FINANCIAL RECOVERY BONDS S.B. 318:
SUMMARY AS ENACTED
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Senate Bill 318 (as enacted) PUBLIC ACT 36 of 2011
Sponsor: Senator Hoon-Yung Hopgood
Senate Committee: Education
House Committee: Local, Intergovernmental, and Regional Affairs
Date Completed: 8-15-11
CONTENT
The bill amended the Home Rule City Act to provide for the issuance of financial recovery bonds by the City of Ecorse to pay court-ordered judgments against the city; and provide for the deposit of tax revenue into an escrow account for the payment of the bonds.
Section 36a of the Act allows a city to issue financial recovery bonds in amounts greater than the limitations established by the city charter or the Act, if a financial emergency exists under the Local Government and School District Fiscal Accountability Act.
The bill applies to a city that has a population under 10,000 according to the latest Federal decennial census, and is located in a charter county. (The City of Ecorse meets these criteria and a financial emergency has been found to exist in the city.)
Financial recovery bonds issued under the bill must be limited to the amount necessary to pay court-ordered judgments against the city existing on the bill's effective date, and administrative costs associated with issuing the bonds.
In the order authorizing the bond issuance, the city may provide for the deposit of revenue generated from taxes levied by the city, including a tax levied to pay a judgment or comply with a court order, into an escrow account to be used for the purpose of paying the principal of and interest on the bonds and the administrative costs associated with issuing the bonds, and the city may pledge the tax revenue for the payment of the bonds.
If the city enters into an agreement with a third-party tax collector for the collection of taxes that the city treasurer otherwise would collect, the agreement must provide for the direct payment of all tax revenue pledged for the payment of financial recovery bonds collected by the third-party tax collector, to a trustee to be deposited into an escrow account and used for the sole purpose of paying the principal of and interest on the bonds. The tax revenue paid to the trustee will be subject to a lien and trust, which will be a statutory lien and trust superior to all other liens and interests of any kind, for the sole purpose of paying the principal of and interest on the financial recovery bonds and any other bonds subsequently issued by the city sharing a parity or subordinate pledge of that tax revenue.
The tax revenue must be held in trust for the sole benefit of the bondholders and is exempt from being levied upon, taken, sequestered, or applied toward paying the debts or liabilities of the city other than for payment of debt service on the bonds subject to the lien.
Section 36a provides that the net indebtedness of a city, reduced by amounts excluded under Section 4a, may not exceed 20% of the city's assessed value. Notwithstanding this provision, if Ecorse issues financial recovery bonds under the bill, its net indebtedness, reduced by the excluded amounts, may not exceed 12% of the city's assessed value, adjusted for
additions under Section 4a(9). (Section 4a sets limits on a city's net indebtedness incurred for all public purposes, and excludes certain bonds and obligations from the computation of net indebtedness. In the computation of net indebtedness, Subsection (9) allows an amount equal to the assessed value equivalent of certain city revenue to be added to the assessed value of real and personal property in a city.)
The bill took effect on May 25, 2011.
MCL 117.36a
Legislative Analyst: Suzanne Lowe
FISCAL IMPACT
The bill will change the distribution and timing of certain tax collections as well as the financing of certain obligations. Absent the bill, a local unit must finance the payment of a court judgment from existing assets, revenue, or levies. For some local units, this could require substantial increases in the tax levy. The bill allows the City of Ecorse to finance a court judgment over a substantial period of time (more than 15 years), while still ensuring that parties receiving revenue under the judgment will be paid promptly.
The bill does not change the amount of the judgment, although allowing the bonds will increase the total cost of paying the judgment by the interest cost on the bonds.
The bill will have no fiscal impact on State government.
Fiscal Analyst: David Zin
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. sb318/1112