A587

ASSEMBLY, No. 587

STATE OF NEW JERSEY

Introduced Pending Technical Review by Legislative Counsel

PRE-FILED FOR INTRODUCTION IN THE 1996 SESSION

By Assemblyman LUSTBADER

An Act concerning the procedures for the issuance of certain local unit bonds and the selection of certain bond underwriters, financial advisors and counsel, and amending and supplementing various sections of the statutory law.

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. (New section) The Legislature finds and declares that:

a. There is substantial cost to certain municipal and county governments and their independent authorities in the issuance of bonds and the selection of bond underwriters, financial advisors and bond counsel; and

b. Because of that cost, there need to be established procedures which ensure the lowest cost to the larger local units and the integrity of the selection process; and

c. It has been shown that competitive bidding protects the public's interest by obtaining the lowest possible interest cost and avoids allegations of unfairness and impropriety.

2. (New section) The Local Finance Board, from time to time, shall issue a request for qualifications of prospective bond counsel intending to provide services to issuers that are either cities of the first class or counties. The request shall not be specific to a bond transaction and shall apply to bond transactions anticipated to be undertaken by issuers over a two-year period. The request shall elicit descriptive information on the bond counsel, its knowledge and experience in finance law, tax law and specifically the law regarding tax-exempt bonds, any special area of expertise and proposed fees for financial transactions involving bonds. The Local Finance Board shall maintain a qualified list of bond counsel for each type of bond transaction.

3. (New section) The Local Finance Board, from time to time, shall issue a request for qualifications of potential underwriters and financial advisors for bond transactions for issuers that are either cities of the first class or counties. The request shall not be specific to any particular bond transaction and shall apply to bond transactions anticipated to be undertaken by issuers over a two-year period. The request shall elicit an underwriter's or financial advisor's experience in marketing bonds and notes with reference to various types of bonds; its financial responsibility, with specific reference to capital allocated to underwriting government bonds; proposed fees for financial transactions involving bonds; the degree of corporate investment or presence in any municipality or county, including the location of corporate offices, brokerage offices, back-office operations and the like; the proportion of minority or women ownership of the underwriter or financial advisor; and such other information deemed necessary by the Local Finance Board.

The Local Finance Board shall maintain a list of qualified underwriters and financial advisors on the basis of the information provided in the request for qualifications. The Local Finance Board shall determine the list on the basis of the qualifications set forth in the request, with appropriate consideration given to underwriters and financial advisors who are minority owned, reside in this State and have corporate investment in this State.

4. (New section) The Local Finance Board shall issue to each financial advisor on the qualified list a request for proposals on each bond transaction for an issuer that is either a city of the first class or a county. The financial advisor shall provide in the proposal specific information on financial strategies for the proposed transaction; a recommended strategy for identifying and targeting purchasers of the bonds; proposed fees for the bond sale in question; and case examples of similar bond transactions on which the financial advisor has worked.

The selection shall be made on the basis of the skills required for each transaction, the financial advisor's past performance on bond transactions, a rotation designed to give each financial advisor a fair opportunity to participate in bond transactions, and such other factors based on the request for qualifications and as the Local Finance Board deems appropriate. The Local Finance Board shall issue a report to the issuer on the selection, stating the reasons for the selection, and the report shall be made available to the public.

5. (New section) Each contract of sale between an issuer that is either a city of the first class or a county, and an underwriter shall include a provision that the underwriter agrees to use its best efforts to assure that the local unit meets its objectives in the fair and reasonable allocation of bonds to members of the underwriting syndicate; and that the allocation of bonds and fees received by each member of the underwriting syndicate shall be reported to the Local Finance Board within 30 days of closing of the bond issue. The Local Finance Board shall make the report available to the public and shall set such terms and conditions as are necessary to implement the reporting requirement. Failure of the underwriter to comply with the reporting requirement shall not void the bond transaction, but shall constitute a basis for removal of the underwriter from the qualified list.

