N.Y. Local Finance Law § 22.10: Sinking fund bonds of municipalities and school districts

§ 22.10 Sinking fund bonds of municipalities and school districts. a.

Any municipality or school district may issue sinking fund bonds for any

object or purpose for which serial bonds may be issued.

b. Sinking fund bonds shall mature at a date not later than the

expiration of the period of probable usefulness of the object or purpose

for which they are authorized to be issued, as computed from the date of

such bonds or, if bond anticipation notes shall have been issued in

anticipation thereof, from the date of the earliest note or notes so

issued; provided, however, that such bonds shall not mature at a date

that is later than fifty years from the date of such bonds or, if bond

anticipation notes shall have been issued in anticipation thereof, from

the date of the earliest note or notes so issued. Sinking fund bonds may

be referred to as "term bonds".

c. Sinking fund bonds shall be redeemed through annual contributions

to sinking funds established by the municipality or school district

issuing such sinking fund bonds. Each annual contribution shall be at

least equal to the amount required, if any, to enable the sinking fund

to redeem, on the date of the contribution, the same amount of

indebtedness as would have been paid and then be payable if such

indebtedness had been financed entirely by the issuance of serial bonds,

except, if an issue of sinking fund bonds is combined for sale with an

issue of serial bonds, for the same object or purpose, then the amount

of each such annual contribution shall be at least equal to the amount

required, if any, to enable the sinking fund to redeem, on the date of

each such annual contribution, (i) the amount which would be required to

be paid annually if such indebtedness had been issued entirely as serial

bonds, less (ii) the amount of indebtedness, if any, to be paid during

such year on the portion of such indebtedness actually issued as serial

bonds. There shall be established within a sinking fund established by

a municipality or school district an account for the amortization and

redemption of each issue of sinking fund bonds issued by such

municipality or school district. At the time of the issuance of sinking

fund bonds, the municipality or school district issuing such bonds shall

establish and deliver to the state comptroller a schedule setting forth

the amount required to be on deposit in the account established for the

redemption of such bonds for each year following the year of issuance of

such bonds until the year in which all the bonds of such issue are to be

redeemed. Each account shall be maintained at or above the amount

required to be on deposit pursuant to such schedule less the principal

amount of sinking fund bonds acquired pursuant to subparagraph (e) of

subdivision four of paragraph d of this section or purchased by or on

behalf of the municipality or school district and thereupon cancelled or

paid or for payment of which funds have been duly transferred to the

fiscal agent of the municipality or school district that issued the

bonds redeemable from such account. Not less than fifteen days nor more

than thirty days prior to the date on which the annual contribution

shall be made, the municipality or school district shall calculate the

amount expected to be on deposit in the sinking fund on such date and

shall certify such amount to the state comptroller. The municipality or

school district shall annually appropriate for deposit in the sinking

fund an amount equal to the difference between the amount required to be

on deposit in the sinking fund in accordance with the provisions of this

paragraph and the amount on deposit therein on the date the annual

contribution is to be made.

d. Sinking funds shall be maintained and managed by the state

comptroller pursuant to the provisions set forth below:

1. (a) Moneys deposited and retained in each account in the sinking

funds to be maintained and managed by the state comptroller shall vest

immediately in the state comptroller in trust for the benefit of the

holders of the bonds for which such account was established. Payments

and transfers from the sinking funds and the accounts therein shall not

be subject to appropriation by the legislature. The state comptroller

shall have custody of the securities and other assets in the sinking

funds; provided, however, that, subject to the rights of the owners of

the bonds, the state comptroller may contract with a bank or trust

company for the maintenance, management and custody of the sinking

funds. Such bank or trust company shall have an office and be authorized

to do business in the state and shall maintain a combined capital and

surplus of not less than seventy-five million dollars or shall be the

wholly-owned subsidiary of a corporation which maintains a combined

capital and surplus of not less than seventy-five million dollars.

(b) In performing his duties hereunder, the state comptroller shall

have no obligation to follow the directions of any bondholder or group

of bondholders nor to take any action on behalf of the bondholders,

including, without limitation, the obligation to take any action against

the municipality or the school district for nonpayment of an annual

contribution. The state comptroller shall be required to perform only

such duties as are set forth in this section and no implied covenants or

obligations shall be read into this section. The state comptroller shall

not be liable for any error of judgment made in good faith nor for any

action taken or omitted to be taken by him in good faith. The state

comptroller makes no representations as to the validity or sufficiency

of the bonds redeemable with amounts on deposit in the sinking funds,

and shall not be accountable for the use or application of the proceeds

of such bonds or of any excess in the sinking funds. The municipalities

and school districts shall deliver to the state comptroller such

certificates and documents as he shall by regulation or otherwise

request. A determination made or action taken by the state comptroller

under this section shall be final unless it is shown that such

determination or action was arbitrary and capricious or an abuse of

discretion.

