80R6599 JJT-F
 
  By: West, Royce S.B. No. 968
 
 
 
   
 
 
A BILL TO BE ENTITLED
AN ACT
relating to financing tools for certain obligations for public
improvements.
       BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
       SECTION 1.  Section 1371.001, Government Code, is amended by
amending Subdivisions (1), (2), (4), (5), (7), and (8) and adding
Subdivision (9) to read as follows:
             (1)  "Credit agreement" means a loan agreement,
revolving credit agreement, agreement establishing a line of
credit, letter of credit, reimbursement agreement, insurance
contract, commitment to purchase obligations [an obligation],
purchase or sale agreement, interest rate management [swap]
agreement, or other commitment or [other] agreement authorized by a
governing body in anticipation of, related to, or in connection
with the authorization, issuance, sale, resale, security,
exchange, payment, purchase, remarketing, or redemption of some or
all of an issuer's obligations or interest on obligations [an
obligation, interest on an obligation], or both, or as otherwise
authorized by this chapter.
             (2)  "Eligible project" means:
                   (A)  the acquisition or construction of or an
improvement, addition, or extension to a public works, including a
capital asset or facility incident and related to the operation,
maintenance, or administration of the public works, and:
                         (i)  with respect to a property or a facility
for the generation of electric power and energy, fuel acquisition
or the development or transportation of power, energy, or fuel;
                         (ii)  with respect to a property or a
facility for a public transportation system:
                               (a)  a building, terminal, garage,
shop, or other structure, rolling stock, equipment, or another
facility for mass public transportation; or
                               (b)  a vehicle parking area or a
facility necessary or convenient for the beneficial use and access
of persons and vehicles to a station, terminal, yard, car, or bus,
or for the protection or environmental enhancement of a facility
for mass public transportation; and
                         (iii)  with respect to a property or a
facility for a port facility, a wharf or dock, a warehouse, grain
elevator, or other storage facility, a bunkering facility,
port-related railroad or bridge, floating plant or facility,
lightering facility, cargo handling facility, towing facility, or
any other facility or aid incident to or useful in the operation of
a port facility;
                   (B)  a causeway, bridge, tunnel, turnpike,
highway, or combination of those facilities, including:
                         (i)  a necessary overpass, underpass,
interchange, entrance plaza, tollhouse, service station, approach,
fixture, accessory, or item of equipment, or a storage,
administration, or other necessary building; and
                         (ii)  a property right or other interest
acquired in connection with those facilities;
                   (C)  a public improvement owned by a county that
serves the purpose of attracting visitors and tourists to the
county, including a civic center, auditorium, exhibition hall,
coliseum, stadium, or parking area;
                   (D)  a project for which there exists authorized
but unissued obligations approved by a majority of the voters of the
issuer or for which the issuer is authorized to issue other
indebtedness [, including obligations] payable from ad valorem
taxes;
                   (E)  a project for which an issuer is authorized
to issue revenue bonds secured, in whole or in part, by revenue
derived from or related to student loans; or
                   (F)  an approved venue project under Chapter 334
or 335, Local Government Code.
             (4)  "Issuer" means:
                   (A)  a home-rule municipality that:
                         (i)  adopted its charter under Section 5,
Article XI, Texas Constitution;
                         (ii)  has a population of 50,000 or more;
and
                         (iii)  has outstanding long-term
indebtedness that is rated by a nationally recognized rating agency
for municipal securities in one of the four highest rating
categories for a long-term obligation;
                   (B)  a conservation and reclamation district
created and organized as a river authority under Section 52,
Article III, or Section 59, Article XVI, Texas Constitution;
                   (C)  a joint powers agency organized and operating
under Chapter 163, Utilities Code;
                   (D)  a metropolitan rapid transit authority or
regional transportation authority created, organized, and
operating under Chapter 451 or 452, Transportation Code;
                   (E)  a conservation and reclamation district
organized or operating as a navigation district under Section 52,
Article III, or Section 59, Article XVI, Texas Constitution;
                   (F)  a district organized or operating under
Section 59, Article XVI, Texas Constitution, that has all or part of
two or more municipalities within its boundaries;
                   (G)  a state agency, including a state institution
of higher education;
                   (H)  a hospital authority created or operating
under Chapter 262 or 264, Health and Safety Code, in a county that:
                         (i)  has a population of more than 3.3
million; or
                         (ii)  is included, in whole or in part, in a
standard metropolitan statistical area of this state that includes
a county with a population of more than 2.2 million;
                   (I)  a hospital district in a county that has a
population of more than two million;
                   (J)  a nonprofit corporation organized to
exercise the powers of a higher education loan authority under
Section 53B.47(e), Education Code;
                   (K)  a county:
