N.Y. General Municipal Law § 109-b: Installment contracts

* § 109-b. Installment contracts. 1. As used in this section:

(a) "Political subdivision" shall mean a municipal corporation, school

district, district corporation or board of cooperative educational

services.

(b) "Installment purchase contract" shall mean any lease purchase

agreement, installment sales agreement or other similar agreement

providing for periodic payments between a corporation, person or other

entity and a political subdivision which has as its purpose the

financing of equipment, machinery or apparatus.

(c) "Certificate of participation" shall mean a security or other

instrument representing a proportionate interest or the right to receive

a proportionate share in lease, rental, installment or other periodic

payments made or to be made by a political subdivision or made by the

agency on behalf of a political subdivision pursuant to an installment

purchase contract.

(d) "Agency" shall mean the state of New York municipal bond bank

agency established by section twenty-four hundred thirty-three of the

public authorities law.

(e) "Agency certificates of participation" shall mean certificates of

participation executed and delivered by the agency on behalf of, for the

benefit of and pursuant to a written agreement with a political

subdivision.

(f) Functions performed by a governing board under this section shall,

in the city of New York, be performed by the mayor and comptroller, and

the approvals of the mayor and the comptroller of any agreement,

contract, instrument, arrangement or transaction contemplated by this

section shall be the only approvals required therefor, subject to the

provisions of the New York state financial emergency act for the city of

New York.

2. A political subdivision may enter into an installment purchase

contract subject to the following restrictions:

(a) Neither any person, partnership, corporation or other legal entity

nor any political subdivision, officer, employee, agency or department

nor the agency for agency certificates of participation shall execute

and deliver or cause the execution and delivery of certificates of

participation except in accordance with the provisions of this section

and with express written approval of the governing board of such

political subdivision and with the concurrence of the agency for agency

certificates of participation. The provisions of this section are hereby

made a part of every installment purchase contract entered into by such

a political subdivision or by the agency for agency certificates of

participation. Every such contract shall contain a clause expressly

reciting the provisions of this subdivision, provided, however, that the

absence of such clause in such a contract shall not obviate the duty of

all parties thereto to comply with the provisions of this subdivision.

Neither this provision, nor any other provision of this section, shall

be construed to prevent such political subdivisions from entering into

installment purchase or lease purchase agreements funded without the use

of certificates of participation or similar instruments, as otherwise

provided in this section.

(b) Subject to the provisions of subdivision five of this section, the

governing board of a political subdivision shall adopt a resolution

authorizing the installment purchase contract.

(c) Subject to the provisions of subdivision five of this section,

where the financing of equipment, machinery or apparatus pursuant to an

installment purchase contract is to be provided by agency certificates

of participation, the governing board of a political subdivision shall

adopt a resolution authorizing the written contract with the agency

setting forth the rights and liabilities of the agency and the political

subdivision as provided for in section twenty-four hundred thirty-five-a

of the public authorities law.

(d) The term of such installment purchase contract, including all

renewals thereof, shall not exceed the period of probable usefulness

prescribed by section 11.00 of the local finance law for the equipment,

machinery or apparatus being financed under the installment purchase

contract.

(e) The installment purchase contract shall separately state the

principal and interest component of the periodic payments to be made

thereunder. The total of all periodic payments which include both

principal and interest components made by the political subdivision

during each year throughout the term of the installment purchase

contract shall be substantially level or falling.

(f) The installment purchase contract shall contain the following

clause: "This contract shall be deemed executory only to the extent of

monies appropriated and available for the purpose of the contract, and

no liability on account thereof shall be incurred by the political

subdivision beyond the amount of such monies. The installment purchase

contract is not a general obligation of (insert name of political

subdivision(s)). Neither the full faith and credit nor the taxing power

of (insert name of political subdivision(s)) are pledged to the payment

of any amount due or to become due under such installment purchase

contract. It is understood that neither this contract nor any

representation by any public employee or officer creates any legal or

moral obligation to appropriate or make monies available for the purpose

of the contract." Where agency certificates of participation are the

security for such contract, such contract shall also contain the

following clause: "Further no liability on account thereof shall be

incurred by the state of New York municipal bond bank agency beyond the

amount of such monies. It is understood that neither this contract nor

any representation by any employee or officer of such agency creates any

legal or moral obligation to appropriate or make state monies available

for the purpose of the contract."

(g) No payment under the installment purchase contact except payment

for the total amount outstanding shall be financed from the proceeds of

obligations issued pursuant to the local finance law other than the

proceeds of revenue anticipation notes, tax anticipation notes or budget

notes.

3. (a) Installment purchase contracts for equipment, machinery or

apparatus shall constitute purchase contracts for public bidding

purposes and shall be subject to public bidding requirements to the

extent applicable by law. For purposes of determining whether the cost

of the equipment, machinery or apparatus exceeds the monetary threshold

fixed in section one hundred three of this article, the cost of the

equipment, machinery or apparatus, exclusive of the cost of financing,

shall be considered. If the equipment, machinery or apparatus is to be

financed by a party other than the party submitting the bid, the bid

specifications may provide that the political subdivision may assign its

right to purchase to a third party without the necessity of approval by

the other party to the contract. Nothing herein shall preclude a

political subdivision from advertising for bids in the alternative with

and without financing.