(c) In connection with any claim, demand, suit, or judgment against

the state comptroller in connection with the exercise or performance of

any of his powers or duties under this section, the state comptroller

shall be entitled to representation by private counsel of his choice in

any civil judicial proceeding whenever the attorney general determines

based upon his investigation and review of the facts and circumstances

of the case that representation by the attorney general would be

inappropriate. The attorney general shall notify the state comptroller

in writing of such determination. The provisions of this subparagraph

shall be in addition to and shall not supplant the indemnification or

other benefits conferred upon the state comptroller by section seventeen

of the public officers law or otherwise, or any further indemnification

or other benefits that may be hereafter conferred by any such law. The

provisions of this subparagraph shall inure only to the state

comptroller, shall not enlarge or diminish the rights of any other

party, and shall not impair, limit or modify the rights and obligations

of any insurer under any policy of insurance.

2. As soon as practicable after a municipality or school district on

whose behalf the state comptroller is maintaining and managing a sinking

fund notifies the state comptroller of its intention to redeem sinking

fund bonds redeemable from an account in such sinking fund prior to or

at maturity, the state comptroller shall transfer the requested funds in

accordance with the instructions of such municipality or school

district.

3. Subject to the provisions of subdivision six of this paragraph, the

state comptroller shall, as soon as practicable following the request of

the municipality or school district, (i) transfer to such municipality

or school district any amounts in any account in the sinking fund held

on its behalf determined by the municipality or school district and

certified by it to the state comptroller to be over and above the amount

required to be maintained in such account pursuant to paragraph c of

this section or (ii) transfer or credit the excess in one account to

another account within a sinking fund established by such municipality

or school district. Such request shall not be made more than once in

any twelve month period.

4. (a) Moneys in any sinking fund shall be invested in any of the

following:

(i) Direct obligations of the United States of America or obligations

the principal of and interest on which are unconditionally guaranteed by

the United States of America.

(ii) Certificates of deposit issued by commercial banks or trust

companies maintaining their principal place of business in this state

which maintain, or the corporations of which they are wholly-owned

subsidiaries maintain, a combined capital and surplus of not less than

seventy-five million dollars; provided that any such investment in

certificates of deposit shall be secured by direct obligations of the

United States of America or the state or by obligations the principal of

and interest on which are unconditionally guaranteed by the United

States of America or the state in a principal amount with a fair market

value at least equal at all times to the principal amount at maturity of

such certificates of deposit, and provided further that such collateral

securities shall be physically delivered by the bank or trust company

issuing the certificate of deposit to the state comptroller or to a bank

or trust company designated pursuant to section sixty-five of the state

finance law as his agent (which designated bank or trust company shall

not be an issuer of certificates of deposit for the purposes of this

section) unless such collateral securities are issued in book-entry

form, in which case the state comptroller shall take such other action

as may be necessary to obtain title to or a perfected security interest

in such collateral securities.

(iii) With the consent of the municipality or school district on whose

behalf a sinking fund is held, securities of or guaranteed by the state

of New York or obligations of political subdivisions and public benefit

corporations thereof, other than obligations of such municipality or

school district.

(iv) Deposit accounts (other than certificates of deposit) at the

banks or trust companies described in subdivision one of this paragraph;

provided that the amounts on deposit in such accounts are secured at all

times by direct obligations of the United States of America or the state

or by obligations the principal of and interest on which are

unconditionally guaranteed by the United States of America or the state

in an amount with a fair market value at least equal at all times to the

amount of such deposits; and provided further that such collateral

securities shall be physically delivered for retention to the state

comptroller or a bank or trust company designated pursuant to section

sixty-five of the state finance law as his agent (which designated bank

or trust company shall not be the bank or trust company at which such

account is located) unless such collateral securities are issued in

book-entry form, in which case the state comptroller shall take such

other action as may be necessary to obtain title to or a perfected

security interest in such collateral securities.

