BONDS: HIGHWAY FUND - S.B. 1357 (S-1): FLOOR ANALYSIS

Senate Bill 1357 (Substitute S-1 as reported)

Sponsor: Senator Bill Bullard, Jr.

Committee: Finance

CONTENT

The bill would amend Public Act 175 of 1952 (which authorizes cities and villages to borrow money and issue bonds in anticipation of future payments from the Motor Vehicle Highway Fund) to add regulations to the Act regarding the issuance and refunding of bonds.

Currently, cities and villages may issue bonds for the purposes specified in the Act, and may refund any bonds issued. The bill would prohibit a city or village from issuing or refunding a bond under the Act if the bond or authorizing resolution did any of the following: 1) provided that the bond proceeds were to be used for operational expenses of the city or village, other than engineering or design expenses related to the project for which the bond was issued; 2) provided that the weighted average maturity of the bond exceeded the useful life of the asset; or 3) provided that the bond, in whole or in part, appreciated in principal amount or was sold at a discount in an amount exceeding 10%.

The bill would prohibit the refunding of a bond unless the net present value of the principal and interest to be paid on the refunding bond (excluding issuance cost) would be less than the net present value of the principal and interest to be paid on the bond being refunded, as calculated by a method approved by the Department of Treasury.

The bill specifies that refunding bonds could be sold at any time to refund outstanding bonds. Currently, the Act prohibits the sale of refunding bonds within six months from the date that the bonds to be refunded may be redeemed.

The Act prohibits a city or village from pledging for annual debt service requirements more than 50% of revenues received from the Motor Vehicle Highway Fund during the fiscal year preceding the borrowing. The bill provides that debt service on any bonds that had been refunded could not be included in the calculation of annual debt service requirements.

MCL 247.701 & 247.704 - Legislative Analyst: G. Towne

FISCAL IMPACT

This bill would allow cities and villages to refund bonds at any time prior to maturity, which would reduce interest costs. The bill would have no State fiscal impact.

Date Completed: 11-18-98 - Fiscal Analyst: R. Ross

floor\sb1357 - Analysis available @ http://www.michiganlegislature.org

This analysis was prepared by nonpartisan Senate staff for use by the Senate in its deliberations and does not constitute an official statement of legislative intent.