AN ACT AUTHORIZING ECONOMIC RECOVERY NOTES.

This bill authorizes the state to issue up to $ 500 million in economic recovery notes to fund the FY 09 General Fund deficit. The notes are state general obligations and must mature before July 1, 2016. The bill exempts the debt attributable to the notes from the statutory limit on state General Fund-supported debt (see BACKGROUND).

The bill establishes a separate Economic Recovery Note Debt Retirement Fund. The treasurer must use the fund to pay (1) principal and interest on the economic recovery notes maturing each fiscal year; (2) for costs and expenses not otherwise provided for issuing the notes, operating the fund, and, if necessary, paying any obligations incurred in obtaining a credit facility (such as insurance or a letter of credit) for the notes; and (3) for purchasing and redeeming notes before maturity.

The bill requires the treasurer to credit to the debt retirement fund rather than the General Fund whatever tax revenue is needed to pay the principal, interest, and other expenses of the notes each fiscal year. Under the bill, the necessary amounts are appropriated to the fund no later than the day before the payments are due. The comptroller must record the necessary revenue as part of the fund's receipts.

The bill also allocates to the debt retirement fund, rather than the Budget Reserve Fund, any unappropriated General Fund surpluses for FY 10 “and” FY 17. (It is unclear why the bill excludes any available unappropriated surpluses from the fiscal years between the specified years. ) The treasurer must use these funds to pay the notes off early or, if the contract with the note holders does not allow early redemption, hold them until the notes mature.

The treasurer must issue the notes on or after the bill's passage and deposit the proceeds from their sale in the General Fund. In any determination of the General Fund's position for FY 10, the comptroller must reflect the amount of the note proceeds funding the FY 09 General Fund deficit, if the notes have been issued before the determination.

The bill exempts interest on, and gains from the sale of, the notes from all taxes imposed by the state or under its authority. It also requires the treasurer to structure the notes so their interest is excluded from federal taxes if that is appropriate or necessary to improve the notes' marketability.

Finally, the bill makes the notes legal investments for banks, insurance companies, fiduciaries, and public bodies and allows public officers to accept them for any purpose for which they may receive or deposit state notes.

State law limits the amount of state General Fund-supported debt to 1. 6 times the net General Fund tax receipts the Finance, Revenue and Bonding Committee projects for the fiscal year in which the legislature authorizes the debt. Certain types of debt are excluded from the debt limit calculation, including debts incurred for federally reimbursable public works projects, assets in debt retirement funds, and debt incurred in anticipation of revenue and some other purposes.

Yea

Nay

(04/02/2009)