2005 Committee Substitute for HB1128ECS

HOUSE EDUCATION COMMITTEE SUBSTITUTE FOR

HOUSE BILL 1128

47th legislature - STATE OF NEW MEXICO - first session, 2005

AN ACT

RELATING TO THE PUBLIC PEACE, HEALTH, SAFETY AND WELFARE; AUTHORIZING THE ISSUANCE OF STATE PENSION OBLIGATION TAX REVENUE BONDS FOR THE FUNDING AND REFUNDING OF STATE UNFUNDED ACCRUED PENSION LIABILITY; CREATING THE STATE PENSION OBLIGATION BOND RETIREMENT FUND AND THE STATE PENSION CONTRIBUTION FUND; MAKING APPROPRIATIONS; DECLARING AN EMERGENCY.

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

Section 1. [NEW MATERIAL] SHORT TITLE.--Sections 1 through 13 of this act may be cited as the "State Pension Obligation Bonding Act".

Section 2. [NEW MATERIAL] FINDINGS.--The legislature finds and declares that:

A. the state currently makes contributions on an annual basis to fund the state's obligations under its various retirement systems, consisting, in part, of unfunded accrued liability;

B. providing for the funding or refunding of part or all of unfunded accrued liability may reduce the state's costs and better ensure the timely and full payment of retirement benefits to retirement systems' members and their beneficiaries; and

C. it is in the public interest to provide for the funding or refunding of any such unfunded accrued liability, in full or in part, through the issuance of bonds, notes or other obligations by the board, and to provide for the payment of the principal of, interest on and redemption premiums, if any, on the bonds with distributions from a special fund composed of gross receipts tax revenues.

Section 3. [NEW MATERIAL] DEFINITIONS.--As used in the State Pension Obligation Bonding Act:

A. "additional obligation" means the obligation of the state:

(1) under any credit enhancement or liquidity agreement, including any obligation in the form of bond insurance, a letter of credit, standby bond purchase agreement, reimbursement agreement, liquidity facility, revolving credit agreement or other similar arrangement;

(2) under any remarketing agreement, auction agent agreement, broker-dealer agreement or other agreement relating to the marketing of the bonds, interest-rate or other type of exchange agreement or hedge contract, interest-rate floor or cap, or similar agreements; or

(3) under any investment agreement, forward purchase agreement or similar structured investment contract entered into by the board in connection with any bonds issued under the State Pension Obligation Bonding Act;

B. "board" means the state board of finance;

C. "bond retirement fund" means the state pension obligation bond retirement fund created pursuant to Section 5 of the State Pension Obligation Bonding Act, including a capitalized interest account and an interest rate stabilization account;

D. "bonds" means bonds, notes or other obligations issued or executed pursuant to the State Pension Obligation Bonding Act;

E. "designated retirement system" means, with respect to an issuance of bonds, a retirement system, the unfunded accrued liability of which is being funded with all or any portion of the proceeds of such issuance;

F. "pension contribution fund" means the state pension contribution fund created pursuant to Section 9 of the State Pension Obligation Bonding Act;

G. "retirement laws" means Article 20, Section 22 of the constitution of New Mexico, the Public Employees Retirement Act, the Educational Retirement Act, the Magistrate Retirement Act, the Judicial Retirement Act, the Volunteer Firefighters Retirement Act and any other laws providing for payment to be made by the state or any state agency to any retirement system to provide retirement benefits to employees of the state or any other individuals for which the state has an obligation to pay all or a portion of the contributions to a retirement system to ensure the payment of retirement benefits to those individuals;

H. "retirement system" means the retirement programs or funds provided for in the retirement laws and any other retirement system that provides retirement benefits to employees of the state or any other individuals for which the state has an obligation to pay all or a portion of the contributions to the retirement program or fund to ensure the payment of retirement benefits to those individuals; and

I. "unfunded accrued liability" means, with respect to a retirement system of the state or any state agency, the liability imposed by the retirement laws representing pension benefits earned in prior years that are not yet fully funded in accordance with standard actuarial practices or that are based upon the current market value of a retirement system's estimated assets and liabilities using standard actuarial practices as set forth in the most recent actuarial valuation report available for that retirement system.

