This is our starting text

HB-5048, As Passed House, September 28, 2005

SUBSTITUTE FOR

HOUSE BILL NO. 5048

A bill to create the Michigan tobacco settlement finance

authority; to create funds and accounts; to provide for the sale by

this state and the purchase by the authority of all or a portion of

tobacco settlement assets; to authorize the issuing of bonds and

notes; to prescribe the powers and duties of the authority, the

state administrative board, the state treasurer, and certain other

state officials and state employees; and to make appropriations and

prescribe certain conditions for the appropriations.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

Sec. 1. This act shall be known and may be cited as the

"Michigan tobacco settlement finance authority act".

Sec. 2. The legislature finds and declares the following:

(a) This state has entered into a master settlement agreement

with 4 major tobacco companies that should result in the state

receiving substantial sums of money in perpetuity assuming no

adverse changes in cigarette consumption, market share, financial

condition of those tobacco companies, and changes in law.

(b) The master settlement agreement is a binding and

enforceable agreement of this state.

payments for limited periods of years is a prudent method of

managing the risks associated with reliance on the receipt of

tobacco settlement payments in perpetuity.

(d) Establishing the authority and execution by the authority

of its powers granted under this act fulfill in all respects a

public and governmental purpose for the benefit of the people of

this state.

(e) The exchange of net proceeds received by the authority

from the issuance of bonds plus residual interests for the right to

receive tobacco settlement payments for a limited period of time

constitutes a true sale for a fair price.

Sec. 3. As used in this act:

(a) "Ancillary facility" means any revolving credit agreement,

agreement establishing a line of credit or letter of credit,

reimbursement agreement, interest rate exchange or similar

agreement, currency exchange agreement, interest rate floor or cap,

options, puts or calls to hedge payment, currency, rate, spread or

similar exposure, or similar agreements, float agreements, forward

agreements, insurance contract, surety bond, commitment to purchase

or sell securities, purchase or sale agreements or commitments or

other contracts or agreements and other security agreements

approved by the authority, including without limitation any

arrangements referred to in this act.

(b) "Authority" means the Michigan tobacco settlement finance

authority created under section 4.

that enter into ancillary facilities with the authority according

to the provisions of this act.

(d) "Board" means the board of directors of the authority.

(e) "Bond" means a bond, note, or other obligation issued by

the authority under this act.

(f) "Code" means the United States internal revenue code of

1986, as amended, and any successor provision of law.

(g) "Encumbered tobacco revenues" means that portion of the

TSRs that is pledged by the authority to the repayment of any bonds

under the terms of the applicable authority resolution, trust

agreement, or trust indenture.

(h) "Federal bankruptcy code" means the federal bankruptcy

code, 11 USC 101 to 1330.

(i) "Financing costs" means all capitalized interest,

operating and debt service reserves, costs of issuance, fees for

credit and liquidity enhancements, any item of expense directly or

indirectly payable or reimbursable by the authority and related to

the authorization, sale, or issuance of bonds, including without

limitation underwriting fees, counsel fees, fees of the attorney

general and fees and expenses of consultants and fiduciaries, and

other costs as the authority determines to be desirable in issuing,

securing, and marketing the bonds.

(j) "Interest rate exchange or similar agreement" means a

written contract with a counterparty to provide for an exchange of

payments based upon fixed or variable interest rates, or both fixed

and variable interest rates.

(k) "Master settlement agreement" means the settlement

agreement and related documents entered into on November 23, 1998,

and incorporated into a consent decree and final judgment entered

into on December 7, 1998, in Kelley Ex Rel. Michigan v Phillip

Morris Incorporated, et al., Ingham county circuit court, docket

no. 96-84281CZ.

(l) "Net proceeds" means the amount of proceeds remaining

following each sale of bonds which are not required by the

authority to establish and fund reserve or escrow funds or

termination or settlement payments under ancillary facilities and

to provide the financing costs and other expenses and fees directly

related to the authorization and issuance of bonds.

(m) "Operating expenses" means the reasonable operating

expenses of the authority, including without limitation the cost of

preparation of accounting and other reports, costs of maintenance

of the ratings on the securities, insurance premiums, and costs of

authority meetings or other required activities of the authority,

counsel fees, including the fees of the attorney general, and fees

and expenses incurred for consultants and fiduciaries.