                         (i)  that has a population of 3.3 million or
more; or
                         (ii)  that, on the date of issuance of
obligations under this chapter, has authorized, outstanding, or any
combination of authorized and outstanding, indebtedness of at least
$100 million secured by and payable from the county's ad valorem
taxes and the authorized long-term indebtedness of which is rated
by a nationally recognized rating agency of securities issued by
local governments in one of the four highest rating categories for a
long-term obligation;
                   (L)  an independent school district that has an
average daily attendance of 50,000 or more as determined under
Section 42.005, Education Code;
                   (M)  a municipality or county operating under
Chapter 334, Local Government Code;
                   (N)  a district created under Chapter 335, Local
Government Code; [or]
                   (O)  a junior college district that has a total
headcount enrollment of 40,000 or more based on enrollment in the
most recent regular semester; or
                   (P)  an issuer, as defined by Section 1201.002,
that has:
                         (i)  a principal amount of at least $100
million in outstanding long-term indebtedness, in long-term
indebtedness proposed to be issued, or in a combination of
outstanding or proposed long-term indebtedness; and
                         (ii)  some amount of long-term indebtedness
outstanding or proposed to be issued that is rated in one of the
four highest rating categories for long-term debt instruments by a
nationally recognized rating agency for municipal securities.
             (5)  "Obligation" means a public security as defined by
Section 1201.002 or other [special] obligation that may [authorized
to] be issued by an issuer and that is expected to be rated, and 
before delivery[,] is rated, by a nationally recognized rating
agency for municipal securities in one of the three highest rating
categories for a short-term debt instrument or one of the four
highest rating categories for a long-term debt instrument. The
term does not include an obligation payable wholly or partly from ad
valorem taxes unless:
                   (A)  issuance of the obligation or an obligation
refunded by the obligation has been approved by the voters of the
issuer in an election held for that purpose; or
                   (B)  the issuer:
                         (i)  is authorized by law to issue public
securities payable wholly or partly from ad valorem taxes for the
purpose for which the obligation is to be issued; and
                         (ii)  has complied with any conditions
imposed by law before its pledge of ad valorem taxes to pay the
principal of or interest on the obligation [except as specifically
permitted by this chapter].
             (7)  "Project cost" means a cost or expense incurred in
relation to an eligible project. The term includes:
                   (A)  design, planning, engineering, and legal
cost;
                   (B)  acquisition cost of land or an interest in
land;
                   (C)  construction cost;
                   (D)  cost of machinery, equipment, and other
capital assets incident and related to the operation, maintenance,
and administration of an eligible project; and
                   (E)  financing cost, including:
                         (i)  interest on obligations and payments on
credit agreements during and after construction;
                         (ii)  underwriter's discount or fee; and
                         (iii)  cost of legal, financial, and other
professional services.
             (8)  "Public works" means property or a facility for:
                   (A)  the conservation, storage, supply,
treatment, or transmission of water;
                   (B)  the treatment, collection, or disposal of
water-carried wastes or solid wastes;
                   (C)  the generation, transmission, or
distribution of electric power and energy;
                   (D)  the acquisition, distribution, or storage of
gas;
                   (E)  a transit authority system, as defined by
Section 451.001, Transportation Code, or a public transportation
system, as defined by Section 452.001 [Chapter 452], Transportation
Code;
                   (F)  an airport as defined by Section 22.001,
Transportation Code;
                   (G)  a port facility, including a facility for the
operation or development of a port or waterway or in aid of
navigation or navigation-related commerce in a port or on a
waterway;
                   (H)  a project as defined by Section 284.001,
Transportation Code; or
                   (I)  the carrying out of a purpose or function for
which an issuer may issue public securities.
             (9)  "Interest rate management agreement" means an
agreement that provides for an interest rate transaction, including
a swap, basis, forward, option, cap, collar, floor, lock, or hedge
transaction, a similar transaction, or any combination of those
types of transactions. The term includes:
                   (A)  a master agreement that provides standard
terms for transactions;
                   (B)  an agreement to transfer collateral as
security for transactions; or
                   (C)  a confirmation of transactions.
       SECTION 2.  Section 1371.003(a), Government Code, is amended
to read as follows:
       (a)  This chapter is wholly sufficient authority within
itself for the issuance of obligations, the execution of a credit
agreement, and the performance of the other acts and procedures
authorized by this chapter or under any agreement, without
reference to any other laws or any restrictions or limitations
contained in those laws. Any restrictions or limitations contained
in other laws do not apply to the procedures prescribed by this
chapter or to the issuance of obligations, the execution of credit
agreements, or the performance of other acts authorized by this
chapter.