Section 4. [NEW MATERIAL] AUTHORITY TO ISSUE BONDS.--

A. The board is authorized to:

(1) at any time and from time to time, issue revenue bonds, known as "state pension obligation tax revenue bonds", or execute revenue notes evidencing unfunded accrued liability, known as "state pension obligation tax revenue notes", or other obligations, in any case payable solely from the bond retirement fund or, in the case of bond anticipation notes, payable solely from the proceeds of bonds to be issued pursuant to the State Pension Obligation Bonding Act, in compliance with that act for the purpose of:

(a) funding the payment, in full or in part, of unfunded accrued liability;

(b) reimbursing the state amounts previously paid with respect to unfunded accrued liability;

(d) paying related additional costs, issuance costs and administrative costs;

(e) entering into additional obligations in connection with bonds anticipated to be issued;

(f) making deposits to reserve funds and the interest rate stabilization account of the bond retirement fund; and

(g) paying accrued interest or funding capitalized interest;

(2) enter into additional obligations and other contracts deemed necessary or advisable by the board in connection with any bonds;

(3) employ or contract for legal, consulting, underwriting or other services that may be necessary in the judgment of the board for the issuance and sale of the bonds; and

(4) in addition to the powers specifically granted in the State Pension Obligation Bonding Act, do all things necessary or convenient to carry out the purposes of that act.

B. No member, officer or agent of the board shall be subject to personal liability on any bonds or additional obligations, or for any acts or omissions of board members, officers or agents in carrying out the powers and duties conferred by the State Pension Obligation Bonding Act.

Section 5. [NEW MATERIAL] STATE PENSION OBLIGATION BOND RETIREMENT FUND CREATED--MONEY IN THE FUND PLEDGED.--

A. The "state pension obligation bond retirement fund" is created in the state treasury as a special fund. The state treasurer shall maintain custody of the bond retirement fund in accordance with the provisions of the State Pension Obligation Bonding Act. A "capitalized interest account" and an "interest rate stabilization account" are hereby created within the bond retirement fund. The bond retirement fund, other than the capitalized interest account and the interest rate stabilization account, shall consist of:

(1) net receipts attributable to the gross receipts tax imposed by the Gross Receipts and Compensating Tax Act and distributed to the bond retirement fund pursuant to Section 7-1-6.1 NMSA 1978; and

(2) any payments received pursuant to additional obligations.

B. A portion of the proceeds of any issuance of bonds may be deposited directly into the capitalized interest account. A portion of the proceeds of any issuance of bonds bearing interest at a variable rate may be deposited directly into the interest rate stabilization account. Earnings of the bond retirement fund shall be credited to the bond retirement fund, and the earnings in each account in the bond retirement fund shall be credited to such account. Balances in the bond retirement fund at the end of any fiscal year shall remain in the bond retirement fund, except as otherwise provided in this section.

C. The state does hereby pledge that the bond retirement fund shall be used only for the purposes specified in this section and in Section 6 of the State Pension Obligation Bonding Act. Money in the bond retirement fund is pledged first to the payment of principal of, interest on and redemption premiums, if any, on all bonds and to the payment of amounts due under any additional obligations. The state further pledges that any law authorizing the distribution of taxes or other revenues to the bond retirement fund or authorizing expenditures from the bond retirement fund shall not be amended or repealed or otherwise modified so as to impair the bonds and the additional obligations to which the bond retirement fund is dedicated, as provided in this section.

D. On each June 30, the state treasurer shall transfer to the general fund any balance in the bond retirement fund, other than in the capitalized interest account and the interest rate stabilization account, in excess of the amounts certified and reported to the taxation and revenue department pursuant to Section 6 of the State Pension Obligation Bonding Act.