6. (New section) No issuer that is either a city of the first class or a county shall select or direct the selection of any person, firm or corporation to provide professional services to a bond underwriter, financial advisor or bond counsel.

7. (New section) A contract for professional services between a local unit that is either a city of the first class or a county and a bond underwriter shall be in accordance with the bidding procedures contained in N.J.S.40A:2-32. A contract for professional services between a local unit that is either a city of the first class or a county and a financial advisor shall be in accordance with section 4 of P.L. , c. (C. ) (pending before the Legislature as this bill). A contract for professional services between a local unit that is either a city of the first class or a county and a bond counsel shall be in accordance with section 1 of P.L.1973, c.114 (C.40A:2-38.1).

8. N.J.S.40A:2-2 is amended to read as follows:

40A:2-2. The following words as used in this chapter shall have the following meanings, unless the context clearly indicates a different meaning:

"bond counsel" means a person, firm or corporation of attorneys engaged by an issuer to advise and assist the issuer in legal financial and tax matters relating to a bond transaction;

"bond ordinance" means an ordinance adopted as herein provided by the governing body of a local unit authorizing obligations;

"bond transaction" means any financial transaction by an issuer with respect to local unit bonds, notes, certificates or other instruments of debt;

"equalized valuation basis" of a local unit means the average for the last 3 preceding years, of the sum total of

a. the aggregate equalized valuation of real property together with improvements, as certified in the Table of Equalized Valuations by the Director of the Division of Taxation in the Department of the Treasury, on October 1 of each year, pursuant to chapter 86 of the laws of 1954, and

b. the assessed valuation of Class II railroad property as set forth in the table of equalized valuations referred to in "a" above.

"financial advisor" means a person, firm or corporation engaged by an issuer to perform origination tasks for any bond transaction such as structuring the maturity schedule, preparing the official statement, obtaining a rating, obtaining credit enhancement, timing a sale or such other financial advice and assisting an issuer;

"governing body" means the board of chosen freeholders of a county, or the commission, council, board or body having control of the finances of a municipality;

"issuer" means a local unit;

"local improvement" means an improvement or property, part or all of the cost of which has been, or is to be specially assessed on property;

"obligations" means bonds or notes of a local unit;

"refunding bond ordinance" means an ordinance adopted by the governing body of the local unit authorizing refunding bonds;

"underwriter" means a person, firm or corporation to which an issuer sells or proposes to sell bonds.

(cf: P.L.1964, c.72, s.1)

9. N.J.S.40A:2-27 is amended to read as follows:

40A:2-27. All bonds shall be sold at public sale upon sealed proposals, except that bonds may be sold at private sale:

a. Without any previous public offering

(1) if constituting all or part of an authorized issue of $100,000.00 or less, or

(2) if sold to any board, body, agency, commission, instrumentality, district, authority or political subdivision of any local unit, or of the State, or of the Federal Government; or

(3) if an issuer that is either a city of the first class or a county obtains a waiver of the requirements of N.J.S.40A:2-30 and N.J.S.40A:2-32. An issuer may submit a written request for a waiver to the Local Finance Board in order to sell bonds by negotiation when it is more beneficial to the local unit to do so and upon a showing of extraordinary circumstances for such a sale. Extraordinary circumstances shall be specific to the bond sale and are (1) the novelty of the financing issues and (2) the complexity of the issuance. The contents of the waiver request shall be made available to the public. The Local Finance Board shall notify the governing body in writing of its decision to approve or disapprove the waiver request within 40 days of receipt of the waiver request. The decision of the Local Finance Board also shall be made available to the public; or

b. If no legally acceptable bid is received at advertised public offering, such bonds or any of them may be sold within 30 days after the advertised date for public bidding, provided, however, that no bonds shall bear interest at any rate of interest which is higher than the rate or maximum rate specified in the notice of sale, nor contain substantially different provisions from those specified in said notice.

Any purchaser of bonds at private sale, other than a public body, shall deposit a certified or cashier's or treasurer's check drawn upon a bank or trust company in an amount equal to 5% of the amount of bonds purchased and such amount shall be applied as in the case of a deposit made at public sale.