(n) "Outstanding" means, when used with respect to bonds, all

bonds other than bonds that shall have been paid in full at

maturity or that may be considered not outstanding under the

applicable authority resolution, trust indenture or trust agreement

authorizing the issuance of the bonds and when used with respect to

ancillary facilities, all ancillary facilities other than ancillary

facilities that have been paid in full or that may be considered

not outstanding under such ancillary facilities.

(o) "Person" means an individual, corporation, limited or

general partnership, association, joint venture, limited liability

company, or a governmental entity, including this state.

(p) "Qualifying statute" means that term as defined in the

master settlement agreement, which is 1999 PA 244, MCL 445.2051 to

445.2052.

(q) "Residual interests" means 1 or more of the following:

(i) The unencumbered tobacco revenues.

(ii) The net proceeds not previously paid to this state.

(iii) The income of the authority that is in excess of the

authority's requirements to pay its operating expenses, debt

service, sinking fund requirements, reserve fund or escrow fund

requirements, and any other contractual obligations to the owners

of the bonds or benefited parties, or that may be incurred in

connection with the issuance of the bonds or the execution of

ancillary facilities.

(iv) Contractual rights, if any, as shall be provided to this

state in accordance with the terms of any sale agreements.

(r) "Sale agreement" means any agreement authorized under this

act in which this state provides for the sale of TSRs to the

authority.

(s) "State representative" means the state acting by and

through the state treasurer.

(t) "State treasurer" means the state treasurer of this state

or his or her designee who shall be designated by a written

instrument signed by the state treasurer and maintained in a

permanent file and whose signature shall have the same force and

effect as the signature of the state treasurer for all purposes

under this act.

(u) "State's tobacco receipts" means:

(i) All tobacco settlement revenue that is received by this

state that is required to be made, under the terms of the master

settlement agreement, by tobacco manufacturers to this state.

(ii) This state's rights to receive the tobacco settlement

revenue.

(v) "TSRs" means the portion, which may include any or all, of

this state's tobacco receipts sold to the authority under this act

and any sale agreement.

(w) "Unencumbered tobacco revenues" means that portion of the

TSRs that are not subject to the pledge of the applicable authority

resolution, trust agreement, or trust indenture by the authority to

the repayment of any bonds issued under the terms of the applicable

authority resolution, trust agreement, or trust indenture.

(x) "Uniform commercial code" means the uniform commercial

code, 1962 PA 174, MCL 440.1101 to 440.11102.

Sec. 4. (1) The Michigan tobacco settlement finance authority

is created as a public body corporate and politic within the

department of treasury. The authority is a state institution

within the meaning of section 9 of article II of the state

constitution of 1963 and an instrumentality of this state

exercising public and essential governmental functions. The

exercise by the authority of the powers conferred by this act is an

essential governmental function of this state.

(2) Notwithstanding the existence of common management, the

authority shall be treated and accounted for as a separate legal

entity with its separate corporate purposes as set forth in this

act. The assets, liabilities, and funds of the authority shall not

be consolidated or commingled with those of this state or of any

entity capable of being a debtor in a case commenced under the

federal bankruptcy code.

(3) The authority shall have power and is hereby authorized

from time to time to issue bonds in the principal amount or amounts

and with the maturities as the authority shall determine to be

necessary to provide sufficient funds for achieving its authorized

purposes, consisting of the purchase of all or a portion of the

state's tobacco receipts under this act and the payment of or

provision for financing costs.

(4) The board of the authority shall authorize the issuance of

bonds by resolution. The authority may issue bonds, including

refunding bonds, without obtaining the consent of any department,

division, commission, board, bureau, or agency of this state and

without any other proceedings or the occurrence of any other

conditions other than those proceedings, conditions, or things that

are specifically required by this act. Every issue of bonds shall

be special revenue obligations payable from and secured by a pledge

of encumbered tobacco revenues and other assets, including without

limitation the proceeds of the bonds deposited in a reserve fund

for the benefit of the owners of the bonds, earnings on funds of

the authority and other funds as may become available, upon the

terms and conditions as specified by the authority in the authority

resolution under which the bonds are issued or in a related trust

agreement or trust indenture.