E. Any balance remaining in the bond retirement fund shall be transferred to the general fund at any time upon certification by the board that all bonds have been defeased, that no additional obligations remain and that no additional expenditures from the bond retirement fund are necessary.

F. The bonds and the additional obligations shall be special and limited obligations of the state payable solely from the bond retirement fund or, with the approval of the bondholders, such other special funds as may be provided by law, and do not create an obligation or indebtedness of the state or of any retirement system within the meaning of any constitutional provision. No breach of any contractual obligation incurred pursuant to the State Pension Obligation Bonding Act shall impose a pecuniary liability or a charge upon the general credit or taxing power of the state, and neither the bonds nor the additional obligations are general obligations for which the state's full faith and credit is pledged.

Section 6. [NEW MATERIAL] BOND PAYMENT PROVISIONS--LEGISLATIVE APPROPRIATION.--

A. Upon each delivery of bonds issued pursuant to the State Pension Obligation Bonding Act, the board shall compute, or estimate if necessary, for any bonds that bear interest at a variable rate, and certify to the taxation and revenue department:

(1) the total amount of principal of, interest on and premium, if any, on such bonds that will be payable during the term of such bonds;

(2) the amount of principal of, interest on and premium, if any, on such bonds that will be payable on each payment date during the then-current and each succeeding fiscal year during the term of such bonds; and

(3) the amounts of any fees or other payment scheduled to be paid under any additional obligation during the term of such bonds.

B. Before the last day of each month, for each series of bonds outstanding, the board shall compute or estimate, if necessary, for any bonds that bear interest at a variable rate, certify and report to the taxation and revenue department and, with the approval of the taxation and revenue department, the state treasurer shall transfer from the tax administration suspense fund an amount sufficient to pay the aggregate of:

(1) the principal of, interest on and premium, if any, on bonds payable or estimated to be payable by their terms on the next payment date divided by the number of full calendar months between the date of such bonds and the first such payment date, and thereafter, divided by the number of months between each succeeding payment date after the first as any such amount may be adjusted pursuant to any additional obligation; and

(2) any amount then due or coming due in the next-succeeding month with respect to any required reserves, the interest rate stabilization fund, costs, expenses and all other amounts incurred by the state under or in connection with the bonds and any additional obligations. Interest for money already deposited in the capitalized interest account of the bond retirement fund shall not be included in the calculation of the amounts to be transferred under this subsection. The transfer of money described and directed in this subsection is not required if and to the extent that money in the bond retirement fund is more than the amount otherwise to be transferred as provided in this subsection, and if the board notifies the state treasurer of such fact in writing.

C. The board may, pursuant to any trust agreement, indenture or resolution relating to bonds that bear interest at a variable rate, provide for the deposit of a portion of bond proceeds in the interest rate stabilization account of the bond retirement fund and the transfer of those amounts to the bond retirement fund in the event that money in the bond retirement fund, other than the capitalized interest account and the interest rate stabilization account, is insufficient on any payment date to pay the interest on such bonds.

D. The taxation and revenue department shall, in each month, cause to be distributed, in accordance with Section 7-1-6.1 NMSA 1978, to the bond retirement fund net receipts attributable to the gross receipts tax imposed by the Gross Receipts and Compensating Tax Act in the amount reported to the taxation and revenue department pursuant to Subsection B of this section.

E. Notwithstanding any other provision of law, there is hereby continuously appropriated, without regard to fiscal years, from the tax administration suspense fund to the bond retirement fund, for the purposes of the State Pension Obligation Bonding Act, an amount, subject to the limitations of this section, that equals the sum certified monthly by the board pursuant to Subsection B of this section.

Section 7. [NEW MATERIAL] BONDS--FORM--EXECUTION.--

A. The board, except as otherwise specifically provided in the State Pension Obligation Bonding Act, shall determine at its discretion the terms, covenants and conditions of bonds, including the date to be borne by the bonds; denominations; the time of maturity of any bonds, which maturities may be before or after the term of the unfunded accrued liability to be funded or reimbursed with the proceeds of such bonds, provided that the maturity of any bond does not exceed forty years; rate or rates of interest, which rate or rates may not exceed twelve percent per year of the outstanding principal amount of the bonds, except as otherwise provided by Section 6-14-3 NMSA 1978; redemption features; redemption premiums; registration; refundability; and other terms covering the general and technical aspects of the issuance of the bonds.