Any private sale of bonds shall be made or confirmed by resolution of the governing body adopted by not less than a 2/3 vote of the full membership thereof, setting forth the date, maturities, interest rate and price of the bonds and the name of the purchaser.

(cf: P.L.1981, c.111, s.1)

10. N.J.S.40A:2-32 is amended to read as follows:

40A:2-32. a. All bidders shall be required to deposit a certified or cashier's or treasurer's check, drawn upon a bank or trust company, equal to not less than 2% of the bonds to secure the local unit in part from any loss resulting from the failure of the bidder to comply with the terms of his bid, or as liquidated damages for such failure.

b. All bids for bonds shall be publicly opened and announced at the advertised time and place of sale. Such bids as comply with the terms of the notice of sale shall be considered, and any bid not complying with the terms of such notice may be rejected. All bids received may be rejected.

c. Bonds of 2 or more issues may be sold on the basis of combined maturities, or the maturities of each issue offered for sale.

d. Bonds may be offered for sale at a single rate of interest, or bidders may be requested to name a single rate of interest, but no proposal shall be considered which offers to pay less than the principal amount of bonds offered for sale or which names a rate of interest higher than the lowest rate of interest stated in any legally acceptable proposal. As between proposals naming the same lowest rate of interest, the proposal offering to accept the least amount of bonds shall be accepted, the bonds to be accepted shall be those first maturing, and as between such proposals, the proposal offering to pay the greatest premium shall be accepted. The amount of premium bid for the bonds shall in no event exceed $1,000.00 for the principal amount of bonds offered for sale. In order to effect the foregoing, a sufficient number of the last maturing bonds shall be of the denomination of $1,000.00 or less.

e. Bonds may be offered for sale at different rates of interest for the same issue or different rates of interest for different issues, or parts thereof, or bidders may be requested to name any such rates of interest. No proposal shall be considered which offers to pay an amount less than the principal amount of bonds offered for sale or under which the total loan is made at an interest cost higher than the lowest net interest cost to the local unit under any legally acceptable proposal. Such net interest cost shall be computed in each instance by adding to the total principal amount of bonds bid for, the total interest cost to maturity in accordance with such bid and by deduction therefrom of the amount of premium, if any, bid.

f. The governing body may establish additional terms or conditions of sale.

g. All bidders with regard to a transaction involving an issuer that is either a city of the first class or a county shall be on the list of qualified bond underwriters maintained by the Local Finance Board pursuant to section 3 of P.L. , c. (C. ) (pending before the Legislature as this bill). Notwithstanding any qualified minority business enterprise set-aside program established by a governing body pursuant to section 2 of P.L.1985, c.482 (C.40A:11-42), the Local Finance Board shall promulgate rules and regulations establishing procedures to ensure that appropriate consideration will be given to New Jersey-based vendors and vendors with significant minority or women ownership by those issuers.

(cf: N.J.S.40A:2-32)

11. N.J.S.40A:2-38 is amended to read as follows:

40A:2-38. In the issuance or sale of obligations, it shall be unlawful for the governing body or any member thereof or any official:

a. To pay or agree to pay, directly or indirectly, any bonus, commission, fee or other compensation or consideration for the issuance or for the sale of obligations, and any amount so paid may be recovered for the local unit;

b. To make any agreement with any purchaser or bidder, or his representative, regarding the deposit or disposition or any moneys received or to be received from such sale and every such agreement shall be void;

c. To make any agreement pertaining to the sale of obligations which contains provisions as to any other matter, and such sale and any such agreement shall be void;

d. To make any agreement or "service contract" with respect to publication of notice of sale and printing of bonds or notes, the providing of a legal opinion or for any of such services, whether or not accompanied by an offer to bid for or purchase obligations. Any such agreement or contract shall be void, and any amount so paid may be recovered for the local unit; except, however, agreements made directly with a newspaper, bond printer or an attorney licensed to practice law in the State in which he has his office.

