45th legislature - STATE OF NEW MEXICO - second session, 2002

RELATING TO PUBLIC SCHOOL FINANCE; ALLOWING FEDERAL FUNDS TO BE PLEDGED FOR SCHOOL REVENUE BONDS EVEN IF SUBJECT TO ANNUAL APPROPRIATION; ALLOWING OTHER REVENUE TO BE PLEDGED; ALLOWING INCOME FROM FUTURE INCOME PROJECTS TO BE PLEDGED; PROVIDING FOR DEBT SERVICE RESERVE FUNDS; INCREASING THE NET EFFECTIVE INTEREST RATE ALLOWED ON SCHOOL REVENUE BONDS.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF NEW MEXICO:

Section 1. Section 22-19-1 NMSA 1978 (being Laws 1967, Chapter 16, Section 240) is amended to read:

"22-19-1. SHORT TITLE.--[Sections 77-16-1 through 77-16-16 New Mexico Statutes Annotated, 1953 Compilation] Chapter 22, Article 19 NMSA 1978 may be cited as the "School Revenue Bond Act"."

Section 2. Section 22-19-2 NMSA 1978 (being Laws 1967, Chapter 16, Section 241) is amended to read:

"22-19-2. DEFINITIONS.--As used in the School Revenue Bond Act:

A. "bonds" means revenue bonds;

B. "federal grant" means a payment, grant, subsidy, contribution or other money from the United States or any of its agencies or instrumentalities that is not otherwise restricted as to use and that the federal government allows to be pledged or used to pay debt service on bonds;

[A.] C. "income project" means [purchasing, erecting, improving, repairing or furnishing a building, improvement or facility including the land upon which it is situated which will produce] a facility that produces an income to the school district, including housing for teachers and including the land upon which the income project is situated and improvements to that land;

[B.] D. "net income from the income project" means all income derived from an income project [including the income pledged pursuant to the School Revenue Bond Act] less the operating costs of the income project; [and

C.] E. "operating costs" means expenses of operating, maintaining and keeping in repair an income project, including the cost of [heating, electricity] utilities, insurance, service employees and equipment replacement; and

F. "pledgeable revenue" means net income from the income project and other revenue of the school district, including net income from other existing and future income projects and federal grants, but not including revenue from the state, property taxes or other bond issues."

Section 3. Section 22-19-4 NMSA 1978 (being Laws 1967, Chapter 16, Section 243) is amended to read:

"22-19-4. BONDS [MORTGAGES] NOT GENERAL OBLIGATIONS OF SCHOOL DISTRICT OR STATE.--

A. A local school board may issue bonds [or other special obligations] to finance [the repayment of all money borrowed for] the purchase, construction, renovation, equipping or furnishing of an income project [pursuant to the School Revenue Bond Act.

B. A local school board may execute a mortgage, deed of trust or a security agreement upon the income project to secure payment of any bonds or other special obligations issued pursuant to the School Revenue Bond Act] and may irrevocably pledge any or all pledgeable revenue to the payment of those bonds and to the debt service reserve fund if one is established for the bonds.

B. Bonds shall be payable solely from pledgeable revenue and shall not constitute an indebtedness or general obligation of the school district, the state or other political subdivisions of the state."

Section 4. Section 22-19-5 NMSA 1978 (being Laws 1967, Chapter 16, Section 244) is amended to read:

"22-19-5. DETERMINATION BY LOCAL SCHOOL BOARD--FEDERAL GRANTS.--

A. Prior to [borrowing money and] issuing [evidences of indebtedness] bonds to finance the purchase, construction, renovation, equipping or furnishing of an income project, a local school board shall make a determination that the income project is necessary and that [sufficient income will be produced by the income project] estimated pledgeable revenue pledged to the bonds is sufficient to repay [all money borrowed and to discharge any] the bonds [or other special obligations issued for the repayment of the money borrowed].

B. Revenue from federal grants may be pledged even if the federal grants are subject to annual appropriation. Federal grants shall not be pledged unless such use is allowed by federal law. The local school board shall include in its determination a statement as to the legality of pledging the federal grants and what other revenue will be available to make bond payments if federal grants are not appropriated."

Section 5. Section 22-19-6 NMSA 1978 (being Laws 1967, Chapter 16, Section 245) is amended to read:

"22-19-6. REPORT TO STATE BOARD.--Prior to [borrowing any money] issuing bonds to finance an income project, a local school board shall furnish to the state board the following information:

A. a detailed description of the income project;

B. an explanation of the necessity for the income project;

C. an estimate of the total cost of the income project;

[D. an estimate of the amount of income anticipated from the income project;

E.] D. an estimate of [the amount of income from existing buildings, improvements or facilities] the net income of the income project and other revenues that will be pledged to pay for the income project; and

[F.] E. an estimate of the yearly operating cost of the income project [and

G. an estimate of the anticipated yearly net income from the income project]."

Section 6. Section 22-19-7 NMSA 1978 (being Laws 1967, Chapter 16, Section 246) is amended to read:

"22-19-7. STATE BOARD APPROVAL--DETERMINATION BY STATE BOARD.--

A. A local school board shall obtain written approval of the state board before it [borrows money] issues bonds [or other special obligations or executes mortgages, deeds of trust or security agreements for financing] to finance an income project pursuant to the School Revenue Bond Act.