       SECTION 3.  Section 1371.051, Government Code, is amended to
read as follows:
       Sec. 1371.051.  AUTHORITY TO ISSUE OBLIGATION. As
authorized and approved by the governing body of an issuer, the
governing body may issue, sell, and deliver an obligation to:
             (1)  finance a project cost;
             (2)  refund an obligation issued in connection with an
eligible project; or
             (3)  finance all or part of a payment owed or to be owed
on:
                   (A)  the establishment of a [an interest rate
lock, interest rate hedging agreement, or other] credit agreement;
or
                   (B)  the settlement or termination, at maturity or
otherwise, of a [an interest rate lock, interest rate hedging
agreement, or other] credit agreement, whether the settlement or
termination occurs:
                         (i)  at the option of the issuer or the other
party to the credit agreement; or
                         (ii)  by operation of the terms of the credit
agreement.
       SECTION 4.  Section 1371.056, Government Code, is amended to
read as follows:
       Sec. 1371.056.  AUTHORITY TO ENTER INTO AND EXECUTE CREDIT
AGREEMENTS. (a)  An issuer [A governing body] may execute and
deliver any number of credit agreements in anticipation of, related
to, or [authorize the execution and delivery of a credit agreement]
in connection with [or related to] the authorization, issuance,
security, purchase, payment, sale, resale, redemption,
remarketing, or exchange of some or all of the issuer's obligations
or interest on obligations, or both, [an obligation] at any time,
without regard to whether the:
             (1)  obligations have been authorized or issued; or
             (2)  [a] credit agreement was contemplated,
authorized, or executed in relation to the initial issuance, sale,
or delivery of the obligations [obligation].
       (b)  Except as provided by this section, a [A] credit
agreement must substantially contain the terms and be for the
period the governing body approves. A credit agreement may provide
that it:
             (1)  may be terminated with or without cause;  or
             (2)  becomes effective at the option of another party
to the credit agreement, if the governing body first finds that the
option serves best the interests of the issuer.
       (c)  The governing body may delegate to any number of
officers or employees of the issuer the authority to approve
specific terms of, to execute and deliver, or to terminate or amend
in accordance with its terms, a credit agreement or transactions
under a credit agreement on the behalf of the issuer, subject to any
condition the governing body specifies. The delegation must include
limits on:
             (1)  the principal amount or the notional amount;
             (2)  the term;
             (3)  the rate;
             (4)  the source of payment;
             (5)  the security;
             (6)  the identity or credit rating of an authorized
counterparty;
             (7)  the duration of the authorization; and
             (8)  for an interest rate management agreement, the:
                   (A)  fixed or floating rates;
                   (B)  economic consequences;
                   (C)  early termination provisions;
                   (D)  type;
                   (E)  provider; and
                   (F)  costs of credit enhancement.
       (d)  The cost to the issuer of a credit agreement or payments
owed by an issuer under a credit agreement may be paid from and
secured by any source, including:
             (1)  the proceeds from the sale of the obligation to
which the credit agreement relates;
             (2)  any revenue and money of the issuer that is
available to pay the obligation;
             (3)  any interest on the obligation or that may
otherwise be legally used; or
             (4)  ad valorem taxes if the credit agreement is
authorized in anticipation of, in relation to, or in connection
with an obligation that is wholly or partly payable from or is to be
wholly or partly payable from ad valorem taxes [to the extent
permitted by this chapter].
       (e) [(d)]  A credit agreement is an agreement for
professional services but is not a contract subject to Subchapter
I, Chapter 271, Local Government Code.
       (f)  If a credit agreement is authorized and is executed in
anticipation of the issuance of an obligation described by Section
1371.001(5)(B) because the issuer is authorized by Subchapter C,
Chapter 271, Local Government Code, to issue certificates of
obligation:
             (1)  notice required by Section 271.049, Local
Government Code, in addition to the other requirements for the
notice, must describe the time and place tentatively set for the
adoption of the order or ordinance authorizing the credit
agreement, the maximum amount and term of the obligations and
credit agreement, and the manner in which the certificates of
obligation and credit agreement will be paid; and
             (2)  the issuer may enter into the credit agreement and
issue the certificates of obligation only if:
                   (A)  the municipal secretary or clerk or person
with similar authority does not receive a petition signed by at
least five percent of the registered voters of the issuer that
protests the issuance of the certificates of obligation or the
execution of the credit agreement before the later of the date
tentatively set for the adoption of the order or ordinance to
authorize the credit agreement or the date the order or ordinance is
adopted;
                   (B)  the issuance and execution are approved at an
election held for that purpose conducted as provided for a bond
election under Chapter 1251; or
                   (C)  notice is not required by Section 271.049,
Local Government Code, before the certificates of obligation are
authorized.
