SB-1225, As Passed Senate, March 27, 2008

SUBSTITUTE FOR

SENATE BILL NO. 1225

     A bill to amend 2005 PA 226, entitled

"Michigan tobacco settlement finance authority act,"

by amending section 8 (MCL 129.268), as amended by 2007 PA 18.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

     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. In the

alternative, the state budget director with the approval of the

state administrative board may sell all or a portion of the state's

tobacco receipts for cash or other consideration to a person or

persons other than the authority, if the terms of the sale

agreement to sell the state's tobacco receipts are in the best

interests of this state and the net proceeds of the sale will not

exceed $400,000,000.00. If the sale to a person or persons other

than the authority is in the best interests of this state, the

state administrative board shall approve the terms of the sale

agreement. 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 $815,000,000.00, of which $400,000,000.00 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 12.260, $207,800,000.00 shall be

deposited in the state school aid fund established by section 11 of

article IX of the state constitution of 1963, and the balance shall

be deposited in the general fund.

     (2) A sale agreement or combined sale agreement under this

section may also provide for refunding, refinancing, and the sale

by this state of residual interests. Any net proceeds resulting

from a refunding or refinancing of bonds issued under this act

prior to the effective date of the amendatory act that added this

subsection or the sale of residual interests existing on or after

the effective date of the amendatory act that added this subsection

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 12.260.

(3) (2) 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 budget director 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 budget director 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) (3) A sale agreement may provide that the remedies

available to the authority and the bondholders for any breach of

the pledges and agreements of this state set forth in subsection

(2) (3) shall be limited to injunctive relief and that this state

shall be considered to have diligently enforced the qualifying

statute if there has been no judicial determination by a court of

competent jurisdiction in this state, in an action commenced by a

participating tobacco manufacturer under the master settlement

agreement, that this state has failed to diligently enforce the

qualifying statute.

(5) (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.

(6) (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 all or a portion 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 exists 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.

(7) (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 treasurer 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 bonds 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 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.

(8) (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.

     Enacting section 1. This amendatory act does not take effect

unless all of the following bills of the 94th Legislature are

enacted into law:

     (a) Senate Bill No. 1223.

     (b) Senate Bill No. 1224.