW 39.96.010, 39.96.020, 39.96.030, and 39.96.070; and providing an effective date.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

    Sec. 1.  RCW 39.96.010 and 1995 c 192 s 1 are each amended to read as follows:

    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,)) involves 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 a period of ((seven)) twelve years.

    Sec. 2.  RCW 39.96.020 and 1993 c 273 s 2 are each amended to read as follows:

    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)) two 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)) two 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.

    Sec. 3.  RCW 39.96.030 and 1993 c 273 s 3 are each amended to read as follows:

    (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.  Nothing in this chapter shall be construed to provide governmental entities with separate or additional authority to invest funds or moneys relating to or held in connection with any obligations.

    (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 RCW 39.96.040(2).  Such solicitation and consideration shall be conducted in such manner as the governmental entity shall determine is reasonable.

    Sec. 4.  RCW 39.96.070 and 1998 c 245 s 35 are each amended to read as follows:

    (1) Except as provided in subsection (3) of this section, no governmental entity may enter a payment agreement under RCW 39.96.030 after June 30, ((2000)) 2005.

    (2) The termination of authority to enter payment agreements after June 30, ((2000)) 2005, shall not affect the validity of any payment agreements or other contracts entered into under RCW 39.96.030 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, ((2000)) 2005, 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.

NEW SECTION. Sec. 5.  This act takes effect July 1, 2000.

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