HSB 682 (LSB 6186YC (1) 85)

HOUSE FILE _____

BY  (PROPOSED COMMITTEE ON WAYS AND MEANS BILL BY CHAIRPERSON SANDS)

A BILL FOR

An Act relating to state and local government powers and limitations, including authorizing loans from city reserve funds.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

    Section 1.  Section 384.4, subsection 1, Code 2014, is amended by adding the following new paragraph:
   NEW PARAGRAPH.  f.  Payments of principal and interest on loans entered into pursuant to section 384.24B and authorized for repayment by the council from the debt service fund.
    Sec. 2.  NEW SECTION.  384.24B  General obligation loans funded by the city.
   1.  A city may authorize a loan, as defined in this section, to borrow money for any general corporate purpose or essential corporate purpose in accordance with and subject to the provisions of this section. 
   2.  a.  For purposes of this section, “loan” means the sum of the transfers from the surplus of one or more reserve accounts or funds of the city which transfers are authorized for the purpose specified in the loan authorization document. A transfer from a reserve account or fund for the purposes of this section shall not cause the balance of reserves in such account or fund at the close of the fiscal year following the fiscal year in which the transfer is made to fall below any minimum balance prescribed by law for such account or fund. For the purposes of this section, “reserve account or fund” means moneys held by a city that are not operating funds, as defined in section 12B.10A, and which is authorized by law to receive interest pursuant to section 12C.7.
   b.  A loan to finance a general obligation bond project under this section shall not result in a user fee, rate, or property tax increase to support the annual operations of the account or fund from which the loan is made, as a result of the unavailability of the surplus funds. For the purposes of this section, “surplus” means the cash balance available in any account or fund from which a loan will be made under this section which exceeds the amount of expenses or disbursements made from the account or fund in the previous three months, plus the amount of transfers, payments, or disbursements required in the following three months.
   3.  a.  A loan entered into by a city pursuant to this section may contain provisions similar to those found in loan agreements between private parties, including but not limited to the issuance of notes to evidence its obligations. The terms of each loan shall require repayment of the loan within ninety days to the extent necessary to prevent a user fee, rate, or property tax increase which raises the user fees, rates, or property taxes payable into the account or fund from which the loan is made above the level in effect at the time a loan under this section is authorized.
   b.  A loan authorized pursuant to this section shall constitute an indebtedness within the meaning of any constitutional debt limitation and shall be reported by the city to the state treasurer in the same manner as required for bonding activities pursuant to section 12.1. The full or partial refunding of any loan under this section shall be authorized as an essential corporate purpose pursuant to section 384.24, subsection 3, paragraph “f”.
   4.  A loan made pursuant to this section is payable from the debt service fund of the city. The governing body shall follow the same authorization procedures required for the issuance of general obligation bonds issued for the same purpose to authorize a loan made payable from the debt service fund. Upon approval of a loan, the loan shall be accounted for in accordance with section 384.20.
   5.  A loan made pursuant to this section shall include provisions establishing an interest rate on the loan that shall be set at a rate that is between the interest rate established pursuant to section 12C.6, subsection 2, paragraph “a”, and the interest rate established pursuant to section 74A.6, subsection 2.
   6.  Repayments of principal and interest shall be paid to the reserve fund or account from which all or a portion of the funds were advanced for the loan in the proportion that the amount of the advance from the fund or account bears to the entire amount of the loan. 
   7.  a.  The limitation in section 346.24 does not apply to a transfer made pursuant to this section or to a loan authorized pursuant to this section.
   b.  A city shall not become indebted under this section to an amount exceeding six million dollars.
   8.  A loan made pursuant to this section shall not include any transfers or obligations from the reserve fund or account of a city utility or of a combined city utility.
   9.  The powers granted under this section shall not be construed as a limitation of the existing powers of a city.
    Sec. 3.  Section 384.25, Code 2014, is amended to read as follows:
   384.25  General obligation bonds or loans for essential purposes.
   1.  A city which proposes to carry out any essential corporate purpose within or without its corporate limits, and to contract indebtedness and issue general obligation bonds or authorize a loan described in section 384.24B, to provide funds to pay all or any part of the cost of a project must do so in accordance with the provisions of this division.
   2.  Before the council may institute proceedings for the issuance of bonds or authorization of a loan for an essential corporate purpose, a notice of the proposed action, including a statement of the amount and purposes of the bonds or loan, and the time and place of the meeting at which the council proposes to take action for the issuance of the bonds or authorization of the loan, must be published as provided in section 362.3. At the meeting, the council shall receive oral or written objections from any resident or property owner of the city. After all objections have been received and considered, the council may, at that meeting or any adjournment thereof, take additional action for the issuance of the bonds or authorization of the loan or abandon the proposal to issue the bonds or authorize the loan. Any resident or property owner of the city may appeal the decision of the council to take additional action to the district court of the county in which any part of the city is located, within fifteen days after the additional action is taken, but the additional action of the council is final and conclusive unless the court finds that the council exceeded its authority. The provisions of this subsection with respect to notice, hearing, and appeal, are in lieu of the provisions contained in chapter 73A, or any other law.
   3.  a.  Notwithstanding subsection 2, a council may institute proceedings for the issuance of bonds or the authorization of a loan for an essential corporate purpose specified in section 384.24, subsection 3, paragraph “w” or “x”, in an amount equal to or greater than three million dollars by causing a notice of the proposal to issue the bonds or authorize the loan, including a statement of the amount and purpose of the bonds or loan, together with the maximum rate of interest which the bonds are to bear or which will be charged to the principal balance of the loan, and the right to petition for an election, to be published at least once in a newspaper of general circulation within the city at least ten days prior to the meeting at which it is proposed to take action for the issuance of the bonds or the authorization of the loan.
   b.  If at any time before the date fixed for taking action for the issuance of the bonds or the authorization of the loan, a petition is filed with the clerk of the city signed by eligible electors of the city equal in number to twenty percent of the persons in the city who voted for the office of president of the United States at the last preceding general election that had such office on the ballot, asking that the question of issuing the bonds or authorizing the loan be submitted to the registered voters of the city, the council shall either by resolution declare the proposal to issue the bonds or authorize the loan to have been abandoned or shall direct the county commissioner of elections to call a special election upon the question of issuing the bonds or authorizing the loan. Notice of the election and its conduct shall be in the manner provided in section 384.26.
   c.  If a petition is not filed, or if a petition is filed and the proposition of issuing the bonds or authorizing the loan is approved at an election, the council may proceed with the authorization and issuance of the bonds or authorization of the loan.
    Sec. 4.  Section 384.26, subsections 1, 2, 4, and 5, Code 2014, are amended to read as follows:
   1.  A city which proposes to carry out any general corporate purpose within or without its corporate limits, and to contract indebtedness and issue general obligation bonds or authorize a loan described in section 384.24B, to provide funds to pay all or any part of the costs of a project, must do so in accordance with the provisions of this division.
   2.  Before the council may institute proceedings for the issuance of bonds or authorization of a loan for a general corporate purpose, it shall call a special city election to vote upon the question of issuing the bonds or authorizing the loan. At the election the proposition must be submitted in one of the following form forms, as applicable:
   Shall the ............ (insert the name of the city) issue its bonds in an amount not exceeding the amount of $.... for the purpose of ..........?
   Shall the .......... (insert the name of the city) authorize a loan from its surplus funds in an amount not exceeding the amount of $.... for the purpose of ..........?