B. Prior to giving written approval to an income project, the state board shall determine that the income project is necessary and that [sufficient income will be produced by the income project to repay all money borrowed and to discharge any bonds or other special obligations issued for the repayment of the money borrowed] estimated pledgeable revenue pledged to the bonds is sufficient to repay the bonds."

Section 7. Section 22-19-8 NMSA 1978 (being Laws 1967, Chapter 16, Section 247) is amended to read:

"22-19-8. RECORDS--RESTRICTION ON USE OF INCOME.--

A. A local school board shall retain complete and accurate records of:

(1) the net income from the income project; [and]

(2) receipt and amount of other pledgeable revenue that is pledged or may be pledged to the repayment of the bonds; and

[(2)] (3) the operating costs of the income project.

B. [All income from the income project] Pledgeable revenue that is pledged to the repayment of bonds shall first be used [solely for the following purposes: (1)] to pay the principal, interest and service charges on [any] the bonds [or other special obligations issued pursuant to the School Revenue Bond Act; and (2) to pay the operating costs of the income project] and to fund a debt service reserve fund, if applicable."

Section 8. Section 22-19-9 NMSA 1978 (being Laws 1967, Chapter 16, Section 248) is amended to read:

"22-19-9. BONDS--PLEDGE OF INCOME [SATISFACTION OF INDEBTEDNESS].--

A. Bonds [or other special obligations issued pursuant to the School Revenue Bond Act] shall be payable solely from any or all pledgeable revenue, and the local school board shall irrevocably pledge [for] that revenue to the prompt payment of the principal, interest and service charges [thereof, the net income from the income project for which the bonds or other special obligations were issued] on the bonds. The bonds [or other special obligations] shall be equally and ratably secured, without priority, by this pledge [of the net income from the income project] of pledgeable revenue.

B. [A] If the bonds are payable solely from the net income of the income project being financed, the local school board shall operate the income project so as to [insure] ensure a sufficient income to promptly pay the principal, interest and service charges as they become due on the bonds [or other special obligations issued after the payment of operating costs of the income project. A local school board shall establish a reserve fund not exceeding ten thousand dollars ($10,000) to be used for the repayment of any money borrowed.

C. Satisfaction of any indebtedness created by any bonds or other special obligations issued pursuant to the School Revenue Bond Act shall be limited solely to foreclosure of the income project upon which a mortgage, deed of trust or security agreement was executed, without the right to a deficiency judgement]."

Section 9. Section 22-19-10 NMSA 1978 (being Laws 1967, Chapter 16, Section 249) is amended to read:

"22-19-10. PROCEEDS OF BOND SALES--RETIREMENT FUND--RESERVE FUND.--

A. Proceeds from the sale of bonds [or other special obligations issued by a local school board pursuant to the School Revenue Bond Act] shall be deposited into a separate account to be used solely for the specific purposes for which the [money was borrowed] bonds were issued, including a debt service reserve fund. All costs incident to issuing and selling the bonds [or other special obligations] may be paid out of the proceeds of [this account] the bonds.

B. [A] The local school board [at the time of issuing any bonds or other special obligations] shall establish a [fund to be known as the] bond "retirement fund" [All net income from the income project and] to be used solely for the payment of principal, interest and service charges on the bonds. Sufficient amounts from the pledged revenue shall be deposited in the retirement fund at least annually so that timely payments of principal and interest may be made. All proceeds remaining after completion of the income project shall be deposited into the retirement fund. [All proceeds in the retirement fund shall be used solely for the purpose of repaying the principal, interest and service charges on any bonds or other special obligations issued for the income project.]

C. The local school board may establish a "debt service reserve fund" to be used to pay bond payments in case the pledged revenue is insufficient."

Section 10. Section 22-19-11 NMSA 1978 (being Laws 1967, Chapter 16, Section 250) is amended to read:

"22-19-11. BONDS--FORM--REQUIREMENTS.--All bonds [or other special obligations] issued pursuant to the School Revenue Bond Act shall:

A. be fully negotiable within the provisions of the Uniform Commercial Code;

B. have a duration of time not to exceed forty years from their date of issuance;

C. bear interest at a rate [not to exceed a net of six percent a year, interest] or rates payable annually or semiannually;

D. be sold at a price [which] that does not result in [an actual] a net effective interest [cost to maturity, computed on the basis of standard tables of bond values, in excess of six percent a year] rate in excess of twelve percent a year;

E. have the principal [thereof] of the bonds paid in yearly amounts beginning not later than two years from their date of issuance; and

F. be sold at public or private sale [with or without a discount, as provided by Subsection D of this section] at, above or below par."