(5) The authority may issue bonds to refund any bonds by the

issuance of new bonds, whenever it considers the refunding

expedient, whether the bonds to be refunded have or have not

matured, and to issue bonds partly to refund bonds then outstanding

and partly for any of its other authorized purposes. The refunding

bonds may be exchanged for the bonds to be refunded or sold and the

proceeds applied to the purchase, redemption, or payment of those

bonds.

(6) For each issue of bonds, the authority shall determine all

of the following:

(a) The date of issuance.

(b) Whether the bonds shall bear interest at fixed or variable

rates, or both fixed and variable rates.

maturity.

(d) When the bonds shall mature.

(e) Whether the authority may redeem the bond prior to

maturity, at what price, and under what conditions.

(f) The method of payment of principal of and interest on the

bonds.

(g) The form, denominations, and places of payment of

principal of and interest on the bonds.

(h) If any officer whose signature or the facsimile of whose

signature appears on any bond shall cease to be that officer before

the delivery of the bond, that signature or facsimile shall

nevertheless be valid and sufficient for all purposes as if he or

she had remained in office until delivery of the bond.

(i) Any other terms and conditions necessary to issue the

bonds in fully marketable form.

(7) The authority may sell the bonds in the manner determined

by the authority board, both at public or private sale, and on

either a competitive or negotiated basis. The authority shall

disburse the net proceeds of the bonds to the state treasurer as

provided in section 8.

(8) This act shall govern the creation, perfection, priority,

and enforcement of any pledge of revenues or other security made by

the authority. Each pledge made by the authority shall be valid and

binding at the time the pledge is made. The encumbered tobacco

revenues, reserves, or earnings pledged or earnings on the

investment of the encumbered tobacco revenues, reserves, or

earnings pledged shall immediately be subject to the lien of the

pledge without any physical delivery or further act and the lien on

that pledge shall be valid and binding as against all parties

having claims of any kind in tort, contract or otherwise against

the authority, irrespective of whether the parties have notice of

the lien or pledge, and without filing or recording the pledge.

(9) This act shall also govern the negotiability of bonds

issued under this act. Any bonds issued under this act shall be

fully negotiable within the meaning and for all purposes of the

uniform commercial code. By accepting the bond or obligation, each

owner of a bond or other obligation of the authority shall be

conclusively considered to have agreed that the bond is and shall

be fully negotiable within the meaning and for all purposes of the

uniform commercial code.

(10) In the discretion of the authority, any bonds and any

ancillary facilities may be secured by a trust agreement or trust

indenture by and between the authority and a trustee, which may be

any trust company or bank having the powers of a trust company,

whether located within or without this state. A trust agreement or

trust indenture authorized under this subsection, or an authority

resolution providing for the issuance of bonds may provide for the

creation and maintenance of reserves as the authority shall

determine to be proper and may include covenants setting forth the

duties of the authority in relation to the bonds, the ancillary

facilities, the income to the authority, the sale agreement, the

encumbered tobacco revenues and residual interests. A trust

agreement or trust indenture authorized under this subsection or an

authority resolution may contain provisions respecting the custody,

safeguarding, and application of all money and bonds and may

contain provisions for protecting and enforcing the rights and

remedies under the sale agreement of the owners of the bonds and

benefited parties as may be reasonable and proper and not in

violation of law. It shall be lawful for any bank or trust company

incorporated under the laws of this state that may act as

depository of the proceeds of bonds or of any other funds or

obligations received on behalf of the authority to furnish

indemnifying bonds or to pledge obligations as may be required by

the authority. Any trust agreement or trust indenture authorized

under this subsection or an authority resolution may contain other

provisions as the authority may consider reasonable and proper for

priorities and subordination among the owners of bonds and

benefited parties.

(11) The authority may enter into, amend, or terminate, as it

determines to be necessary or appropriate, any ancillary facilities

for any of the following purposes:

(a) To facilitate the issuance, sale, resale, purchase,

repurchase, or payment of bonds, or the making or performance of

swap contracts, including without limitation bond insurance,

letters of credit, and liquidity facilities.

(b) To attempt to hedge risk or achieve a desirable effective

interest rate or cash flow.