A municipal bond dealer, banker, or financial expert may be engaged or employed as a financial advisor to provide financial services in connection with the sale of obligations, including the preparation of a bidding circular or prospectus. The engagement or employment of a municipal bond dealer, banker, or financial expert as a financial advisor by an issuer that is either a city of the first class or a county shall be in accordance with the requirements of section 4 of P.L. , c. (C. ) (pending before the Legislature as this bill). The financial advisor may bid for obligations offered by the issuer at public sale. The financial advisor shall not purchase any such obligations at any private sale, but any such purchase shall not affect the validity of the obligations, and the local unit shall recover any compensation and profit resulting therefrom to such financial advisor.

(cf: P.L.1981, c.268, s.1)

12. Section 1 of P.L.1973, c.114 (C.40A:2-38.1) is amended to read as follows:

1. a. For any bond transaction when the issuer is either a city of the first class or a county, the issuer shall request in writing to the Local Finance Board that bond counsel be appointed. A selection committee consisting of a representative of the issuer and two members of the Local Finance Board, or their designees, shall select not more than five firms from a qualified list as provided for in section 2 of P.L. , c. (C. ) (pending before the Legislature as this bill). The committee shall request each of the five firms to submit its fees for the bond issue in the form of hourly charges for each level of attorney assigned, and as a maximum charge for the anticipated work. The committee may set other conditions or request other information. The committee shall prepare a written report on the reasons for selection of the firm assigned the work. The report shall be made available to the public.

b. No county, municipality or other political subdivision of the State or any board, commission or agency thereof, shall compensate an attorney for services rendered in connection with the issuance of bonds other than at a reasonable rate agreed on prior to the rendering of the services.

(cf: P.L.1973, c.114, s.1)

13. Section 5 of P.L.1971, c.198 (C.40A:11-5) is amended to read as follows:

5. Exceptions. Any purchase, contract or agreement of the character described in section 4 of [this act] P.L.1971, c.198 (C.40A:11-5) may be made, negotiated or awarded by the governing body without public advertising for bids and bidding therefor if:

(1) The subject matter thereof consists of:

(a) (i) Professional services, other than by a bond underwriter, financial advisor or bond counsel employed by either a city of the first class or a county. The governing body shall in each instance state supporting reasons for its action in the resolution awarding each contract and shall forthwith cause to be printed once, in a newspaper authorized by law to publish its legal advertisements, a brief notice stating the nature, duration, service and amount of the contract, and that the resolution and contract are on file and available for public inspection in the office of the clerk of the county or municipality, or, in the case of a contracting unit created by more than one county or municipality, of the counties or municipalities creating such contracting unit; or (ii) Extraordinary unspecifiable services. The application of this exception shall be construed narrowly in favor of open competitive bidding, where possible, and the Division of Local Government Services is authorized to adopt and promulgate rules and regulations limiting the use of this exception in accordance with the intention herein expressed. The governing body shall in each instance state supporting reasons for its action in the resolution awarding each contract and shall forthwith cause to be printed, in the manner set forth in subsection (1)(a)(i) of this section, a brief notice of the award of such contract;

(b) The doing of any work by employees of the contracting unit;

(c) The printing of legal briefs, records and appendices to be used in any legal proceeding in which the contracting party may be a party;

(d) The furnishing of a tax map or maps for the contracting party;

(e) The purchase of perishable foods as a subsistence supply;

(f) The supplying of any product or the rendering of any service by a public utility, which is subject to the jurisdiction of the Board of Public Utilities or the U.S. Federal Energy Regulatory Commission or its successor, in accordance with tariffs and schedules of charges made, charged or exacted, filed with the board or commission;

(g) The acquisition, subject to prior approval of the Attorney General, of special equipment for confidential investigation;

(h) The printing of bonds and documents necessary to the issuance and sale thereof by a contracting unit;

(i) Equipment repair service if in the nature of an extraordinary unspecifiable service and necessary parts furnished in connection with such service, which exception shall be in accordance with the requirements for extraordinary unspecifiable services;