(b) Certificates of participation caused to be executed and delivered

by the political subdivision pursuant to this section, in connection

with one or more installment purchase contracts entered or expected to

be entered into by such political subdivision may be sold at public or

private sale, either independently or in connection with a pooled or

aggregate program, as determined by the governing board. The governing

board may, by resolution, delegate such power to the chief fiscal

officer, in which event such chief fiscal officer shall exercise such

powers and perform such duties until the governing board shall, by

resolution, elect to reassume the same. If certificates of participation

are sold at public sale, they shall be sold to the bidder offering the

lowest interest cost as computed in accordance with the net interest

cost method, taking into consideration any premium or discount, or the

actuarial or true interest cost method, whichever is specified in the

notice of sale, not less than four nor more than fifteen days, Sundays

excepted, after a notice of such sale has been circularized in

accordance with any rule or order prescribed by the state comptroller,

pursuant to paragraph d of section 57.00 of the local finance law, for

the circularization of notices for the sale of bonds. The terms of the

sale may not be changed unless a supplemental notice of sale is provided

in accordance with the procedure for the sale of bonds in paragraph b of

section 58.00 of the local finance law.

(c) Whenever in the judgement of the governing board, or if authorized

by the governing board, the chief fiscal officer, the interest of the

political subdivision will be served thereby, the governing board, or

chief fiscal officer as the case may be, may authorize the sale of such

certificates of participation at private sale, including such sale in

connection with a pooled or aggregate program.

(d) The state comptroller shall promulgate rules in conformance with

the state administrative procedure act governing the procedure which

shall be adhered to when entering into installment purchase contracts or

authorizing the execution and delivery of certificates of participation

pursuant to this section, including guidelines for the private sale of

certificates of participation. No private sale of certificates of

participation shall be conducted by a political subdivision without

prior approval of the state comptroller except as provided in such rules

which shall set forth the circumstances under which such approval shall

not be required. The state comptroller shall annually deliver to the

state division of the budget, the senate finance committee and the

assembly ways and means committee a report listing all negotiated sales

conducted in the previous year, including the name of the issuer and

amount of the issue for each such sale.

4. (a) The proceeds of certificates of participation executed and

delivered in connection with the installment purchase contract made

pursuant to this section, in addition to being applied towards the cost

of the equipment, machinery or apparatus, may also be used for the

establishment of reserve funds to secure such certificates, the cost or

premium of letters of credit, insurance or other credit enhancements,

the costs of bond counsel, a financial advisor, underwriter, trustees

and paying agent, and other actual and necessary expenses directly

related to the issuance of such certificates. The foregoing shall not be

construed to authorize the use of such proceeds for the payment of

personal service expenses of the political subdivision. Where agency

certificates are executed and delivered, proceeds may be used for

payment by the political subdivision of the expenses incurred by the

agency in connection with the execution and delivery and sale of such

certificates.

(b) Each political subdivision shall have the power to enter into

agreements providing credit enhancement with respect to the installment

purchase contract and/or certificates of participation, but any

reimbursement obligation of the political subdivision shall be subject

to appropriation.

(c) The proceeds from certificates of participation may be invested

only in obligations of the United States of America, obligations

guaranteed by agencies of the United States of America where the payment

of principal and interest are guaranteed by the United States of

America, obligations of the state of New York, or special time deposit

accounts in or certificates of deposit issued by a bank or trust company

located and authorized to do business in the state and secured by a

pledge of obligations of the United States of America, obligations of

the state of New York, or obligation of any political subdivision,

school district or district corporation of the state of New York.

(d) All certificates of participation shall contain the following

clause: "This certificate shall be deemed executory only to the extent

of monies appropriated and available for the purpose of the installment

purchase contract to which it relates, and no liability on account

thereof shall be incurred by the political subdivision beyond the amount

of such monies. The installment purchase contract is not a general

obligation of (insert name of political subdivision(s)). Neither the

full faith and credit nor the taxing power of (insert name of political

subdivision(s)) are pledged to the payment of any amount due or to

become due under such installment purchase contract. It is understood

that neither this certificate nor any representation by any public

employee or officer creates any legal or moral obligation to appropriate

or make monies available for the purpose of the contract."

Agency certificates of participation shall also bear the following

legend: "Further, the installment purchase contract is not a general

obligation of the state of New York municipal bond bank agency. Neither

the full faith and credit nor the taxing power of the state of New York

are pledged to the payment of any amounts due or to become due under

such installment purchase contract."

5. (a) If an authorization for the issuance of obligations to finance

the equipment, machinery or apparatus would have been required by law to

be subject to a permissive or mandatory referendum, then the

authorization to enter into an installment purchase contract shall be

subject to a permissive or mandatory referendum, as the case may be, in

the same manner as provided for such referendum on the issuance of

obligations.

