A series of municipal debt reform proposals have been reintroduced in the Pennsylvania Senate.

Versions of these proposals have been introduced in every legislative session dating back to the 2013-2014 term, although the proposals have changed somewhat over the years. This session’s bills are number SB 490 through SB 493.

As with bills from past sessions, the current proposals would change the way municipalities obtain approval from the Department of Community and Economic Development (“DCED”) to issue bonds, notes or other public debt, as well as make a number of reforms to those current provisions governing interest rate swaps, performance bonds and municipal authority projects.

The proposals on performance bonds and municipal authority projects are substantially identical to the prior session’s bills. SB 493 amends the performance bond requirements in the Public Works Contractors’ Bond Law of 1967 to address perceived shortcomings identified in 2012 in connection with the City of Harrisburg receivership proceeding. SB 491 prohibits the use of municipal authority debt for non-authority projects, an issue which was also identified in connection with the City of Harrisburg receivership proceeding.

SB 490 makes a number of amendments to the Local Government Unit Debt Act (“LGUDA”) to, among other things, include a preliminary approval requirement for the issuance of public debt, a feature which we’ve covered at length in prior publications. However, SB 490 is not a word-for-word reintroduction of the past session’s bill (SB 340). SB 490 makes some changes to the information required to be included in the application for preliminary approval and also tinkers with the required inclusions in the debt ordinance or resolution that must be enacted or adopted (chiefly by requiring a new “disclosure exhibit”, the form of which DCED will provide).

SB 492 restricts the use of interest rate swaps by municipalities. Originally contemplated as an outright ban in 2013, the proposal was softened in subsequent markups to instead impose restrictions on the use of interest rate swaps. SB 492 largely tracks the prior session’s interest rate swap proposal, SB 342, and imposes a set of standard provisions that must be included in any interest rate management agreement. SB 492, however, adds a few additional provisions on the types of payments permitted to be made under the contract (periodic scheduled payments and termination payments only), and the permissible methods by which such payment amounts may be calculated (fixed or variable based on LIBOR or SIFMA only).

In the 2015-2016 session, all of these proposals (with the exception of interest rate swap reform) were approved on unanimous 50-0 votes by the Senate.  The House failed to act on any of the bills before the end of the session. The 2016-2017 session’s bills have been referred to the Senate Local Government Committee, chaired by Republican Senator Scott Wagner.

Municipal officers and representatives are encouraged to contact their financial professionals or bond counsel if they have questions about the impact of these proposals.