HB-5551, As Passed House, March 16, 2010
October 27, 2009, Introduced by Reps. Moore and Mayes and referred to the Committee on Banking and Financial Services.
A bill to amend 2001 PA 34, entitled
"Revised municipal finance act,"
by amending section 305 (MCL 141.2305).
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
Sec. 305. (1) A municipal security authorized by law to be
issued by a municipality may, notwithstanding the provisions of a
charter, bear no interest as provided in this section or a rate of
interest not to exceed a maximum rate established by the governing
body of the issuing municipality as set forth in its resolution or
ordinance authorizing the issuance of the municipal security, which
rate shall not exceed 18% per annum or a per annum rate determined
by the department at the request of the municipality, whichever is
higher. In making its determination, the department shall establish
a rate that shall bear a reasonable relationship to 80% of the
adjusted prime rate determined by the department under section 23
of 1941 PA 122, MCL 205.23. Except as otherwise provided in this
section, the rate determined by the department shall be conclusive
as to the maximum rate of interest permitted for a municipal
security issued under this act.
(2) Except as provided in subsection (3) or (9), a municipal
security issued under this act shall not be sold at a discount
exceeding 10% of the principal amount of the municipal security.
The amortization of the discount shall be considered interest and
shall be within the interest rate limitation set forth in
subsection (1).
(3) A municipal security may be sold at a discount exceeding
10% of the principal amount of the municipal security only if 1 or
more of the following conditions apply, as determined by the
department:
(a) The sale will result in the more even distribution for the
municipality of total debt service on proposed and outstanding
municipal securities.
(b) The sale will result in an interest cost savings when
compared to the best available alternative that does not include a
municipal security being sold at a discount exceeding 10% of the
principal amount.
(c) The issuance is based on the availability of specific
revenues previously pledged for another purpose and lawfully
available for this purpose.
(d) The municipal security is issued to this state or the
federal government to secure a loan or agreement.
(4) A municipal security issued in accordance with subsection
(3)(a), (b), or (c) shall be rated investment grade by a nationally
recognized rating agency or have insurance for payment of the
principal and interest on the municipal security to the holders of
the municipal security.
(5) Notwithstanding any other provision of this section, a
municipal security meeting the requirements of subsection (3) that
is a refunding security shall not have a maturity that exceeds the
maturity of the existing municipal security.
(6) Not more than 25% of the total principal amount of any
authorized issue of a municipal security shall meet the
qualifications under subsection (3)(a), (b), and (c).
(7) A municipal security may bear no interest if sold in
accordance with a federal program by which the holder of the
municipal security, as a result of holding the municipal security,
may declare a credit against a federal tax.
(8) A municipal security may bear no interest and appreciate
as to principal amount if it meets the requirements of subsections
(3),
(4), and (6), and (9). The accreted principal amount of a
municipal security shall be considered interest and shall be within
the interest rate limitations provided in subsection (1).
(9) For purposes of more effectively managing its debt
service, and pursuant to a written debt management plan, a
municipal security may be sold at a discount exceeding 10% of the
principal amount of the municipal security if that municipal
security is issued before December 31, 2012.