Public Funds and Financing

Plain English Breakdown

The effectiveness of the new rules in preventing financial risks for local governments remains uncertain.

Local Government Debt Rules

This bill changes how local governments in Tennessee can issue certain types of debt and requires approval from a state official before issuing risky debt.

What This Bill Does

• Expands the definition of 'local government' to include water, wastewater, or energy authorities for purposes related to bonds and notes issued by these entities.
• Requires local governments to get permission from the comptroller of the treasury before issuing 'balloon indebtedness,' which is debt with a long-term maturity or delayed principal repayment.
• Adds new rules for local governments to follow when they want to issue debt with variable interest rates, reset provisions, or put options. This includes getting approval from the comptroller and providing additional information if requested.

Who It Names or Affects

• Local governments in Tennessee, including cities, towns, counties, water authorities, wastewater authorities, energy authorities, and utility districts.
• The comptroller of the treasury who must review and approve certain types of local government debt.

Terms To Know

Balloon Indebtedness

Debt that has a final term to maturity totaling 31 or more years from the original date of issuance, delays principal repayment for more than three years after issuance, capitalizes interest beyond the later of the construction period or three years from issuance, or does not have substantially level or declining debt service.

Heightened Risk Debt

Debt with variable interest rates, reset provisions, or put options that allow early repayment by the holder.

Limits and Unknowns

• The bill does not specify what happens if a local government fails to get approval before issuing risky debt.
• It is unclear how this legislation will impact existing local government debts issued before July 1, 2025.

Official Summary Text

BALLOON INDEBTEDNESS

On and after
July 1, 2014, if any local government or local government instrumentality proposes to issue balloon indebtedness,
present law requires
the local government or local government instrumentality
to
first obtain approval from the comptroller of the treasury i
n accordance with
the Local Government Public Obligations Act of 1986. "Balloon indebtedness" means
indebtedness that

(i)
h
as a final term to maturity totaling
31
or more years from the original date of issuance of the indebtedness to the date the indebte
dness is fully amortized, including any subsequent refinancing;

(ii)
d
elays principal repayment for more than three years after the date of issuance;

(iii)
c
apitalizes interest beyond the later of the construction period or three years from the date of iss
uance; or

(iv)
d
oes not have substantially level or declining debt service
. The term excludes a number of scenarios, including indebtedness that i
s evidenced by a loan with either the United States department of agriculture or the United States department
of housing and urban development
. This bill rewrites this exemption to broaden it to include indebtedness that i
s evidenced by a loan with either this state or a department or agency of the federal government
.

LOCAL GOVERNMENT

Solely for purposes of b
alloon indebtedness, present law authorizes a
local government
to
account for the amortization of principal and the payment of debt service on
a
fiscal year basis
, a
calendar year basis
,
or
an
annual basis commencing on the date upon which debt is issued.

Prior to the adoption by the local government or local government instrumentality of any action authorizing the issuance of balloon indebtedness, the local government or local government instrumentality
must
submit a plan of balloon indebtedness to the co
mptroller of the treasury or the comptroller's designee for approval.

For purposes of the provisions above, present law defines a "local government" as
an incorporated city or town, metropolitan government, county, or utility district
. This bill adds a
water
, wastewater, or energy authority
to the list.

TREATMENT OF PRINCIPAL OF DEBT

Present law provides that the
principal of debt will be treated as being payable or amortized
(i)
upon its stated maturity,
(ii)
upon any mandatory redemption date, and
(
iii)
upon any date on which the holder of the debt has the option to require the debt to be prepaid, redeemed, or purchased, other than with the proceeds of a liquidity facility provided by a third party.
This bill revises this provision to remove such pr
incipal from being payable or amortized according to (iii).

