By: Montford S.B. No. 1271 A BILL TO BE ENTITLED AN ACT 1-1 relating to the establishment of an intercept program to increase 1-2 the credit rating of certain local government debt and authorizing 1-3 the comptroller of public accounts to withhold local government 1-4 funds to pay such obligations under certain circumstances. 1-5 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-6 SECTION 1. Chapter 271, Local Government Code, is amended by 1-7 adding Subchapter E to read as follows: 1-8 SUBCHAPTER E. STATE INTERCEPT TO INCREASE CREDIT RATING 1-9 Sec. 271.091. DEFINITIONS. In this subchapter: 1-10 (1) "Local government" means a municipality, county, 1-11 or hospital district of the State of Texas. 1-12 (2) "Payment" means any sales tax allocation which is 1-13 transferred by the state to the local government, excluding county 1-14 sales taxes authorized pursuant to Chapter 285, 775, or 776, Health 1-15 and Safety Code, and municipal sales taxes authorized pursuant to 1-16 the Development Corporation Act (Article 5190.6, Vernon's Texas 1-17 Civil Statutes). 1-18 (3) "Paying agent" means the financial institution 1-19 that is designated by a local government as its agent for the 1-20 payment of the principal of and interest on the obligation. 1-21 (4) "Obligation" means bonds, notes, certificates of 1-22 obligation, and other obligations authorized to be issued by the 1-23 local government. 2-1 (5) "Agreement" means the document referred to in 2-2 Section 271.092 and Section 271.093. 2-3 (6) "Board" means the bond review board created by 2-4 Chapter 1078, Acts of the 70th Legislature, Regular Session, 1987 2-5 (Article 717k-7, Vernon's Texas Civil Statutes). 2-6 (7) "Comptroller" means the comptroller of public 2-7 accounts. 2-8 Sec. 271.092. AGREEMENT WITH TEXAS BOND REVIEW BOARD AND 2-9 COMPTROLLER. Prior to the issuance of any obligation, the 2-10 governing body of any local government may notify the board of the 2-11 proposed issuance of an obligation and enter into an agreement with 2-12 the board to authorize and direct the comptroller to withhold from 2-13 such local government sufficient money from any payment to which 2-14 such local government may be entitled and apply so much as shall be 2-15 necessary to pay the principal of and interest on such obligation 2-16 then due and to continue withholding additional payments until an 2-17 amount sufficient to satisfy the amount then due has been met. 2-18 Sec. 271.093. FORM OF AGREEMENT; CONDITIONS. (a) The 2-19 agreement shall set forth the following: 2-20 (1) the proposed date of issuance of the obligation 2-21 and the name and series of the proposed obligation; 2-22 (2) each payment date with respect to the obligation 2-23 and the principal of and interest on the obligation coming due on 2-24 each such date; and 2-25 (3) the name and address of the financial institution 3-1 serving as paying agent for the obligation to whom any payment by 3-2 the comptroller should be made. 3-3 (b) This subchapter does not require or permit the state to 3-4 make an appropriation to any local government and shall not be 3-5 construed as creating an indebtedness of the state. Any agreement 3-6 made pursuant to this subchapter shall contain a statement to that 3-7 effect. 3-8 (c) The agreement terminates at the time the final payment 3-9 of the principal of and interest on the obligation is made or the 3-10 obligation is refunded. 3-11 Sec. 271.094. NOTICE, DEPOSIT OF DEBT SERVICE, 3-12 AUTHORIZATION, AND TRANSMITTAL. (a) If a local government enters 3-13 into an agreement with the board under Section 271.092, the board 3-14 on notification from the local government, the custodian bank, or 3-15 the paying agent for the local government that the local government 3-16 is unable or has failed to pay amounts as required by the agreement 3-17 or to pay principal of or interest on the obligation when due, 3-18 shall notify the comptroller, who shall withhold sufficient money 3-19 from any payment to which such local government may be entitled and 3-20 apply so much thereof as shall be necessary to pay the amounts then 3-21 due as provided in this section. 3-22 (b) The local government may in the agreement agree to make 3-23 monthly deposits of one-sixth of the semiannual debt service 3-24 requirement, or such other amount at such other times as specified 3-25 in the agreement, into an interest and sinking fund in a custodian 4-1 bank. If a bank agrees to serve as custodian for the interest and 4-2 sinking fund, it shall be the duty of the bank to notify the board 4-3 if the agreed upon amount of funds is not deposited each month or 4-4 other specified time on a timely basis as specified in the 4-5 agreement. 4-6 (c) On receiving notification and direction from the board, 4-7 the comptroller is authorized to withhold from any payment an 4-8 amount equal to the amount to have been deposited by the local 4-9 government pursuant to the agreement. The comptroller shall 4-10 continue to withhold payments until the required amounts have been 4-11 deposited in the interest and sinking fund with the custodian bank 4-12 or with the paying agent. If the required amounts have not been 4-13 deposited at the time interest on or principal of the obligation of 4-14 the local government is required to be deposited pursuant to the 4-15 agreement, the comptroller shall transmit, from payments withheld, 4-16 the appropriate amount to the custodian bank or to the paying 4-17 agent, as directed by the board. 4-18 (d) The board shall cause a copy of any notice given 4-19 pursuant to this section to be promptly given to the local 4-20 government. 4-21 Sec. 271.095. RIGHT TO PLEDGE PAYMENTS. (a) The local 4-22 government may pledge payments to secure any obligation only if the 4-23 amount of payments received by the local government in the fiscal 4-24 year of the state preceding the proposed issuance equals or exceeds 4-25 the amount required in each year to pay the sum of an amount equal 5-1 to two times (i) the maximum annual principal and interest 5-2 requirements for the obligation, and (ii) the maximum annual 5-3 principal and interest requirements on any additional obligation 5-4 for which payments have been pledged. The local government shall 5-5 provide evidence that these requirements are met. 5-6 (b) A pledge of payments pursuant to this subchapter is a 5-7 first priority for application of payments and the comptroller 5-8 shall apply such payments as provided by this subchapter prior to 5-9 applying such payments pursuant to any other authorization to 5-10 withhold or intercept such payments. 5-11 (c) While obligations which are the subject of an agreement 5-12 remain outstanding, the local government may not repeal the sales 5-13 tax or reduce the rate of the sales tax below the rate that would 5-14 provide the amount required by Subsection (a), except as provided 5-15 by this subsection. If at an election duly held in accordance with 5-16 law a majority of the qualified voters approve the repeal of the 5-17 sales tax, the local government shall, at the earliest practicable 5-18 time, refund or defease the obligations, and after such defeasance 5-19 or refunding the repeal shall become effective in accordance with 5-20 law. If the qualified voters vote to reduce the rate of the sales 5-21 tax, if such is provided for by law, below that which is required 5-22 to provide the amount required by Subsection (a), the local 5-23 government shall, at the earliest practicable time, refund or 5-24 defease the obligations, and after such defeasance or refunding the 5-25 reduction in rate shall become effective in accordance with law. 6-1 Sec. 271.096. ADMINISTRATION, RULES, FEES. The board shall 6-2 administer the implementation of this subchapter and may adopt 6-3 rules and set fees necessary for its administration. 6-4 SECTION 2. The importance of this legislation and the 6-5 crowded condition of the calendars in both houses create an 6-6 emergency and an imperative public necessity that the 6-7 constitutional rule requiring bills to be read on three several 6-8 days in each house be suspended, and this rule is hereby suspended, 6-9 and that this Act take effect and be in force from and after its 6-10 passage, and it is so enacted.