(12) The authority may enter into, amend, or terminate any

ancillary facility as it determines to be necessary or appropriate

to place the obligations or investments of the authority, as

represented by the bonds or the investment of their proceeds, in

whole or in part, on the interest rate, cash flow, or other basis

desired by the authority, which facility may include without

limitation contracts commonly known as interest rate swap

agreements, and futures or contracts providing for payments based

on levels of, or changes in, interest rates. The authority may

enter into these contracts or arrangements in connection with, or

incidental to, entering into, or maintaining any agreement that

secures bonds of the authority or any investment, or contract

providing for investments, of reserves or similar facility

guaranteeing an investment rate for a period of years.

(13) The determination by the authority that an ancillary

facility or the amendment or termination of an ancillary facility

is necessary or appropriate is conclusive. The authority may

determine the terms and conditions of an ancillary facility,

including without limitation provisions as to security, default,

termination, payments, remedy, and consent to service of process.

(14) Bonds and ancillary facilities may contain a recital that

they are issued pursuant to this act, which recital is conclusive

evidence of the validity of the bonds and any ancillary facility

and the regularity of the proceedings relating to the bonds and

ancillary facilities.

(15) A member of the board or an officer, appointee, or

employee of the authority shall not be subject to personal

liability when acting in good faith within the scope of his or her

authority or on account of liability of the authority. The board

may defend and indemnify a member of the board or an officer,

appointee, or employee of the authority against liability arising

out of the discharge of his or her official duties. The authority

may indemnify and procure insurance indemnifying members of the

board and other officers and employees of the authority from

personal loss or accountability for liability asserted by a person

with regard to bonds or other obligations of the authority, or from

any personal liability or accountability by reason of the issuance

of the bonds or other obligations or by reason of any other action

taken or the failure to act by the authority. The authority may

also purchase and maintain insurance on behalf of any person

against the liability asserted against the person and incurred by

the person in any capacity or arising out of the status of the

person as a member of the board or an officer or employee of the

authority, whether or not the authority would have the power to

indemnify the person against that liability under this subsection.

(16) A member, officer, employee or agent of the authority

shall not have an interest, either directly or indirectly, in any

business organization engaged in any business, contract or

transaction with the authority or in any contract of any other

person engaged in any business with the authority, or in the

purchase, sale, lease or transfer of any property to or from the

authority.

(17) Bonds issued under this act are not subject to the

revised municipal finance act, 2001 PA 34, MCL 141.2101 to

141.2821.

(18) The issuance of bonds under this act is subject to the

agency financing reporting act, 2002 PA 470, MCL 129.171 to

129.177.

(19) A resolution of the authority authorizing bonds, or the

provisions of a trust agreement authorized by resolution of the

authority, may delegate to an officer or other employee of the

authority, or an agent designated by the authority, for the period

of time as the authority determines, the power to cause the issue,

sale, and delivery of the bonds within limits on those bonds

established by the authority as to any of the following:

(a) The form.

House Bill No. 5048 (H-3) as amended September 28, 2005

(b) The maximum interest rate or rates.

(d) The purchase price.

(e) The denominations.

(f) The redemption premiums.

(g) The nature of the security.

(h) The selection of an applicable interest rate index.

(i) Other terms and conditions with respect to the issuance of

the bonds as the authority shall prescribe.

(20) The board shall rotate bond counsel when issuing bonds

under this act. The board shall authorize and issue bonds in a

manner that provides that not less than 3 financial institutions or

brokerage firms are involved in marketing and underwriting the

bonds. [Not less than 1 of the 3 financial institutions or brokerage

firms described in this subsection shall be a Michigan based financial institution or brokerage firm.] A single financial institution or brokerage firm shall not

market or underwrite more than 40% of the bonds issued under this

act.

Sec. 5. The authority shall exercise its duties independently

of the state treasurer. The staffing, budgeting, procurement, and

related administrative functions of the authority shall be

performed under the direction and supervision of the state

treasurer.

Sec. 6. (1) The authority shall exercise its duties through

its board of directors.

(2) The board shall be made up of 7 members as follows:

(a) The state treasurer.

(b) The director of the department of labor and economic

growth.

business or financial fields appointed by the governor with the

advice and consent of the senate.

(d) One member appointed by the governor from a list of 2 or

more individuals selected by the majority leader of the senate,

with knowledge, skill, or experience in the business or financial

fields.

(e) One member appointed by the governor from a list of 2 or

more individuals selected by the speaker of the house of

representatives, with knowledge, skill, or experience in the

business or financial fields.