B. The bonds shall be in such form as the board may determine, and successive issues shall be identified by alphabetical, numerical or other proper series designation.

C. The bonds shall be signed and attested by the state treasurer and shall be executed with the facsimile signature of the governor and the facsimile seal of the state, except for bonds issued in book-entry or similar form without the delivery of physical securities. Except for bonds issued in book-entry or similar form without the delivery of physical securities, the Uniform Facsimile Signature of Public Officials Act shall apply, and the board shall determine the manual signature to be affixed on the bonds.

Section 8. [NEW MATERIAL] PROCEDURE FOR SALE OF BONDS.--

A. Bonds shall be sold by the board at such times and prices and in such manner as the board may elect, either:

(1) at private sale to the state or to one or more investment bankers or institutional investors for a negotiated price at, above or below par; or

(2) at public sale to the highest bidder for cash at not less than par and accrued interest, in accordance with Subsection B of this section.

B. In connection with any public sale of bonds, the board shall publish a notice of the time and place of sale in a newspaper of general circulation in the state and also in a recognized financial journal outside the state. Such publication shall be made once each week for two consecutive weeks prior to the date fixed for such sale, the last publication to be two business days prior to the date of sale. Such notice shall specify the amount, denomination, maturity and description of the bonds to be offered for sale and the place, day and hour at which sealed bids shall be received. All bids, except that of the state, shall be accompanied by a deposit of an amount determined by the board of at least one percent of the principal amount of the bonds or five hundred thousand dollars ($500,000), whichever is less, either in the form of a financial surety bond or in cash, or by cashier's check or treasurer's check of, or by certified check drawn on, a solvent commercial bank or trust company in the United States; provided that the financial surety bond or the long-term debt obligations of the issuer or person guarantying the obligations of the issuer of the financial surety bond shall be rated in one of the top two rating categories of a nationally recognized rating agency, without regard to any modification of the rating, and the financial surety bond shall be issued by an insurance company licensed to issue such a bond in New Mexico. Deposits of unsuccessful bidders shall be returned upon rejection of the bid. At the time and place specified in such notice, the board shall open the bids in public and shall award the bonds, or any part thereof, to the bidder or bidders offering the best price. The board may reject any or all bids and readvertise.

Section 9. [NEW MATERIAL] STATE PENSION CONTRIBUTION FUND CREATED.--

A. The "state pension contribution fund" is hereby created as a special fund within the state treasury. The proceeds of bonds, other than bonds issued to refund prior bonds, less the amounts authorized by the board to be deposited directly into the capitalized interest account and the interest rate stabilization account of the bond retirement fund or otherwise directly paid out for expenses or required reserves pursuant to Section 4 of the State Pension Obligation Bonding Act, shall be deposited in the pension contribution fund. Earnings of the pension contribution fund shall be credited to the pension contribution fund.

B. Notwithstanding any other provision of law, all amounts on deposit in the pension contribution fund, other than amounts needed for the payment of any costs related to the issuance of the bonds in accordance with Section 4 of the State Pension Obligation Bonding Act and proceeds of bonds issued to reimburse the state for amounts previously paid with respect to unfunded accrued liability, shall be appropriated to a designated retirement system in an amount proportionate to the portion of the designated retirement system's unfunded accrued liability funded with bond proceeds.

C. After payment of any costs related to the issuance of the bonds in accordance with Section 4 of the State Pension Obligation Bonding Act, proceeds of bonds on deposit in the pension contribution fund shall be used as follows:

(1) the proceeds of bonds issued to reimburse the state for amounts previously paid with respect to unfunded accrued liability shall be immediately transferred from the pension contribution fund to the general fund or as otherwise directed by the board; and

(2) the proceeds of all other bonds shall be paid by the state treasurer from the pension contribution fund to a designated retirement system in accordance with Subsection D of this section to be applied to the payment, in full or in part, of the unfunded accrued liability under the designated retirement system.