       (g)  Payments received by an issuer under a credit agreement
or on termination of all or part of a credit agreement may be used
to:
             (1)  pay the obligations in anticipation of which, in
relation to which, or in connection with which the credit agreement
was entered into;
             (2)  pay other liabilities or expenses that are secured
on parity with or senior to the obligations in anticipation of
which, in relation to which, or in connection with which the credit
agreement was entered into; or
             (3)  after the satisfaction of the obligations,
liabilities, and expenses described by Subdivisions (1) and (2)
that are due, make payments for any other purpose for which the
issuer may issue obligations under this subchapter or that is
otherwise authorized by law, unless the credit agreement is paid
primarily from ad valorem taxes.
       (h)  An issuer may agree to pay or receive a payment on early
termination of an interest rate management agreement due to a
breach or for another reason as provided by the interest rate
management agreement. The agreement may specify the payment by a
specific amount, by a formula, or by a process or algorithm.
       (i)  A credit agreement secured in the manner described by
Subsection (d)(4) may be executed without an election or the
imposition of an ad valorem tax for the credit agreement unless
required by the Texas Constitution. If the Texas Constitution
requires an election for the credit agreement, the election must be
held substantially in the manner provided for an election under
Chapter 1251.
       (j)  An issuer may enter into an interest rate management
agreement transaction only:
             (1)  if the issuer has either entered into at least
three interest rate management transactions before November 1,
2006, or has entered into one or more interest rate management
transactions with notional amounts totaling at least $400 million
before that date; or
             (2)  as provided by Subsection (k).
       (k)  An issuer may enter into an interest rate management
transaction if:
             (1)  the governing body has adopted, amended, or
ratified during the preceding two years a risk management policy
governing entering into and managing interest rate management
agreements and transactions that addresses:
                   (A)  conditions, if any, under which the issuer
may enter into an interest rate management agreement transaction
without independent advice from a financial advisor or swap advisor
who has experience in interest rate management transactions; and
                   (B)  authorized purposes, permitted types and
creditworthiness of counterparties, credit risks and other risks,
liquidity, methods of selection of counterparties, and limits
concerning awarding a transaction, monitoring, and exposure;
             (2)  the issuer has received from the counterparty:
                   (A)  if the transaction was not awarded through a
competitive bidding process:
                         (i)  a statement that, in the counterparty's
judgment, the difference in basis points between the rate of the
transaction and the mid-market rate for a comparable transaction
falls within the commonly occurring range for comparable
transactions;
                         (ii)  a statement of the amount of the
difference as determined by the counterparty; or
                         (iii)  if the counterparty does not know of a
comparable transaction or mid-market rate, a statement of another
suitable measure of pricing acceptable to the counterparty; and
                   (B)  the counterparty's disclosure of any
payments the counterparty made to another person to procure the
transaction; and
             (3)  the governing body or an authorized officer or
employee of the issuer has determined that the transaction will
conform to the issuer's interest rate management agreement policy
after reviewing a report of the chief financial officer of the
issuer that identifies with respect to the transaction:
                   (A)  its purpose;
                   (B)  the anticipated economic benefit and the
method used to determine the anticipated benefit;
                   (C)  the use of the receipts of the transaction;
                   (D)  the notional amount, amortization, and
average life compared to the related obligation;
                   (E)  any floating indices;
                   (F)  its effective date and duration;
                   (G)  the identity and credit rating of the
counterparties;
                   (H)  the cost and anticipated benefit of
transaction insurance;
                   (I)  the financial advisors and the legal advisors
and their fees;
                   (J)  any security for scheduled and early
termination payments;
                   (K)  any associated risks and risk mitigation
features; and
                   (L)  early termination provisions.
       (l)  While an interest rate management agreement transaction
is outstanding, the governing body of the issuer shall review and
ratify or modify its related risk management policy at least
biennially [(e) Notwithstanding Subsection (b), the governing body
may delegate to an officer or employee the authority, under the
terms and for the period approved by the governing body, to:
             [(1)  enter into a credit agreement and transactions
under a credit agreement; and
             [(2)  execute any instruments in connection with those
transactions].
