SB-1129, As Passed Senate, September 27, 2012

HOUSE SUBSTITUTE FOR

SENATE BILL NO. 1129

A bill to amend 2001 PA 34, entitled

"Revised municipal finance act,"

by amending sections 103, 305, and 503 (MCL 141.2103, 141.2305, and

141.2503) and by adding section 518.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

Sec. 103. As used in this act:

(a) "Assessed value", "assessed valuation", "valuation as

assessed", and "valuation as shown by the last preceding tax

assessment roll", or similar terms, used in this act, any statute,

or charter as a basis for computing limitations upon the taxing or

borrowing power of any municipality, mean the state equalized

valuation as determined under the general property tax act, 1893 PA

206, MCL 211.1 to ~~211.157.~~211.155.

(b) "Chief administrative officer" means that term as defined

in section 2b of the uniform budgeting and accounting act, 1968 PA

2, MCL 141.422b.

indebtedness, including principal and interest, evidenced by bonds,

obligations, refunding obligations, notes, contracts, securities,

refunding securities, municipal securities, or certificates of

indebtedness that are lawfully issued or assumed, in whole or in

part, by a municipality, or will be evidenced by a judgment or

decree against the municipality.

(d) "Debt retirement fund" means a segregated account or group

of accounts used to account for the payment of, interest on, or

principal and interest on a municipal security.

(e) "Deficit" means a situation for any fund of a municipality

in which, at the end of a fiscal year, total expenditures,

including an accrued deficit, exceeded total revenues for the

fiscal year, including any surplus carried forward.

(f) "Defined benefit plan" means a retirement program other

than a defined contribution plan.

(g) "Defined contribution plan" means a retirement program

that provides for an individual account for each participant and

for benefits based solely upon the amount contributed to the

participant's account, and any income, expenses, gains, and losses

credited or charged to the account, and any forfeitures of accounts

of other participants that may be allocated to the participant's

account.

(h) ~~(f)~~ "Department" means the department of treasury.

(i) ~~(g)~~ "Fiscal year" means a 12-month period fixed by

statute, charter, or ordinance, or if not so fixed, then as

determined by the department.

(j) ~~(h)~~ "Governing body" means the county board of

commissioners of a county; the township board of a township; the

council, common council, or commission of a city; the council,

commission, or board of trustees of a village; the board of

education or district board of a school district; the board of an

intermediate school district; the board of trustees of a community

college district; the county drain commissioner or drainage board

of a drainage district; the board of the district library; the

legislative body of a metropolitan district; the port commission of

a port district; and, in the case of another governmental authority

or agency, that official or official body having general governing

powers over the authority or agency.

(k) "Health care trust fund" means a trust or fund created in

accordance with the public employee health care fund investment

act, 1999 PA 149, MCL 38.1211 to 38.1216, or other state or federal

statute, and used exclusively to provide funding for postemployment

health care benefits for public employee retirees of a county,

city, village, or township. A health care trust fund also includes

the retiree health fund vehicle administered by the municipal

employees retirement system described in the municipal employees

retirement act of 1984, 1984 PA 427, MCL 38.1501 to 38.1555, for a

county, city, village, or township that has adopted the municipal

employee retirement system to provide funding for postemployment

health care benefits for public employee retirees.

(l) ~~(i)~~ "Municipal security" means a security that when issued

was not exempt from this act or ~~the municipal finance act,~~ former

1943 PA 202 ~~, MCL 131.1 to 139.3,~~ by the provisions of this act or

by ~~the provisions of the municipal finance act,~~ former 1943 PA 202

~~, MCL 131.1 to 139.3,~~ or by the provisions of the law authorizing

its issuance and that is payable from or secured by any of the

following:

(i) Ad valorem real and personal property taxes.

(ii) Special assessments.

(iii) The limited or unlimited full faith and credit pledge of

the municipality.

(iv) Other sources of revenue described in this act for debt or

securities authorized by this act.

(m) ~~(j)~~ "Municipality" means a county, township, city,

village, school district, intermediate school district, community

college district, metropolitan district, port district, drainage

district, district library, or another governmental authority or

agency in this state that has the power to issue a security.

Municipality does not include this state or any authority, agency,

fund, commission, board, or department of this state.

(n) ~~(k)~~ "Outstanding security" means a security that has been

issued, but not defeased or repaid, including a security that when

issued was exempt from this act or ~~the municipal finance act,~~

former 1943 PA 202, ~~MCL 131.1 to 139.3,~~ by the provisions of this

act or by ~~the provisions of the municipal finance act,~~ former 1943

PA 202 ~~, MCL 131.1 to 139.3,~~ or by the provisions of the law

authorizing its issuance.

(o) (l) "Qualified status" means a municipality that has filed

a qualifying statement under section 303 and has been determined by

the department to be qualified to issue municipal securities

without further approval by the department.

(p) ~~(m)~~ "Refunding security" means a municipal security issued

to refund an outstanding security.