D. Within fifteen days after any bond proceeds, other than proceeds of bonds issued to reimburse the state for amounts previously paid with respect to unfunded accrued liability, are deposited into the pension contribution fund, the board shall:

(1) allocate those proceeds among the designated retirement systems in proportion to the portion to their respective unfunded accrued liability to be funded with bond proceeds; and

(2) certify those allocations to the designated retirement systems and the board. Upon receiving certification of an allocation pursuant to this subsection, a designated retirement system shall submit to the department of finance and administration a voucher for the amount of its allocation. The department of finance and administration shall issue a warrant for disbursement, which shall be paid out of the amount appropriated to that designated retirement system from the pension contribution fund pursuant to this section. Alternatively, the board and a designated retirement system are authorized to enter into one or more contracts to implement the payment arrangement provided for in this section.

Section 10. [NEW MATERIAL] ABATEMENT OF UNFUNDED ACCRUED LIABILITY.--Notwithstanding any other provision of law, if the proceeds of bonds are used to pay all or any portion of unfunded accrued liability to be paid from the general fund, the state treasurer shall abate payment from the general fund to the extent of any payment made from bond proceeds.

Section 11. [NEW MATERIAL] FULL AUTHORITY FOR ISSUANCE OF BONDS--BONDS ARE LEGAL INVESTMENTS.--

A. The State Pension Obligation Bonding Act shall, without reference to any other act of the legislature, be complete and alternative authorization for the issuance and sale of bonds and to take the actions necessary to implement that act, and shall be regarded as supplemental and additional to the powers conferred by other laws. The issuance of the bonds and their terms, the application of proceeds to the funding or the reimbursement of the payment of unfunded accrued liability or prior bonds and the entering into of any additional obligations need not comply with the requirements of any other law applicable to the issuance of bonds or additional obligations.

B. The bonds shall have all the qualities of investment securities under the Uniform Commercial Code and shall not be invalid for any irregularity or defect or be contestable in the hands of bona fide purchasers or holders thereof for value.

C. Bonds are legal investments for any person or board charged with the investment of any public money and are acceptable as security for any deposit of public money.

D. The State Pension Obligation Bonding Act, being necessary for the welfare of the state and its inhabitants, shall be liberally construed to effect the purpose thereof.

Section 12. [NEW MATERIAL] SUIT TO COMPEL PERFORMANCE OF OFFICERS.--Any holder of bonds or any person or officer being a party in interest may sue to enforce and compel the performance of the provisions of the State Pension Obligation Bonding Act.

Section 13. [NEW MATERIAL] STATE PENSION OBLIGATION TAX REVENUE BONDS TAX-EXEMPT.--All bonds shall be exempt from taxation by the state or any of its political subdivisions.

Section 14. A new section of the Tax Administration Act is enacted to read:

"[NEW MATERIAL] DISTRIBUTION--STATE PENSION OBLIGATION BOND RETIREMENT FUND--GROSS RECEIPTS TAX.--A distribution pursuant to Section 7-1-6.1 NMSA 1978 shall be made to the state pension obligation bond retirement fund in the amounts designated pursuant to Section 6 of the State Pension Obligation Bonding Act from the net receipts attributable to the gross receipts tax imposed by the Gross Receipts and Compensating Tax Act. The distribution shall be made:

A. after the required distribution pursuant to Section 7-1-6.4 NMSA 1978;

B. contemporaneously with other distributions of net receipts attributable to the gross receipts tax for payment of debt service on outstanding bonds or to a fund dedicated for that purpose; and

C. prior to any other distribution of net receipts attributable to the gross receipts tax."

Section 15. EMERGENCY.--It is necessary for the public peace, health and safety that this act take effect immediately.

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