(3) The appointed members shall serve for terms of 4 years.

Of the 3 members first appointed, 1 shall be appointed for an

initial term of 1 year, 1 shall be appointed for an initial term of

2 years, and 1 shall be appointed for an initial term of 3 years.

The appointed members shall serve until a successor is appointed.

A vacancy shall be filled for the balance of the unexpired term in

the same manner as the original appointment.

(4) The chief executive officer or director of any state

department or agency who is a designated member of the board may

appoint a representative to serve in his or her absence.

(5) Members of the board shall serve without compensation but

may receive reasonable reimbursement for necessary travel and

expenses incurred in the discharge of their duties.

(6) The state treasurer shall serve as chairperson of the

board.

(7) A majority of the appointed and serving members of the

board shall constitute a quorum of the board for the transaction of

business. A member may participate in a meeting by the use of

amplified telephonic or video conferencing equipment. A member

participating by the use of video conferencing equipment shall be

considered to be present for purposes of a quorum and for purposes

of voting. Actions of the board shall be approved by a majority

vote of the members present at a meeting.

(8) The authority may employ or contract for legal, financial,

and technical experts, and other officers, agents, and employees,

permanent and temporary, as the authority requires, and shall

determine their qualifications, duties, and compensation. The

board may delegate to 1 or more agents or employees those powers or

duties with the limitations as the board considers proper.

(9) The members of the board and officers and employees of the

authority are subject to 1968 PA 317, MCL 15.321 to 15.330, or 1968

PA 318, MCL 15.301 to 15.310.

(10) A member of the board or officer, employee, or agent of

the authority shall discharge the duties of his or her position in

a nonpartisan manner, with good faith, and with that degree of

diligence, care, and skill that an ordinarily prudent person would

exercise under similar circumstances in a like position. In

discharging the duties, a member of the board or an officer,

employee, or agent, when acting in good faith, may rely upon the

opinion of counsel for the authority, upon the report of an

independent appraiser selected with reasonable care by the board,

or upon financial statements of the authority represented to the

member of the board or officer, employee, or agent of the authority

to be correct by the president or the officer of the authority

having charge of its books or account, or stated in a written

report by a certified public accountant or firm of certified public

accountants fairly to reflect the financial condition of the

authority.

Sec. 7. The authority shall have all of the following powers:

(a) To solicit and accept gifts, grants, and loans from any

person.

(b) To invest any money of the authority at the authority's

discretion, in any obligations determined proper by the authority,

and name and use depositories for its money.

the property, assets, or activities of the authority.

(d) To sue and be sued, to have a seal, and to make, execute,

and deliver contracts, conveyances, and other instruments necessary

to the exercise of the authority's powers.

(e) To make and amend bylaws.

(f) To employ and contract with individuals necessary for the

operation of the authority.

(g) To make and execute contracts including without limitation

sale agreements, trust agreements, trust indentures, bond purchase

agreements, tax regulatory agreements, continuing disclosure

agreements, ancillary facilities, and all other instruments

necessary or convenient for the exercise of its powers and

functions, and commence any action to protect or enforce any right

conferred upon it by any law, contract or other agreement.

(h) To engage the services of financial advisors and experts,

legal counsel, placement agents, underwriters, appraisers and other

advisors, consultants and fiduciaries as may be necessary to

effectuate the purposes of this act.

(i) To pay its operating expenses and financing costs.

(j) To pledge the TSRs or other assets as security for the

payment of the principal of and interest on any bonds and for its

obligations under any ancillary facility.

(k) To procure insurance, letters of credit, or other credit

enhancement with respect to any securities for the payment of

tenders of bonds, or for the payment upon maturity of short-term

bonds.

(l) To enter into any ancillary facility with any person under

the terms and conditions as the authority may determine and to

provide insurance, letters of credit, or other credit enhancement

with respect to any ancillary facility.

(m) To modify, amend, or replace any existing, or enter into a

new, ancillary facility.

(n) To do any and all things necessary or convenient to carry

out its purposes and exercise the powers expressly given and

granted in this act.