   4.  The proposition of issuing general corporate purpose bonds or authorizing a loan for a general corporate purpose is not carried or adopted unless the vote in favor of the proposition is equal to at least sixty percent of the total vote cast for and against the proposition at the election. If the proposition of issuing the general corporate purpose bonds or authorizing a loan for a general corporate purpose is approved by the voters, the city may proceed with the issuance of the bonds or authorization of the loan.
   5.  a.  Notwithstanding the provisions of subsection 2, a council may, in lieu of calling an election, institute proceedings for the issuance of bonds or authorization of a loan for a general corporate purpose by causing a notice of the proposal to issue the bonds or authorize the loan, including a statement of the amount and purpose of the bonds or loan, together with the maximum rate of interest which the bonds are to bear or which the loan is to bear, and the right to petition for an election, to be published at least once in a newspaper of general circulation within the city at least ten days prior to the meeting at which it is proposed to take action for the issuance of the bonds or authorization of the loan subject to the following limitations:
   (1)  In cities having a population of five thousand or less, in an amount of not more than four hundred thousand dollars.
   (2)  In cities having a population of more than five thousand and not more than seventy-five thousand, in an amount of not more than seven hundred thousand dollars.
   (3)  In cities having a population in excess of seventy-five thousand, in an amount of not more than one million dollars.
   b.  If at any time before the date fixed for taking action for the issuance of the bonds or the authorization of the loan, a petition is filed with the clerk of the city in the manner provided by section 362.4, asking that the question of issuing the bonds or authorizing the loan be submitted to the registered voters of the city, the council shall either by resolution declare the proposal to issue the bonds or authorize the loan to have been abandoned or shall direct the county commissioner of elections to call a special election upon the question of issuing the bonds or authorizing the loan. Notice of the election and its conduct shall be in the manner provided in the preceding subsections of this section.
   c.  If no petition is filed, or if a petition is filed and the proposition of issuing the bonds or authorizing the loan is approved at an election, the council may proceed with the authorization and issuance of the bonds or the authorization of the loan.
    Sec. 5.  Section 384.33, Code 2014, is amended to read as follows:
   384.33  Action.