(q) "Retirement program" means a program of rights and

obligations which a county, city, village, or township establishes,

maintains, or participates in and which, by its express terms or as

a result of surrounding circumstances, does 1 or more of the

following:

(i) Provides retirement income to participants.

(ii) Results in a deferral of income for periods extending to

the termination of covered employment or beyond.

(r) ~~(n)~~ "Security" means an evidence of debt such as a bond,

note, contract, obligation, refunding obligation, certificate of

indebtedness, or other similar instrument issued by a municipality,

which pledges payment of the debt by the municipality from an

identified source of revenue.

(s) ~~(o)~~ "Sinking fund" means a fund for the payment of

principal only of a mandatory redemption security.

(t) ~~(p)~~ "Taxable value" means the taxable value of the

property as determined under section 27a of the general property

tax act, 1893 PA 206, MCL 211.27a.

(u) "Unfunded accrued health care liability" means the

difference between the assets and liabilities of a health care

trust fund as determined by an actuarial study according to the

most recent governmental accounting standards board's applicable

standards.

(v) "Unfunded pension liability" means the amount a defined

benefit plan's liabilities exceed its assets according to the most

recent governmental accounting standards board's applicable

standards.

Sec. 305. (1) A municipal security authorized by law to be

issued by a municipality may, notwithstanding the provisions of a

charter, bear no interest as provided in this section or a rate of

interest not to exceed a maximum rate established by the governing

body of the issuing municipality as set forth in its resolution or

ordinance authorizing the issuance of the municipal security, which

rate shall not exceed 18% per annum or a per annum rate determined

by the department at the request of the municipality, whichever is

higher. In making its determination, the department shall establish

a rate that shall bear a reasonable relationship to 80% of the

adjusted prime rate determined by the department under section 23

of 1941 PA 122, MCL 205.23. Except as otherwise provided in this

section, the rate determined by the department shall be conclusive

as to the maximum rate of interest permitted for a municipal

security issued under this act.

(2) Except as provided in subsection (3), a municipal security

issued under this act shall not be sold at a discount exceeding 10%

of the principal amount of the municipal security. The amortization

of the discount shall be considered interest and shall be within

the interest rate limitation set forth in subsection (1).

(3) A municipal security may be sold at a discount exceeding

10% of the principal amount of the municipal security only if 1 or

more of the following conditions apply, as determined by the

department:

(a) The sale will result in the more even distribution for the

municipality of total debt service on proposed and outstanding

municipal securities.

(b) The sale will result in an interest cost savings when

compared to the best available alternative that does not include a

municipal security being sold at a discount exceeding 10% of the

principal amount.

revenues previously pledged for another purpose and lawfully

available for this purpose.

(d) The municipal security is issued to this state or the

federal government to secure a loan or agreement.

(e) The municipal security is issued pursuant to section 518.

(4) A municipal security issued in accordance with subsection

(3)(a), (b), or (c) shall be rated investment grade by a nationally

recognized rating agency or have insurance for payment of the

principal and interest on the municipal security to the holders of

the municipal security.

(5) Notwithstanding any other provision of this section, a

municipal security meeting the requirements of subsection (3) that

is a refunding security shall not have a maturity that exceeds the

maturity of the existing municipal security.

(6) Not more than 25% of the total principal amount of any

authorized issue of a municipal security shall meet the

qualifications under subsection (3)(a), (b), and (c).

(7) A municipal security may bear no interest if sold in

accordance with a federal program by which the holder of the

municipal security, as a result of holding the municipal security,

may declare a credit against a federal tax.

(8) A municipal security may bear no interest and appreciate

as to principal amount if it meets the requirements of subsections

(3), (4), and (6). The accreted principal amount of a municipal

security shall be considered interest and shall be within the

interest rate limitations provided in subsection (1).

Sec. 503. (1) Municipal securities of a single issue may

mature serially or be subject to mandatory redemptions, or both,

with maturities as fixed by the governing body of the municipality.

In any case, the first maturity or mandatory redemption date shall

occur not later than 5 years after the date of issuance, and the

total principal amount maturing or subject to mandatory redemption

in any year after 4 years from the date of issuance shall not be

less than 1/5 of the total principal amount maturing or subject to

mandatory redemption in any subsequent year.

(2) In the resolution authorizing the issuance of a municipal

security, the governing body of the municipality may provide that

the municipality may purchase municipal securities in the open

market at a price not greater than that payable on the next

redemption date in order to satisfy all or part of the next

succeeding scheduled mandatory redemption.

(3) The governing body of the municipality may provide that

some or all of the principal amounts maturing in any year may be

redeemed at the option of the municipality at the times, on the

terms and conditions, and at the price as provided by resolution of

the governing body, except that a municipality shall not agree to

pay a premium exceeding 3% of the principal amount being redeemed.

(4) All outstanding and authorized municipal securities of a

school district payable out of taxes may be treated as a single

issue for the purpose of fixing maturities. Several series of

municipal securities issued under the same authorization may be

treated as a single issue for the purpose of fixing maturities.