Sec. 8. (1) The state budget director with the approval of the

state administrative board may sell to the authority, and the

authority may purchase, for cash or other consideration and in 1 or

more installments, all or a portion of the state's tobacco receipts

pursuant to the terms of 1 or more sale agreements. The sale

agreement or combined sale agreements shall provide for the sale of

that portion of the state’s tobacco receipts sufficient to provide

net proceeds to the state in the amount of $1,000,000,000.00, which

shall be deposited to and held, used, and expended by the state

treasurer in the manner provided for in the Michigan trust fund

act, 2000 PA 489, MCL 12.251 to 12.256.

(2) Any sale agreement may also provide for the additional

sale of a portion of the state’s tobacco receipts to replenish any

reserve fund established by the authority in connection with the

authority’s issuance of bonds to fund the sale agreement or sale

agreements described in subsection (1).

(3) Any sale agreement shall provide that the purchase price

payable by the authority to the state for TSRs shall consist of the

net proceeds and the residual interests, if any. In addition, any

sale shall be pursuant to 1 or more sale agreements that may

contain the terms and conditions considered appropriate by the

state representative to carry out and effectuate the purposes of

this section, including without limitation covenants binding this

state in favor of the authority and its assignees, including

without limitation the owners of the bonds and benefited parties,

including a requirement that the state enforce the provisions of

the master settlement agreement that require the payment of the

TSRs, a requirement that the state enforce the provisions of the

qualifying statute, a provision authorizing inclusion of the

state's pledge and agreement, as set forth in section 11, in any

agreement with owners of the bonds or any benefited parties, and

covenants with respect to the application and use of the proceeds

of the sale of the state's tobacco receipts to preserve the tax

exemption of the interest on any bonds, if issued as tax-exempt.

The state representative in any sale agreement may agree to, and

the authority may provide for, the assignment of the authority's

right, title, and interest under the sale agreement for the benefit

and security of the owners of bonds and benefited parties.

(4) The approval of the state administrative board shall be

made by a resolution adopted by the state administrative board and

that approval together with the sale agreement made pursuant to

that approval shall be conclusively presumed to be valid for all

purposes unless challenged in an action brought in the court of

appeals within 30 days after the adoption of the resolution. All

challenges shall be heard and determined as expeditiously as

possible with lawful precedence over other matters. Consideration

by the court of appeals shall be based solely on the record before

the state administrative board and briefs to the court shall be

limited to whether the resolution conforms to the constitution and

laws of this state and the United States and is within the

authority of the state administrative board under this act.

(5) A sale of all or a portion of the state’s tobacco receipts

to the authority under a sale agreement shall be treated as a true

sale and absolute transfer of the state’s tobacco receipts

transferred and not as a pledge or other security interest for any

borrowing. A sale agreement that expressly states that the transfer

of the state’s tobacco receipts to the authority is a sale or other

absolute transfer signifies that the transaction is a true sale and

is not a secured transaction and that title, legal and equitable,

has passed to the authority. The characterization of a sale as an

absolute transfer by the participants shall not be negated or

adversely affected by the fact that only a portion of the state's

tobacco receipts are transferred, or by the acquisition or

retention by this state of a residual interest, or by the

participation by any state official as a member or officer of the

authority, or by whether the state is responsible for collecting

the TSRs or otherwise enforcing the master settlement agreement or

retains legal title to the portion of the state's tobacco receipts

for the purposes of these collection activities, or by any

characterization of the authority or its obligations for purposes

of accounting, taxation, or securities regulation, or by any other

factor whatsoever. A true sale under this act applies regardless of

whether the authority has any recourse against this state, or any

other term of the sale agreement, including the fact that this

state acts as a collector of the state's tobacco receipts or the

treatment of the transfer as a financing for any purpose.

(6) On and after the effective date of each sale of TSRs, the

state shall have no right, title, or interest in or to the TSRs

sold, and the TSRs sold shall be property of the authority and not

of this state, and shall be owned, received, held, and disbursed by

the authority and not this state. On or before the effective date

of a sale described in this subsection, this state through the

state representative shall notify the escrow agent under the master

settlement agreement that this state has sold all or a portion of

the state’s tobacco receipts to the authority, including, if

applicable, a statement as to the percentage sold and shall

irrevocably instruct the escrow agent that, subsequent to the date

specified in the notice, that portion of the state’s tobacco

receipts are to be paid directly to the authority or the trustee

under the applicable authority resolution, trust agreement, or

trust indenture for the benefit of the owners of the securities and

benefited parties until the authority’s bonds and ancillary

facilities are no longer outstanding. Once the bonds or ancillary

facilities are no longer outstanding, an officer or agent of this

state who shall receive any encumbered TSRs shall hold them in

trust for the authority or the trustee, as applicable, and shall

promptly remit the same to the authority or the trustee, as

applicable.