PROCESS FOR HEIGHTENED RISK DEBT

Prior
to issuing a debt obligation containing
(i) a
variable interest rate or rates
; (ii) an
interest rate reset provision where the interest rate can be
changed at certain intervals during the life of the debt; or
(iii) a
put option where the holder of the debt has the ability to force repayment before the final maturity date of the debt
("
heightened risk debt
")
,
this bill requires
a local government
to
su
bmit a request to the comptroller of the treasury or the comptroller's designee for approval.
This bill authorizes the
comptroller or the comptroller's designee
to
request additional information as may be required to properly review the request.
Under th
is bill, the
comptroller or the comptroller's designee
must
evaluate each request based on the local government's particular circumstances and
must
approve the request only if a determination is made that the debt terms are in the public's interest.

This
bill requires the
comptroller or the comptroller's designee
to
report the comptroller's approval or disapproval of the request to the governing body of the local government within 15 business days after receipt of the request and all requested supplementa
l documentation. After receiving the approval of the comptroller or the comptroller's designee of the request
,
or
,
after the expiration of 15

business days from the date the request and all supplemental documentation are received by the comptroller or the
comptroller's designee and no disapproval having been reported by the comptroller or the comptroller's designee, whichever date is earlier, the local government may take such action with reference to the proposed request as it deems advisable in accordan
c
e with this
bill
.

This
bill clarifies that the provisions under this heading
do not apply to loans or interim certificates with or purchased by either this state or a department or agency of the federal government.

Current Bill Text

HOUSE BILL 1338
By Lamberth

SENATE BILL 191
By Taylor

SB0191
000710
- 1 -

AN ACT to amend Tennessee Code Annotated, Section 9-
21-133 and Title 9, Chapter 21, Part 4, relative to
local government debt.

BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF TENNESSEE:
SECTION 1. Tennessee Code Annotated, Section 9-21-133(a)(1)(B), is amended by
deleting subdivision (vii) and substituting the following:
(vii) Is evidenced by a loan with either this state or a department or agency of
the federal government; or
SECTION 2. Tennessee Code Annotated, Section 9-21-133(a)(3), is amended by
deleting the subdivision and substituting the following:
(3) "Local government" means any incorporated city or town; metropolitan
government; county; water, wastewater, or energy authority; or utility district; and
SECTION 3. Tennessee Code Annotated, Section 9-21-133(b), is amended by deleting
the subsection and substituting the following:
(b) For purposes of this section, principal of debt must be treated as being
payable or amortized upon its stated maturity or upon any mandatory redemption date.
SECTION 4. Tennessee Code Annotated, Title 9, Chapter 21, Part 4 ,is amended by
adding the following new section:
9-21-409.
(a) As used in this section:
(1) "Heightened risk debt" means any debt obligation containing:
(A) A variable interest rate or rates;

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(B) An interest rate reset provision, where the interest rate can be
changed at certain intervals during the life of the debt; or
(C) A put option, where the holder of the debt has the ability to
force repayment before the final maturity date of the debt; and
(2) "Local government" means any incorporated city or town;
metropolitan government; county; water, wastewater, or energy authority; or
utility district.
(b) Prior to issuing any heightened risk debt, a local government shall submit a
request to the comptroller of the treasury or the comptroller's designee for approval. The
comptroller or the comptroller's designee may request any additional information as may
be required to properly review the request. The comptroller or the comptroller's
designee shall evaluate each request based on the local government's particular
circumstances and shall approve the request only if a determination is made that the
debt terms are in the public's interest.
(c) The comptroller of the treasury or the comptroller's designee shall report the
comptroller's approval or disapproval of the request to the governing body of the local
government within fifteen (15) business days after receipt of the request and all
requested supplemental documentation. After receiving the approval of the comptroller
or the comptroller's designee of the request or after the expiration of fifteen (15)
business days from the date the request and all supplemental documentation are
received by the comptroller or the comptroller's designee and no disapproval having
been reported by the comptroller or the comptroller's designee, whichever date is earlier,
the local government may take such action with reference to the proposed request as it
deems advisable in accordance with this section.

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(d) This section does not apply to loans or interim certificates with or purchased
by either this state or a department or agency of the federal government.
SECTION 5. This act takes effect July 1, 2025, the public welfare requiring it.