   No action may be brought which questions the legality of general obligation bonds, notes, or loans under this chapter or the power of the city to issue the bonds, notes or loans or the effectiveness of any proceedings relating to the authorization and issuance of the bonds, notes, or loans from and after sixty days from the time the bonds, notes or loans are ordered issued by the city.
EXPLANATION
The inclusion of this explanation does not constitute agreement with

the explanation’s substance by the members of the general assembly.
   This bill relates to state and local government powers and limitations.
   The bill enacts new Code section 384.24B to allow a city to borrow surplus money from its reserve accounts or funds for any general corporate purpose or essential corporate purpose. The bill requires that a city certify taxes to be levied for deposit in the debt service fund in the amount necessary to pay principal and interest on loans authorized under the bill. The bill defines “loan”, “surplus”, and “reserve account or fund”.
   The bill requires that such loans not cause the balances of such reserve accounts or funds to fall below any minimum balance prescribed by law and requires that a city shall not become indebted under such loans to an amount in excess of $6 million. The bill requires that loans from reserve funds be reported to the state treasurer in the same manner as required for bonds issued by a city. The bill requires that such loans not result in a user fee, rate, or property tax increase as a result of unavailability of surplus funds. The terms of each loan shall require repayment of the loan within 90 days to the extent necessary to prevent a user fee rate or property tax increase. Such a loan shall be payable from the city debt service fund and shall constitute an indebtedness within the meaning of any statutory debt limitation.
   The full or partial repayment of a loan entered into under the bill shall constitute an essential corporate purpose pursuant to Code section 384.24, subsection 3, paragraph “f”. The bill provides that upon approval of such a loan that the loan shall be accounted for as a separate account pursuant to current Code section 384.20. The bill further provides that interest rates on such a loan be set between the interest rate established for the deposit of public funds, established in current Code section 12C.6 and the maximum interest rate established for public obligations and assessments under current Code section 74A.6, subsection 2. The bill provides that such a loan not include any transfers or obligations from a reserve fund or account of a city utility or combined city utility.
   The bill requires that a city council follow substantially the same procedures for the issuance of general obligation bonds for essential corporate purposes, pursuant to Code section 384.25, or for general corporate purposes, pursuant to Code section 384.26 when making a loan from reserve funds.
   The bill further provides that no action may be brought against a city regarding the legality, power to issue, or power to authorize notes or loans under Code chapter 384 at any time after 60 days following issuance.