(7) The net proceeds and any earnings on the net proceeds

shall never be pledged to, or made available for, payment of the

bonds or ancillary facilities or any interest or redemption price

or any other debt or obligation of the authority. The state is

authorized and may arrange for the availability of the net proceeds

and residual interests from the authority on the terms and

conditions as the state representative considers appropriate and

may include in the sale agreement provisions for interfund

transactions with respect to the net proceeds and residual

interests between the state and the authority.

Sec. 9. The issuance of bonds and the execution of any

ancillary facility under the provisions of this act shall not

directly, or indirectly, or contingently obligate the state or any

political subdivision of this state to pay any amounts to the

authority or owner of bonds or benefited parties or levy or pledge

any form of taxation whatsoever for the bonds or ancillary

facilities. The bonds and any ancillary facility are not a debt or

liability of this state or any agency or instrumentality of this

state, other than the authority as set forth in this act, either

legal, moral, or otherwise, and nothing contained in this act shall

be construed to authorize the authority to incur any indebtedness

on behalf of or in any way to obligate this state or any political

subdivision of this state, and the bonds and any ancillary facility

shall contain on the face of the bond and ancillary facility or

other prominent place on the bond or ancillary facility in bold

typeface a statement to that effect.

Sec. 10. (1) It is determined that the creation of the

authority and the carrying out of its authorized purposes is in all

respects a public and governmental purpose for the benefit of the

people of this state and for the improvement of their health,

safety, welfare, comfort, and security, and that these purposes are

public purposes and that the authority will be performing an

essential governmental function in the exercise of the powers

conferred upon it by this act.

(2) The property of the authority and its income and

operations shall be exempt from taxation by this state and any

political subdivision of this state.

(3) In the case of any bonds, the interest on which is

intended to be exempt from federal income tax, the authority shall

prescribe restrictions on the use of the proceeds of those bonds

and related matters as are necessary to assure the exemption, and

the recipients of proceeds of those bonds shall be bound thereby to

the extent the restrictions shall be made applicable to them. Any

recipient of the proceeds of bonds bearing interest that is

intended to be exempt from federal income tax, including without

limitation this state or any political subdivision of this state,

is authorized to execute a tax regulatory agreement with the

authority and, as to any political subdivision that is a recipient

of the proceeds of bonds bearing interest that is intended to be

exempt from federal income, this state. The execution of a tax

regulatory agreement may be treated as a condition to receiving any

proceeds of a bond issued under this act.

Sec. 11. (1) This state hereby pledges and agrees with the

authority, and the owners of the bonds and benefited parties, that

until all bonds and ancillary facilities, together with the

interest on the bonds and ancillary facilities and all costs and

expenses in connection with any action or proceedings by or on

behalf of owners of bonds or benefited parties, are fully paid and

discharged, that this state will do all of the following:

(a) Irrevocably direct the escrow agent under the master

settlement agreement to transfer the TSRs directly to the authority

or its assignee.

(b) Enforce the authority's rights to receive the TSRs to the

full extent permitted by the terms of the master settlement

agreement.

that would materially impair the rights of the owners of the bonds

or of the benefited parties.

(d) Not limit or alter the rights of the authority to fulfill

the terms of its agreements with owners of the bonds or benefited

parties.

(e) Not in any way impair the rights and remedies of owners of

the bonds or benefited parties or the security for the bonds or

ancillary facilities, provided, that nothing in this act shall be

construed to preclude the state's regulation of smoking, and the

taxation and regulation of the sale of cigarettes or other tobacco

products.

(f) Not fail to enforce the qualifying statute.

(g) Not amend, supersede, or repeal the qualifying statute in

any way that would materially adversely affect the amount of any

payment to, or materially impair the rights of, the authority,

owners of the bonds, or the benefited parties.