(b) If the authorization for the issuance of obligations to finance

the equipment, machinery or apparatus would have been required by law to

be subject to: (i) a certain supermajority vote of the governing board,

(ii) a mandatory or permissive referendum, or (iii) both, then the

authorization to enter into an installment purchase contract for

equipment, machinery or apparatus shall be subject to such vote,

referendum or such referendum and vote, as the case may be, in the same

manner as provided for such vote and/or referendum on the issuance of

obligations.

(c) If the authorization for the issuance of obligations would have

been subject to a referendum only if the obligations had a maturity of

more than five years or not less than some other minimum period, then

the authorization to enter into the installment purchase contract shall

be subject to referendum only if the term of the contract is equal to or

more than such minimum period of maturity.

6. (a) Installment purchase contracts made pursuant to this section,

together with any certificates of participation executed and delivered

or caused to be executed and delivered in connection therewith, shall

not constitute or create indebtedness of the state or a political

subdivision for purposes of article seven or eight of the state

constitution or section 20.00 of the local finance law, nor shall they

constitute a contractual obligation in excess of the amounts

appropriated therefor. Neither the state nor a political subdivision has

any continuing legal or moral obligation to appropriate money for said

payments or other obligations due under the installment purchase

contract. No installment purchase contract shall contain any provision

which, in the event of non-appropriation, precludes a political

subdivision from acquiring equipment, machinery or apparatus for the

same or similar purpose as the equipment, machinery or apparatus

included in the installment purchase contract for a period of more than

sixty days from the date of expiration, termination or cancellation of

such contract, provided, however, that in no case shall an installment

purchase contract contain any provision which would preclude a political

subdivision from performing any statutorily or constitutionally required

duties or functions, or require the political subdivision to pay

liquidated damages.

(b) In the case of the failure to appropriate, the sole security,

apart from any security provided by a credit enhancement, for any

remaining periodic payments shall be the equipment, machinery or

apparatus subject to the installment purchase contract, and if

certificates of participation are executed and delivered or caused to be

executed and delivered, reserve funds, if any, or any remaining proceeds

from certificates executed and delivered by or on behalf of the

political subdivision. Any installment purchase contract or any

agreement for the execution and delivery of certificates of

participation to fund an installment purchase contract may provide that

the installment purchase contract or certificates of participation are

secured by the underlying equipment, machinery or apparatus and that, in

the event the political subdivision fails to appropriate funds

sufficient for payments required under the contract, the financed

equipment, machinery or apparatus may be sold on behalf of the holders

of the certificates or other person entitled to receive payments under

the installment purchase contract, provided that any excess proceeds

from such a sale, after deduction for and payment of fees, expenses and

any taxes levied on the sale, and distribution to the holders of the

certificates in the amount of the face value of the certificates plus

accrued interest shall be paid to the political subdivision.

(c) The aggregate amount of unpaid periodic payments, excluding

interest, to be made under any outstanding installment purchase contract

shall be deemed to be existing indebtedness for the purpose of

determining the power of any political subdivision to contract

indebtedness under section 104.00 of the local finance law. No political

subdivision shall enter into any installment purchase contract if the

amount of unpaid periodic payments, excluding interest, proposed to be

made under such installment purchase contract and those outstanding,

together with the amount of outstanding indebtedness, would exceed one

hundred fifteen percent of the limit prescribed by such section 104.00

or if the total amount of such payments, excluding interest, under such

proposed contract and those outstanding would exceed forty percent of

such limit.

7. A political subdivision shall not have the power to enter into an

installment purchase contract except as authorized in this section or

the education law and nothing in this section shall authorize the

conveyance or lease of property owned by a political subdivision except

as authorized by law.

8. Whether or not certificates of participation are of such form and

character as to be negotiable instruments under the terms of the uniform

commercial code, the certificates of participation are hereby made

negotiable instruments within the meaning of and for all purposes of the

uniform commercial code, subject only to the provisions of the

certificates of participation for registration.

9. All installment purchase contracts and certificates of

participation of a political subdivision and the interest thereon, shall

be exempt from taxation for municipal and state purposes.

10. Certificates of participation are hereby made securities in which

all public officers and bodies of this state and all municipalities and

municipal subdivisions, all insurance companies and associations and

other persons carrying on an insurance business, all banks, bankers,

trust companies, savings banks and savings associations, including

savings and loan associations, building and loan associations,

investment companies and other persons carrying on a banking business,

all administrators, guardians, executors, trustees and other

fiduciaries, and all other persons whatsoever who are now or may

hereafter be authorized to invest in bonds or in other obligations of

the state, may properly and legally invest funds, including capital, in

their control or belonging to them; and are also hereby made securities

which may be deposited with and may be received by all public officers

and bodies of the state and all municipalities and public corporations

for any purpose for which the deposit of bonds or other obligations of

the state is now or may hereafter be authorized.

11. Enactment of this section shall not be constructed as invalidating

any installment purchase contract for an improvement to real property

entered into by a political subdivision prior to the effective date of

such enactment.

12. References in this section to the agency and agency certificates

of participation shall cease to have force and effect on and after July

first, nineteen hundred ninety-two.

* NB Repealed July 15, 2027