(j) The publishing of legal notices in newspapers as required by law;

(k) The acquisition of artifacts or other items of unique intrinsic, artistic or historical character;

(l) Election expenses;

(m) Insurance, including the purchase of insurance coverage and consultant services, which exception shall be in accordance with the requirements for extraordinary unspecifiable services;

(n) The doing of any work by handicapped persons employed by a sheltered workshop;

(o) The provision of any service or the furnishing of materials including those of a commercial nature, attendant upon the operation of a restaurant by any nonprofit, duly incorporated, historical society at or on any historical preservation site;

(p) Homemaker--home health services performed by voluntary, nonprofit agencies;

(q) The purchase of materials and services for a law library established pursuant to R.S.40:33-14, including books, periodicals, newspapers, documents, pamphlets, photographs, reproductions, microforms, pictorial or graphic works, copyright and patent materials, maps, charts, globes, sound recordings, slides, films, filmscripts, video and magnetic tapes, and other audiovisual, printed, or published material of a similar nature; necessary binding or rebinding of law library materials; and specialized library services;

(r) On-site inspections undertaken by private agencies pursuant to the "State Uniform Construction Code Act" (P.L.1975, c.217; C.52:27D-119 et seq.) and the regulations adopted pursuant thereto;

(s) The marketing of recyclable materials recovered through a recycling program, or the marketing of any product intentionally produced or derived from solid waste received at a resource recovery facility or recovered through a resource recovery program, including, but not limited to, refuse-derived fuel, compost materials, methane gas, and other similar products;

(t) Emergency medical services provided by a hospital to the residents of a municipality or county, provided that: (a) such exception be allowed only after the governing body determines that the emergency services are available only from one provider; and (b) if the contract is awarded without advertising for bids or bidding the governing body shall in each instance state supporting reasons for its action in a resolution awarding the contract and cause to be printed once in a newspaper authorized by law to publish its legal advertisements a brief notice stating the nature, duration, service, and amount of the contract; and (c) the contract shall be kept on file for public inspection in the office of the clerk of the municipality;

(u) Contracting unit towing and storage contracts, provided that all such contracts shall be pursuant to reasonable non-exclusionary and non-discriminatory terms and conditions, which may include the provision of such services on a rotating basis, at the rates and charges set by the municipality pursuant to section 1 of P.L.1979, c.101 (C.40:48-2.49). All contracting unit towing and storage contracts for services to be provided at rates and charges other than those established pursuant to the terms of this paragraph shall only be awarded to the lowest responsible bidder in accordance with the provision of the "Local Public Contracts Law" and without regard for the value of the contract therefor. Each of the aforementioned means of contracting shall be subject to any regulations adopted by the Commissioner of Insurance pursuant to section 60 of P.L.1990, c.8 (C.17:33B-47);

(v) The purchase of steam or electricity from, or the rendering of services directly related to the purchase of such steam or electricity from a qualifying small power production facility or a qualifying cogeneration facility as defined pursuant to 16 U.S.C. §796;

(w) The purchase of electricity or adminstrative or dispatching services directly related to the transmission of such purchased electricity by a contracting unit engaged in the generation of electricity; [or]

(x) The printing of municipal ordinances or other services necessarily incurred in connection with the revision and codification of municipal ordinances; or

(y) An agreement for the purchase of an equitable interest in a water supply facility or for the provision of water supply services entered into pursuant to section 2 of P.L.1993, c.381 (C.58:28-2), or an agreement entered into pursuant to P.L.1989, c.109 (N.J.S.40A:31-1 et al.), so long as such agreement is entered into no later than six months after the effective date of P.L.1993, c.381.

(2) It is to be made or entered into with the United States of America, the State of New Jersey, county or municipality or any board, body, officer, agency or authority thereof and any other state or subdivision thereof.