(2) The state representative is authorized and directed to

include the pledge and agreement made under this section in sale

agreements and the authority is authorized and directed to include

the pledge and agreement in any contract with the owners of the

bonds and benefited parties.

(3) Prior to the date that is 1 year and 1 day after the

authority no longer has any bonds or ancillary facilities

outstanding, the authority shall have no authority to file a

voluntary petition under chapter 9 of the federal bankruptcy code

or such corresponding chapter or sections as may, from time to

time, be in effect, and neither any public officer or any

organization, entity, or other person shall authorize the authority

to be or become a debtor under chapter 9 of the federal bankruptcy

code or any successor or corresponding chapter or sections during

that period. The state hereby covenants with the owners of the

bonds and benefited parties that this state will not limit or alter

the denial of the authority under this subsection during the period

referred to in this subsection. The authority is authorized and

directed to include this covenant as an agreement of this state in

any contract with the owners of the bonds and benefited parties.

Sec. 12. Notwithstanding any restriction contained in any

other law, rule, regulation, or order to the contrary, this state

and all political subdivisions of this state, their officers,

boards, commissioners, departments or other agencies, governmental

pension funds, all banks, trust companies, savings banks and

institutions, building and loan associations, savings and loan

associations, investment companies and other persons carrying on a

banking or investment business, and all executors, administrators,

guardians, trustees and other fiduciaries, and all other persons

whatsoever who now are or may hereafter be authorized to invest in

bonds or other obligations of the state, may properly and legally

invest any sinking funds, money or other funds, including capital,

belonging to them or within their control, in any bond. Bonds

issued by the authority under this act are hereby made bonds that

may properly and legally be deposited with, and received by, any

state municipal officers or agency of this state, for any purpose

for which the deposit of bonds or other obligations of this state

is now, or may be, authorized by law.

Sec. 13. The authority may be dissolved by act of the

legislature on condition that the authority has no debts or

obligations outstanding or that provision has been made for the

payment or retirement of all debts or obligations. Upon any such

dissolution of the authority, all property, funds, and assets of

the authority shall be vested in this state.

Sec. 14. This act and all powers granted hereby shall be

liberally construed to effectuate its intent and their purposes,

without implied limitations on the powers of the authority or the

state treasurer. This act shall constitute full, complete, and

additional authority for all things that are contemplated in this

act to be done. All rights and powers granted in this act shall be

cumulative with those derived from other sources and shall not,

except as expressly stated in this act, be construed in limitation

of those rights and powers. Insofar as the provisions of this act

are inconsistent with the provisions of any other act, general or

special, the provisions of this act shall be controlling. If any

clause, paragraph, section, or part of this act is adjudged by any

court of competent jurisdiction to be invalid, that judgment shall

not affect, impair, or invalidate the remainder of the clause,

paragraph, section, or part but shall be applied in its operation

to the clause, sentence, paragraph, section, or part directly

involved in the controversy in which the judgment shall have been

rendered.

Sec. 15. Subject to any agreements with bondholders, the

authority has the power to use any funds available to purchase

bonds of the authority at a price determined by the authority.

Sec. 16. The authority shall submit an annual report no later

than March 1 relating to its activities for the preceding calendar

year to the governor, the speaker and minority leader of the house

of representatives, and the majority and minority leaders of the

senate.

Sec. 17. (1) One million dollars is appropriated from the

general fund to the authority for the fiscal year ending September

30, 2006 for all of the following purposes:

(a) Payment of operating expenses of the authority.

(b) Funding any reserve requirements.

(2) Money appropriated under this section that is not expended

before the end of the state fiscal year ending September 30, 2006

shall not revert to the general fund and may be retained and used

by the authority for the purposes authorized by subsection (1).

Sec. 18. Except as otherwise provided in this section, any

legal action against the authority shall be brought in the Michigan

court of appeals, which shall have exclusive jurisdiction. However,

any legal actions against the authority seeking money damages shall

be brought in the Michigan court of claims, which shall have

exclusive original jurisdiction with respect to actions against the

authority seeking money damages.

Enacting section 1. This act does not take effect unless all

of the following bills of the 93rd Legislature are enacted into

law:

(a) Senate Bill No. 359.

(b) Senate Bill No. 533.

(d) House Bill No. 4973.

(e) House Bill No. 5047.

(f) House Bill No. 5108.

(g) House Bill No. 5109.