(b) For purposes of making any investment of amounts pursuant to this

section, the state comptroller may consolidate moneys in any sinking

fund or account in a sinking fund with moneys in any other sinking fund

or account in the same or any other sinking fund and may transfer an

interest in an investment from one sinking fund or account to another

without liquidating the investment, but only if all such investments are

authorized or consented to for such sinking funds, and all such

investments shall be credited on a pro-rata basis to the appropriate

sinking funds and accounts. The allocable amount of income or interest

earned and gains realized in excess of losses suffered due to the

investment of amounts on deposit in any account in a sinking fund shall

be deposited upon receipt in such account. All investments made pursuant

to this section shall mature or be redeemable at the option of the

holder thereof on such dates and in such amounts as may be necessary to

pay principal of any sinking fund bonds when due, whether at maturity or

by redemption prior to maturity.

(c) Each municipality and school district shall provide the state

comptroller with information and opinions of counsel necessary to insure

that the municipality or school district complies with any restrictions

imposed by applicable federal law on the yield payable on investments in

a sinking fund. In order to comply with such yield restrictions, the

state comptroller shall, at the direction of the municipality or school

district, invest the amounts on deposit in any account of a sinking fund

of such municipality or school district in obligations described in

clause (iii) of subparagraph (a) of subdivision four of this paragraph,

the interest on which is exempt from federal income taxes. The state

comptroller is authorized to promulgate rules and regulations as he

deems appropriate to implement the provisions of this paragraph.

(d) The state comptroller may engage the services of such consultants

and counsel as he may deem necessary to assist in performing the

functions required to be performed by him under this section.

(e) The state comptroller shall, at the instruction of any

municipality or school district on whose behalf the state comptroller is

maintaining and managing a sinking fund, use his best efforts to apply

funds in any account within such sinking fund to purchase bonds

redeemable from such account.

5. The principal amount of sinking fund bonds required to be redeemed

on any date by payment from a sinking fund shall be reduced by the

principal amount of any such sinking fund bond which has been purchased

or redeemed and cancelled and not theretofore applied as a credit

against such requirement.

6. The state comptroller shall be reimbursed annually by March

fifteenth of each year for the fees and expenses of custodians of

securities in a sinking fund, fees and expenses of custodians of

collateral securities for investments in a sinking fund, fees of banks

and trust companies designated pursuant to subdivision one of this

paragraph, fees and expenses of counsel other than the attorney general,

fees and expenses of consultants, direct personnel costs of the

department of audit and control and other similar costs and related

expenses of maintaining and managing the sinking funds during the year

ending the preceding December thirty-first by the municipalities or

school districts issuing the bonds redeemable therefrom. Notwithstanding

the foregoing, the fees and expenses of consultants retained by the

comptroller shall be reimbursed by any such municipality or school

district only with its express consent. In the event that the state

comptroller shall not have been reimbursed as provided above, then the

state comptroller shall deduct the amount of the required reimbursement

from any excess on deposit in a sinking fund; provided, however, that in

no event shall the state comptroller use assets of the sinking funds

other than the excess therein for such reimbursement. The state

comptroller may establish such accounts in the state special revenue

fund as are necessary to provide for the receipt and disposition of such

payments as may be received from municipalities and school districts

pursuant to this subdivision; provided that payments and transfers from

such accounts shall be made pursuant to an appropriation provided by

law.

7. (a) The state comptroller shall adopt such regulations as he deems

appropriate to implement the provisions of this section, which may

include, but shall not be limited to, regulations establishing:

(A) The rights and responsibilities of the state comptroller in

maintaining and managing the sinking funds hereunder, which rights and

responsibilities may include, among others, that:

(i) the state comptroller undertakes to perform such duties and only

such duties as are specifically set forth in the statute, the

regulations or any agreement with the municipality or school district

and no implied covenants or obligations shall be read into the statute,

the regulations or into any agreement with the municipality or school

district against the state comptroller;

(ii) the state comptroller may conclusively rely, as to the truth of

the statements and the correctness of the opinions expressed therein,

upon certificates or opinions furnished to the state comptroller and

conforming to the requirements of the statute, the regulations and any

agreement with the municipality or school district; but in the case of

any such certificates or opinions which are specifically required to be

furnished to the state comptroller pursuant to paragraph c of this

section, the state comptroller shall be under a duty to examine the

contents of the same to determine whether or not they conform to the

requirements of the statute, the regulations and any agreement with the

municipality or school district;

(iii) the state comptroller shall not be liable for any error of

judgment made in good faith by him;