       SECTION 5.  Section 1371.057, Government Code, is amended to
read as follows:
       Sec. 1371.057.  REVIEW AND APPROVAL OF OBLIGATION, CREDIT
AGREEMENT, AND CONTRACT BY ATTORNEY GENERAL.  (a)  Before an
obligation may be issued or a credit agreement executed, a record of
the proceedings of the issuer authorizing the issuance, execution,
and delivery of the obligation or [, the] credit agreement[,] and
any contract providing revenue or security to pay the obligation or
[the] credit agreement must be submitted to the attorney general
for review.
       (b)  If the attorney general finds that the [credit
agreement, contract, and other authorizing] proceedings
authorizing an obligation or credit agreement conform to the
requirements of the Texas Constitution and this chapter, the
attorney general shall approve them and deliver to the comptroller
a copy of the attorney general's legal opinion stating that
approval and the record of proceedings. After approval, the
obligation or [and] credit agreement may be executed and delivered,
exchanged, or refinanced from time to time in accordance with those
authorizing proceedings.
       (c)  If the [obligation] authorization of an obligation or of
a credit agreement provides that the issuer intends to refinance
the [an] obligation or a payment [loan] under the [a] credit
agreement with refunding bonds issued under Chapter 1207, then the
obligation or payment [loan] shall be treated, for purposes of
attorney general review and approval, as having the intended term
and payment schedule of the refunding bonds.
       SECTION 6.  Section 1371.059, Government Code, is amended to
read as follows:
       Sec. 1371.059.  VALIDITY AND INCONTESTABILITY. (a)  If
proceedings to authorize an obligation or credit agreement are
approved [On approval] by the attorney general and registered [,
registration] by the comptroller, each obligation or [and initial
delivery of the obligation, a] credit agreement, as applicable, or
[,] a contract providing revenue or security included in or
executed and delivered according to [, an initial obligation, and
any obligation subsequently issued under] the authorizing
proceedings is [are] incontestable in a court or other forum and is
[are] valid, [and] binding, and [obligations] enforceable
according to its [their] terms.
       (b)  An issuer in the proceedings to authorize obligations or
a credit agreement, or in a credit agreement, may agree to waive
sovereign immunity from suit or liability for the purpose of
adjudicating a claim to enforce the credit agreement or obligation
or for damages for breach of the credit agreement or obligation.
       SECTION 7.  Subchapter B, Chapter 1371, Government Code, is
amended by adding Section 1371.061 to read as follows:
       Sec. 1371.061.  MANAGEMENT REPORTS. (a)  If a governing
body authorizes an interest rate management agreement transaction,
the governing body shall designate an officer of the issuer to
monitor and report on the transaction. At least annually, the
designated officer shall present to the governing body a written
report, signed by the designated officer, on all outstanding
interest rate management agreement transactions conducted for the
issuer. The report must:
             (1)  describe the terms of the transactions;
             (2)  contain a statement:
                   (A)  of the fair value of each transaction;
                   (B)  of the value of any collateral posted to or by
the issuer under the transactions with each counterparty at the
year's end; and
                   (C)  reviewing the transactions' cash flows;
             (3)  identify with respect to each transaction the
counterparty, any guarantor of the counterparty's obligations
under the transaction, and the credit ratings of the counterparty
and the guarantor; and
             (4)  state whether the continuation of the transactions
under the agreement would comply with the issuer's interest rate
management agreement policy.
       (b)  This section does not apply to an issuer that has
entered into:
             (1)  at least three interest rate management agreement
transactions before November 1, 2006; or
             (2)  one or more interest rate management agreement
transactions with notional amounts totaling at least $400 million
before November 1, 2006.
       SECTION 8.  The changes in law made by this Act apply only to
proceedings related to authorizing the issuance of obligations or
the execution of credit agreements or interest rate management
agreements that are adopted on or after the effective date of this
Act and to transactions related to the obligations or agreements.
Proceedings related to authorizing the issuance of obligations or
the execution of credit agreements or interest rate management
agreements that are adopted before the effective date of this Act,
and transactions related to the obligations or agreements, are
governed by the law in effect on the date the proceedings were
initiated and the former law is continued in effect for that
purpose.
       SECTION 9.  An agreement described by this section is
ratified in all respects, without regard to whether the agreement
to waive sovereign immunity is limited to the extent permitted by
law, if the agreement:
             (1)  is entered into before the effective date of this
Act by an issuer as defined by Section 1371.001(4), Government
Code, that has authority by statute or under its charter to sue and
be sued or to plead and be impleaded; and
             (2)  waives sovereign immunity from suit or liability
for breach of an obligation or of a credit agreement authorized by
Chapter 1371, Government Code.
       SECTION 10.  This Act takes effect September 1, 2007.