BP BHEAD INT S

AN ACT Relating to state and local government finance; adding a new chapter to Title 39 RCW; and providing an expiration date.

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 by governmental entities;

(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 contingent upon the execution of the payment agreement or the issuance or incurring 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 that has outstanding obligations in an aggregate principal amount of at least one hundred million dollars as of the date a payment agreement is executed.

(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 for the purpose of managing or reducing the governmental entity's exposure to fluctuations or levels of interest rates, in connection with, or incidental to, the issuance, incurring, or carrying of specific obligations. 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 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 or determination contained in the ordinance or resolution required by (a) of this subsection is true and correct.

(3) All payment agreements shall be entered into pursuant to competitive solicitation. The director of the office of financial management shall establish procedures for the competitive solicitation and the acceptance of offers to enter into payment agreements.

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 reasonably deems necessary or desirable.

(2) No governmental entity may enter into a payment agreement unless:

(a) Each 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) The obligations under the payment agreement of any party that does not have the credit rating required by (a) of this subsection are collateralized by obligations deposited with the governmental entity or an agent of the governmental entity that: (i) Would be legal investments for the governmental entity under chapter 39.60 RCW; and (ii) maintain a market value of not less than one hundred five percent of the value of the payment agreement to the governmental entity, as such 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 having a credit rating specified in subsection (2)(a) of this section unless the agreement provides that, in the event such party's credit rating 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 nominal 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 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 reasonably deems 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

(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) This act shall expire on January 1, 1995.

(2) The expiration of this act on January 1, 1995, shall not affect the validity of any contracts entered into under section 3 of this act prior to that date.

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.