(5) A municipal security issued by a school district that is

sold in accordance with a federal program in which the holder of

the municipal security, as a result of holding the municipal

security, may declare a credit against a federal tax is exempt from

the provisions of subsection (1) if the school district deposits in

trust payments to provide for the repayment of the municipal

security and the first required payment shall occur not later than

5 years after the date of issuance and each required payment in any

year after 4 years from the date of issuance shall not be less than

1/5 of the total required payment in any subsequent year.

(6) A municipal security issued by a county, city, village, or

township pursuant to section 518 shall not be subject to the

maturity and mandatory redemption requirements of subsection (1).

Sec. 518. (1) Through December 31, 2014, in connection with

the partial or complete cessation of accruals to a defined benefit

plan or the closure of the defined benefit plan to new or existing

employees, and the implementation of a defined contribution plan,

or to fund costs of a county, city, village, or township that has

already ceased accruals to a defined benefit plan, a county, city,

village, or township may by ordinance or resolution of its

governing body, and without a vote of its electors, issue a

municipal security under this section to pay all or part of the

costs of the unfunded pension liability for that retirement program

provided that the amount of taxes necessary to pay the principal

and interest on that municipal security, together with the taxes

levied for the same year, shall not exceed the limit authorized by

law.

(2) Through December 31, 2014, a county, city, village, or

township may by ordinance or resolution of its governing body, and

without a vote of its electors, issue a municipal security under

this section to pay the costs of the unfunded accrued health care

liability provided that the amount of taxes necessary to pay the

principal and interest on that municipal security, together with

the taxes levied for the same year, shall not exceed the limit

authorized by law or to refund in whole or in part a contract

obligation issued for the same purpose. Postemployment health care

or benefits may be funded by the county, city, village, or

township. The funding of postemployment health care benefits by a

county, city, village, or township as provided in this act shall

not constitute a contract to pay the postemployment health care

benefits.

(3) Before a county, city, village, or township issues a

municipal security under this section, the county, city, village,

or township shall publish a notice of intent to issue the municipal

security. The notice of intent and the rights of referendum shall

meet the requirements of section 517(2).

(4) Before a county, city, village, or township issues a

municipal security under this section, the county, city, village,

or township shall prepare and make available to the public a

comprehensive financial plan that includes all of the following:

(a) An analysis of the current and future obligations of the

county, city, village, or township with respect to each retirement

program and each postemployment health care benefit program of the

county, city, village, or township.

(b) Evidence that the issuance of the municipal security

together with other funds lawfully available will be sufficient to

eliminate the unfunded pension liability or the unfunded accrued

health care liability.

actions required to satisfy the debt service amortization schedule.

(d) A certification by the person preparing the plan that the

comprehensive financial plan is complete and accurate.

(e) If the proceeds of the borrowing are to be deposited in a

health care trust fund, a plan in place from the county, city,

village, or township to mitigate the increase in health care costs

and may include a wellness program that promotes the maintenance or

improvement of healthy behaviors.

(5) Municipal securities issued under this section by a

county, city, village, or township and the interest on and income

from the municipal securities are exempt from taxation by this

state or a political subdivision of this state.

(6) The proceeds of a municipal security issued under this

section may be used to pay the costs of issuance of the municipal

security. Except for a refunding, the proceeds of a municipal

security issued under this section to cover unfunded health care

liability shall be deposited in a health care trust fund, a trust

created by the issuer which has as its beneficiary a health care

trust fund, or, for a county, city, village, or township, a

restricted fund within a trust that would only be used to retire

the municipal securities issued under subsection (1) or (3). A

county, city, village, or township shall have the power to create a

trust to carry out the purposes of this subsection. The trust

created under this subsection shall invest its funds in the same

manner as funds invested by a health care trust fund. The trust

created under this subsection shall comply with all of the

following:

(a) Report its financial condition according to generally

accepted accounting principles.

(b) Be tax-exempt under the internal revenue code.

(7) A county, city, village, or township issuing municipal

securities under this section may enter into indentures or other

agreements with trustees and escrow agents for the issuance,

administration, or payment of the municipal securities.

(8) Before a county, city, village, or township issues a

municipal security under this section, the county, city, village,

or township shall obtain the approval of the department.

(9) If a county, city, village, or township has issued a

municipal security under this section, that county, city, village,

or township shall not change the benefit structure of the defined

benefit plan if the defined benefit plan is undergoing the partial

cessation of accruals. However, a county, city, village, or

township may reduce benefits of the defined benefit plan for years

of service that accrue after the issuance of municipal securities

under this section.

(10) A county, city, village, or township shall not issue a

municipal security under subsection (1) or (2) unless the county,

city, village, or township has been assigned a credit rating within

the category of AA or higher or the equivalent by at least 1

nationally recognized rating agency.

(11) A county, city, village, or township that issues a

municipal security under subsection (1) shall covenant with the

holders of the municipal security and this state that it will not,

after the issuance of the municipal security and while the

municipal security is outstanding, rescind whatever action it has

taken to make a partial or complete cessation of accruals to a

defined benefit plan or the closure of the defined benefit plan for

new or existing employees.