On July 29, 2005, Governor Easley signed House Bill 1117 into law. Entitled “An Act to Make Changes to State and Local Government Finance Laws and to Authorize Public Hospital Authorities to Grant Mortgages to Finance or Refinance Hospital Facilities and Equipment,” the act makes a number of public finance reforms, including, most significantly for local government borrowers, the elimination of the good faith deposit and an exemption from the public hearing requirements when issuing refunding bonds for savings within the same maturity schedule.
A summary of each of the amendments is provided below:
Good Faith Deposit. Eliminates the requirement for a good faith deposit in the amount of 2% of the aggregate principal amount of the bond issue and leaves any bid deposit to the discretion of the Secretary of the Local Government Commission.
Refunding Bonds. Eliminates public hearing and notice of public hearing requirements for general obligation refunding bonds issued for savings within the same overall maturity schedule.
Development Financing Districts. Clarifies that land in a district created by a county does not count against a city, town or incorporated village’s 5% limitation on the percentage of overall municipal land area that can be included in development financing districts if the city, town or incorporated village later annexes the development district.
Project Development Bonds. Allows local governments to pledge, in addition to revenue generated from incremental property tax growth, special assessments and revenues derived from local sales taxes. The original Project Development Financing Act specifically prohibited the pledge of local sales tax revenues. Also allows local governments to grant a security interest in real and personal property being financed or improved with the proceeds of the project development bonds.
Expansion of Authority to Mortgage Property.
--Authorizes the pledge of real and personal property comprising any revenue-producing utility or public service enterprise facilities or systems acquired, constructed, reconstructed, extended, bettered, or improved with the proceeds of a borrowing. Similar authority has been granted with respect to state revolving loan funds as well.
--Authorizes the pledge of real and personal property constituting a hospital or health-related real or tangible personal property. Also authorizes public agencies to mortgage, pledge, assign, grant a security interest in or otherwise encumber a health care facility to secure obligations under a loan agreement in connection with bonds or notes issued by the North Carolina Medical Care Commission.
Bid Instructions and Awards. Authorizes, with respect to the public sale of bonds only, bids at different rates of interest for bonds maturing in the same year unless otherwise required by the Secretary of the Local Government Commission. Prior provision expressly prohibited different rates of interest for bonds maturing in the same year. Also specifies that when calculating the lowest interest cost to determine the winning bidder, the cost shall be calculated in the manner established by the Secretary of the Local Government Commission in the notice of sale. Prior provision required that such interest cost be calculated by excluding any premium bid from the aggregate amount of interest on the entire issue until maturity.
Destruction of Cancelled Bonds, Notes and Coupons. Eliminates requirement that cancelled bonds, notes and coupons be recorded in a bound book kept solely for that purpose. Authorizes the finance officer to register such information in “the official record of the unit”. Eliminates requirement that finance offer shred or burn such cancelled bonds, notes or coupons and authorizes finance officer to indicate the cancellation with whatever mark that he/she may determine on the face of the cancelled bond, note or coupon and record the destruction in the official records of the unit.
Fidelity Bonds. Resets the amount of fidelity bonds to be fixed by local governing boards at no less than $50,000. Prior provision set amount at no less than $10,000 and no more than $250,000.
Industrial and Pollution Control Facilities Financing Act (IPCFFA). Expands definition of “Special Purpose project” under the IPCFFA to include museums and orphanages or other housing facilities for children or disadvantaged or disabled persons.
These provisions took effect on August 1, 2005.
This Client Alert is intended to provide you with an overview of House Bill 1117. If you have questions concerning the reforms created under this act, please contact one of the members of our Public Finance Group listed below:
Don Ubell (firstname.lastname@example.org) Scott Leo (email@example.com) Rebecca Blackmon Joyner (firstname.lastname@example.org)
August 3, 2005