(3) The contracting agent has advertised for bids pursuant to section 4 of P.L.1971, c.198 (C.40A:11-4) on two occasions and (a) has received no bids on both occasions in response to its advertisement, or (b) the governing body has rejected such bids on two occasions because the contracting agent has determined that they are not reasonable as to price, on the basis of cost estimates prepared for or by the contracting agent prior to the advertising therefor, or have not been independently arrived at in open competition, or (c) on one occasion no bids were received pursuant to (a) and on one occasion all bids were rejected pursuant to (b), in whatever sequence; any such contract or agreement may then be negotiated and may be awarded upon adoption of a resolution by a two-thirds affirmative vote of the authorized membership of the governing body authorizing such contract or agreement; provided, however, that:

(i) A reasonable effort is first made by the contracting agent to determine that the same or equivalent materials or supplies, at a cost which is lower than the negotiated price, are not available from an agency or authority of the United States, the State of New Jersey or of the county in which the contracting unit is located, or any municipality in close proximity to the contracting unit;

(ii) The terms, conditions, restrictions and specifications set forth in the negotiated contract or agreement are not substantially different from those which were the subject of competitive bidding pursuant to section 4 of [this act] P.L.1971, c.198 (C.40A:11-4); and

(iii) Any minor amendment or modification of any of the terms, conditions, restrictions and specifications, which were the subject of competitive bidding pursuant to section 4 of [this act] P.L.1971, c.198 (C.40A:11-4), shall be stated in the resolution awarding such contract or agreement; provided further, however, that if on the second occasion the bids received are rejected as unreasonable as to price, the contracting agent shall notify each responsible bidder submitting bids on the second occasion of its intention to negotiate, and afford each bidder a reasonable opportunity to negotiate, but the governing body shall not award such contract or agreement unless the negotiated price is lower than the lowest rejected bid price submitted on the second occasion by a responsible bidder, is the lowest negotiated price offered by any responsible supplier, and is a reasonable price for such work, materials, supplies or services.

Whenever a contracting unit shall determine that a bid was not arrived at independently in open competition pursuant to subsection (3) of this section it shall thereupon notify the county prosecutor of the county in which the contracting unit is located and the Attorney General of the facts upon which its determination is based, and when appropriate, it may institute appropriate proceedings in any State or federal court of competent jurisdiction for a violation of any State or federal antitrust law or laws relating to the unlawful restraint of trade.

(cf: P.L.1993, c.381, s.4)

14. This act shall take effect immediately and shall apply to bond transactions commenced on the first day of the seventh month next following enactment.

STATEMENT

This bill is intended to ensure that professional services contracted for by either cities of the first class or counties with regard to the sale of bonds are subject to competitive bidding.

The bill ensures that all sales of bonds by either a city of the first class or a county shall be contracted for only after public advertisement and full and free competition. Further, any bond underwriter, financial advisor or bond counsel engaged by either a city of the first class or a county must be selected from a prequalified list maintained by the Local Finance Board. The selection of a financial advisor would be made by the Local Finance Board from its prequalified list on a rotational basis. Bond underwriters for those local units would be selected through public bidding as provided in the "Local Bond Law," N.J.S.40A:2-1 et seq.

In any case in which extraordinary circumstances dictate that a bond transaction be negotiated, upon written application the Local Finance Board may grant a waiver of the advertising requirements of N.J.S.40A:2-30 and the bidding requirements of N.J.S.40A:2-32. The Local Finance Board must make its determination within 40 days of receipt of the written request for a waiver. The finding of extraordinary circumstances to justify a waiver must be based on the novelty of the financing issues and the complexity of the issuance, and must be specific to the particular bond sale. The written application for the waiver must be made public along with the response of the Local Finance Board.

The bill specifically removes bond underwriters, financial advisors and bond counsel from the professional services exception in the "Local Public Contracts Law," section 5 of P.L.1971, c.198 (C.40A:11-5), with regard to transactions involving either a city of the first class or a county. The Local Finance Board is required to promulgate rules and regulations establishing procedures to ensure that appropriate consideration is given to New Jersey-based vendors and vendors with significant minority or women ownership.

Sets forth procedures for selection of underwriters, financial advisors and counsel for county and first class city bond transactions.