S1812

SENATE, No. 1812

STATE OF NEW JERSEY

INTRODUCED JANUARY 27, 1997

By Senator BENNETT

An Act concerning local unit bonds and amending various sections of statutory law.

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

1. N.J.S.40A:2-29 is amended to read as follows:

40A:2-29. No obligations shall be sold for less than 99% of par value and interest accrued to date of delivery.

(cf: N.J.S.40A:2-29)

2. N.J.S.40A:2-30 is amended to read as follows:

40A:2-30. a. A notice of public sale of bonds containing the provisions described in subsection a. of N.J.S. 40A:2-31 shall be advertised at least once at least seven days prior thereto in a newspaper qualified for publication of a bond ordinance of the local unit. A summary of the notice of public sale of bonds as provided for in subsection b. of N.J.S.40A:2-31 shall be advertised at least once at least seven days prior thereto in a publication carrying municipal bond notices and devoted primarily to financial news or the subject of state and municipal bonds and published in the City of New York or in New Jersey.

b. If a notice of public sale or a summary of the notice of public sale contains a provision that the issuance may be postponed upon not less than 24 hours' notice, as permitted pursuant to subsection c. of N.J.S.40A:2-31, the local unit may conduct the sale upon not less than 48 hours' notice to the prospective bidders and without further publication of a notice of sale or a summary of the notice of sale.

(cf: P.L.1992, c.178, s.3)

3. N.J.S.40A:2-31 is amended to read as follows:

40A:2-31. a. A notice of public sale of bonds required to be advertised pursuant to N.J.S.40A:2-30 shall set forth:

(1) the principal amount, date, denomination and maturities of the bonds offered for sale; however, the local unit may adjust the maturity schedule of the bonds up to 24 hours prior to the time set for the receipt of bids and within 24 hours after the award of bonds, provided that no maturity schedule adjustment after the award of the bonds shall exceed 10% for each issue and 10% for the overall issue;

(2) the rate or rates of interest or maximum rate or rates of interest to be borne by the bonds;

(3) the terms and conditions of such public sale; and

(4) such other provisions as may be determined by the governing body.

b. A summary of the notice of public sale of bonds required to be advertised pursuant to N.J.S.40A:2-30 shall set forth:

(2) the rate or rates of interest or maximum rate or rates of interest to be borne by the bonds; and

(3) a reference to where additional terms and conditions of the public sale may be obtained.

c. In addition to the requirements of subsections a. and b. of this section, a notice of public sale of bonds and a summary of the notice of public sale of bonds may contain provisions informing prospective bidders that the public sale may be postponed upon not less than 24 hours' notice, and that if the public sale is postponed, it may be recommenced upon not less than 48 hours' notice without further notice of sale.

(cf: P.L.1992, c.178, s.4)

4. 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, or submit a financial surety bond, equal to not less than [2%]1% 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. If a financial surety bond is used, it must be from an insurance company licensed to do business in the State of New Jersey and rated at least either Aaa by Moody's Investors Service or AAA by Standard and Poors Corporation, or the equivalent rating by any successor nationally recognized rating agency. The financial surety bond must identify each bidder whose deposit is guaranteed by such financial surety bond. If the winning bidder uses the financial surety bond, then it shall be required to submit its deposit to the local unit in the form of a wire transfer no later than 12:00 noon of the day after the opening of bids. If such deposit is not received by that time, the financial surety bond may be drawn down by the local unit to satisfy the deposit requirement.

b. All bids for bonds shall be publicly opened and announced at the advertised time and place of sale, except upon a postponement and recommencement of the public sale in accordance with the provisions of subsection c. of N.J.S.40A:2-31. 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 or true interest cost to the local unit under any legally acceptable proposal. [Such] The 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 or the addition thereto of the amount of discount, if any, bid. The true interest cost shall be computed in each instance by determining the interest rate, compounded semi-annually, necessary to discount the debt service payments to the date of the bonds and to the price bid, excluding interest accrued to the delivery date.

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

g. The governing body may permit bidders to aggregate consecutive principal maturities into a term bond. For the purposes of this subsection "term bond" means a bond that is due in a certain year but has mandatory retirement provisions for portions of the term bond on specified dates prior to the maturity date of the term bond itself.

h. A local unit may offer for sale variable rate debt. However, no more than 10% of its debt outstanding may be in variable rate debt.

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

5. N.J.S.40A:2-51 is amended to read as follows:

40A:2-51. Any local unit may incur indebtedness, borrow money, authorize and issue [negotiable] refunding bonds, notwithstanding any provision or limitation contained in this chapter or in any other law, and in any amount determined to be necessary by the governing body of the local unit and approved by the Local Finance Board, except as provided in subsection c. of this section, to effect the refunding for the purpose of:

a. Paying, funding or refunding outstanding bonds of the local unit, including emergency appropriations and amounts owing to others for taxes levied in the local unit, or any renewals or extensions thereof, or any bonds issued to fund or refund the same and whether or not prior to the maturity or earliest redemption date of the bonds to be refunded, and

b. Paying the cost of the issuance of such refunding bonds, including printing, advertising, accounting and financial and legal expenses.

c. A local unit may issue refunding bonds for the purpose of realizing debt service savings without approval by the Local Finance Board if (1) the refunding will produce debt service savings in each year, comparing the refunded debt with the refunding debt, and (2) the present value savings ratio, being the present value of the savings divided by the par amount of the refunded bonds, will exceed three percent. The Local Finance Board may establish by rule or regulation such other requirements as it deems prudent.

(cf: P.L.1978, c.36, s.1)

6. This act shall take effect immediately.

STATEMENT

This bill would revise certain parts of the "Local Bond Law," N.J.S.40A:2-1 et seq., in recognition of the changes in the functioning of the municipal bond market due to nearly universal computerization, efficient communications and the introduction of new products that effectively lower an issuer's cost of funds. Specifically, the bill would amend N.J.S.40A:2-29 to permit discount bids. The bill would also amend N.J.S.40A:2-31 to permit a local unit to adjust the maturity schedule of a bond up to 24 hours prior to the time set for the receipt of bids and within 24 hours after the award of the bonds. The purpose of this amendment is to allow the local unit flexibility to account for changes in the market from the time of advertisement to the time of sale. No maturity schedule adjustment greater than 10% would be permitted within the 24 hours after the award of the bonds. N.J.S.40A:2-31 also would be amended to permit the postponement of a public sale up to 24 hours prior to the sale and then the recommencement of the sale upon at least 48 hours notice without further advertisement.

The bill also proposes to amend N.J.S.40A:2-32 to permit the determination of the lowest bidder by using a "true interest cost," as well as to permit up to 10% of an issuer's total outstanding debt to be offered at a variable rate of interest. Currently, the lowest bidder is selected by either selection of the bidder presenting the lowest rate of interest or by using a "net interest cost" method. The true interest cost method is used by the State of New Jersey for its bond sales and differs from the other methods in that it accounts for the time value of money. This statute also would be amended to permit the aggregation of bonds with consecutive maturities by bidders into a term bond which could be marketed at a lower cost. Further N.J.S.40A:2-32 would be amended to permit the use of surety bonds in lieu of a good faith deposit in order to facilitate the bid process. The amount required to be deposited or for which a surety bond would be submitted would be reduced from 2% to 1% of the par amount of the bonds.

Finally, the bill also amends N.J.S.40A:2-51 to permit a local unit to issue refunding bonds without the approval of the Local Finance Board when the refunding will produce debt service savings in each year and when the present value savings ratio will exceed 3%. The bill also permits the Local Finance Board to establish such other requirements as it deems prudent.

Revises "Local Bond Law."