Section 11. Section 22-19-12 NMSA 1978 (being Laws 1967, Chapter 16, Section 251) is amended to read:

"22-19-12. PLEDGE OF ADDITIONAL REVENUE.--A local school board may pledge as security for the payment of the principal and interest on [any] the bonds [or other special obligations issued pursuant to the School Revenue Bond Act] a part or the whole amount of net income derived from an existing [building, improvement or other facility] or future income project subject to the control of the local school board. A local school board may pledge this income whether or not the existing [building, improvement or facility] or future income project is to be improved, repaired or furnished by the proceeds of the bonds [or other special obligations]."

Section 12. Section 22-19-13 NMSA 1978 (being Laws 1967, Chapter 16, Section 252) is amended to read:

"22-19-13. REFUNDING BONDS.--

A. A local school board may issue refunding bonds [for the purpose of refunding, for not less than the principal amount thereof] to refund bonds [issued pursuant to the provisions of the School Revenue Bond Act or any act repealed thereby or for the purpose of providing additional funds for any income project for which bonds have been authorized by a local school board, or for both purposes].

B. Except as otherwise provided in the School Revenue Bond Act, refunding bonds shall conform to the provisions of the School Revenue Bond Act [which] that provide for the issuance of other revenue bonds by a local school board.

C. A refunding bond issued by a local school board may have the same security or source of payment as was pledged for the payment of the bond being refunded, but no source of payment shall be pledged [which] that is not authorized by the School Revenue Bond Act.

D. A refunding bond may be delivered in exchange for a bond authorized to be refunded, sold at a public or private sale [for not less than the par value of the bond] or sold in part and exchanged in part as provided in the Public Securities Act. If the refunding bond is sold, the proceeds shall be immediately applied to the retirement of the bond to be refunded, or the proceeds or the obligations in which the proceeds are permitted by law to be invested shall be placed in trust to be held and applied to payment of the bond to be refunded."

Section 13. Section 22-19-14 NMSA 1978 (being Laws 1967, Chapter 16, Section 253) is amended to read:

"22-19-14. REFUNDING BONDS--ISSUANCE--SALE--PROCEEDS.--

A. [No] A bond shall not be refunded [pursuant to the School Revenue Bond Act] unless it matures or is callable for prior redemption under its terms within fifteen years from the date of issuance of the refunding bond or unless the holder of the bond voluntarily surrenders it for exchange or payment.

B. Outstanding bonds of more than one issue may be refunded by refunding bonds of one or more issue. Bonds and refunding bonds and any other bonds authorized pursuant to the School Revenue Bond Act may be issued separately or in combinations of one or more series.

C. If [any] an officer whose signature or facsimile signature appears on [any] a bond or coupon [authorized by the School Revenue Bond Act] ceases to hold office before delivery of the bond, the signature or facsimile signature shall be valid for all purposes as if he had remained in office until delivery.

D. When a refunding bond is sold, the net proceeds may, in the discretion of the local school board, be invested in obligations of the federal government or [any] an agency of the federal government or in obligations fully guaranteed by the federal government, but the obligations purchased [must] shall have a maturity and bear a rate of interest payable at times to ensure the existence of sufficient money to pay the bond to be refunded when it becomes due or redeemable pursuant to a call for redemption, together with interest and redemption premiums, if any.

E. All obligations purchased with the net proceeds from refunding bonds shall be deposited in trust with a bank [doing business in the state and which] that has trust powers and that is a member of the federal deposit insurance corporation. The obligations shall be held, liquidated and the proceeds of the liquidation paid out for payment of the principal, interest and redemption premium of the bonds to be refunded as the bonds to be refunded become due or where the bonds are subject to redemption under a call for redemption previously made or where there is a voluntary surrender with the approval of the local school board.

F. The determination of the local school board issuing refunding bonds that the issuance has been in compliance with the School Revenue Bond Act is conclusively presumed correct in the absence of fraud or arbitrary and gross abuse of discretion.

G. As used in this section, "net proceeds" means the gross proceeds of the refunding bonds after deducting all accrued interest and expenses incurred in connection with the authorization and issuance of the refunding bonds and the refunding of outstanding bonds, including fiscal agent fees, commissions and all discounts incurred in the resale of the refunding bonds to the original purchaser."

Section 14. REPEAL.--Section 22-19-3 NMSA 1978 (being Laws 1967, Chapter 16, Section 242) is repealed.