(iv) the state comptroller shall not be liable with respect to any

action taken or omitted to be taken by him in good faith in accordance

with the direction of the municipality or school district;

(v) the state comptroller may rely, and shall be protected in acting

or refraining from acting in reliance, upon any resolution, certificate,

statement, instrument, opinion, report, notice, request, direction,

consent, order, bond, debenture or other paper or document believed by

him to be genuine and to have been signed or presented by the proper

party or parties;

(vi) any request or direction of the municipality or school district

shall be sufficiently evidenced by a certificate signed by an authorized

official of the municipality or school district and any resolution of

the governing body of the municipality or school district may be

sufficiently evidenced by a copy of such resolution certified by the

appropriate official of the municipality or school district;

(vii) whenever the state comptroller shall deem it desirable that a

matter be proved or established prior to taking, suffering or omitting

any action, the state comptroller (unless other evidence be specifically

prescribed) may, in the absence of bad faith on his part, rely upon a

certificate signed by an authorized official of the municipality or

school district;

(viii) the state comptroller may consult with counsel, including the

attorney general, and the written advice of such counsel shall be full

and complete authorization and protection in respect of any action

taken, suffered or omitted by it in good faith and in reliance thereon;

(ix) the state comptroller shall not be bound to make any

investigation into the facts or matters stated in any resolution,

certificate, statement, instrument, opinion, report, notice, request,

direction, consent, order, bond or other paper or document, but the

state comptroller, in his discretion, may make such further inquiry or

investigation into such facts or matters as he may see fit, and, if the

state comptroller shall determine to make such further inquiry or

investigation, he shall be entitled to examine the books, records and

premises of the municipality or school district, personally or by agent

or attorney;

(B) Procedures for determining the value of investments in the sinking

funds and of the collateral securities securing such investments;

(C) Procedures for determining and allocating administrative expenses

related to maintaining and managing the sinking funds and the payment

thereof;

(D) Procedures for determining the amount of excesses in a sinking

fund and when withdrawals of excesses in a sinking fund may occur, for

transferring moneys from a sinking fund to redeem sinking fund bonds and

for directing the purchase of sinking fund bonds, including the

frequency with which such actions may be taken;

(E) The form and substance of reports, certificates and other material

to be delivered by the municipality or the school district to the state

comptroller;

(F) Standards for the qualification of consultants to the state

comptroller;

(G) Procedures for securing amounts on deposit in the sinking funds;

(H) Procedures for distributing the amount on deposit in a sinking

fund if such amount is insufficient to pay any bonds when due; and

(I) Procedures for the disposition of a sinking fund upon defeasance

of the sinking fund bonds, if defeasance other than by payment or

purchase by sinking fund moneys is legally permissible.

(b) Each municipality and school district is authorized to enter into

agreements with the state comptroller and the state comptroller is

authorized to enter into agreements with one or more municipality or

school district setting forth, with respect to the sinking funds and

each account therein, the dates on which annual contributions to such

accounts shall be made, the dates on which withdrawals from such

accounts may be made, the dates on which excesses in such accounts shall

be calculated, any limitations on the price to be paid for the purchase

of bonds pursuant to subparagraph (e) of subdivision four of this

paragraph and such other matters as the state comptroller and the

municipality or school district shall deem appropriate. Such agreements

shall be subject to approval only by the chief fiscal officer and the

finance board of the municipality or school district.

8. Nothing in this section shall be construed to prevent or apply to

the issuance of sinking fund bonds by the city of New York pursuant to

the authorization contained in section 22.00 of this chapter; provided,

however, that in the event the city of New York issues sinking fund

bonds pursuant to the authorization contained in this section, all of

the provisions of this section shall apply.

9. Failure to comply with any provision of this section shall not

affect the validity of any sinking fund bonds.

10. The comptroller shall annually prepare a report with respect to

the maintenance and management of sinking funds authorized by this

section. Such report, with respect to each municipality and school

district issuing sinking fund bonds pursuant to this section, shall

include, but not be limited to, a summary statement of the cash and

bonds invested in sinking funds, earnings thereon and disbursements

therefrom, and fees charged including information pertaining to the

allocation of the costs of the department of audit and control of

managing and maintaining such funds. Such report may also include any

other matter which the comptroller deems advisable. Such report shall be

delivered not later than May thirtieth to the governor, the temporary

president of the senate, the speaker of the assembly, the chairman of

the senate finance committee, the chairman of the assembly ways and

means committee and the chief fiscal officer of each such municipality

and school district.