Local Government, General

Plain English Breakdown

The bill's changes do not apply retroactively and only affect future financial transactions.

Local Government Debt Act

This bill modifies Tennessee's laws regarding local government debt by expanding definitions and clarifying procedures for issuing certain financial notes.

What This Bill Does

• Expands the definition of 'local government' to include utility authorities, allowing them to receive emergency financial assistance from the state.
• Clarifies that local governments can issue short-term notes (notes) even if they mature beyond their fiscal year-end, provided these are approved by the comptroller and guaranteed by the state funding board or in cases of natural disaster-related economic distress.
• Requires grant anticipation notes to be secured by a pledge of future grant money received from state or federal agencies, with an option for additional security like general obligation pledges or revenue pledges.

Who It Names or Affects

• Local governments in Tennessee, including utility districts and newly included utility authorities.
• The comptroller of the treasury who must approve certain financial instruments issued by local governments.

Terms To Know

Grant anticipation notes

Short-term debt instruments that a local government can issue to fund public works projects before receiving grants from state or federal agencies.

General obligation pledge

A promise by a local government to use its taxing power to repay borrowed money, making the notes backed by the full faith and credit of the government.

Limits and Unknowns

• The bill does not specify an effective date or provide details on how it will be funded.
• There are multiple unknown variables that make it difficult to determine the exact fiscal impact on local governments.

Official Summary Text

The "
Emergency Financial Aid to Local Government Law of 1995
"
provide
s
procedures whereby local governments may acquire emergency technical and financial assistance provided and guaranteed by the state or, in the case of natural disaster, may obtain adequate financing, thus enabling such local governments to stabilize their
financial condition and to meet their current operational and debt service costs.
For purposes of such law, a "local government" includes a
utility district for purposes of
the issuanc
e of notes. This bill expands the term to also include utility authorities.

Further, this bill clarifies when a governing body of a local government may issue notes that mature beyond the close of the fiscal year, and allows a local government to issue a note if it is a
pproved by the comptroller of the treasury or the comptroller's designee after the local government has reasonably demonstrated that a natural disaster has caused economic distress to the local government.

LOCAL GOVERNMENT PUBLIC OBLIGATIONS ACT OF 1986

The "
Local Government Public Obligations Act of 1986
"
provide
s
a uniform and comprehensive statutory framework authorizing any local government to issue general obligation bonds and revenue bonds for public works projects, general obligation bonds for certain unfunded pension obligations, general obligation refundin
g bonds, revenue refunding bonds, bond anticipation notes, capital outlay notes, grant anticipation notes, tax anticipation notes, and health care revenue anticipation notes, and to authorize th
e destruction of bonds, notes and coupons.
This bill makes changes relative to interest-bearing grant anticipation notes as described below.

Timing of Issue and Sale

This bill clarifies when the governing body of a local government may issue and sell interest-bearing grant anticipation notes. The governing body of a local government, acting by resolution, may issue and sell
such
notes for public works projects in anticipation of money to be received pursuant to a grant contract between a state or federal agency
,
and the local government. The resolution is not effective until the contract has been executed by all parties to the contract. The governing body must recei
ve approval from the comptroller of the treasury or the comptroller's designee prior to the issuance of the grant anticipation notes.

Security

This bill requires g
rant anticipation notes
to
be secured by a pledge of the money to be received pursuant to a grant contract between a state or federal agency and a local government, in an amount not less than the principal amount of such notes. At its discretion, the local government may add as a
dditional security to the grant anticipation notes
any
of the following:



A general obligation pledge
.



A revenue pledge from a special revenue or enterprise fund, as defined by generally accepted accounting principles, that benefits from the grant.

Interest

This bill authorizes i
nterest on grant anticipation notes
to
be a general obligation of a local government, and the local government has the authority to levy ad valorem taxes for the payment of interest on such notes.
However, t
his
bill
does not preclude a local government from issuing capital outlay notes or bond anticipation notes in conjunction with grant anticipation notes issued
as long as
the proceeds from the sale of any such capital outlay notes or bond anticipation notes
are
not applied to the payment of such grant anticipation notes.

Current Bill Text

HOUSE BILL 1672
By Jones R

SENATE BILL 1679
By Crowe
SB1679
010585
- 1 -

AN ACT to amend Tennessee Code Annotated, Title 9,
Chapter 13, Part 2 and Title 9, Chapter 21, Part 7,
relative to local government debt.

BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF TENNESSEE:
SECTION 1. Tennessee Code Annotated, Section 9-13-203(3), is amended by adding
the language "or utility authority" after "utility district".
SECTION 2. Tennessee Code Annotated, Section 9-13-206, is amended by deleting the
section and substituting:
Notwithstanding another law to the contrary, the governing body of a local
government may issue notes that mature beyond the close of the fiscal year in which
such notes are issued when such notes are:
(1) Approved by the comptroller of the treasury or the comptroller's
designee and guaranteed by the state funding board;
(2) Approved by the comptroller of the treasury or the comptroller's
designee in the case of economic distress due to a natural disaster certified by
the federal emergency management agency (FEMA); or
(3) Approved by the comptroller of the treasury or the comptroller's
designee after the local government has reasonably demonstrated to the
comptroller or the comptroller's designee that a natural disaster has caused
economic distress to the local government.
SECTION 3. Tennessee Code Annotated, Section 9-21-701, is amended by deleting the
section and substituting the following:

- 2 - 010585

The governing body of a local government, acting by resolution, may issue and
sell interest-bearing grant anticipation notes for public works projects in anticipation of
money to be received pursuant to a grant contract between a state or federal agency
and the local government. The resolution is not effective until the contract between the
state or federal agency and the local government has been executed by all parties to the
contract. The governing body must receive approval from the comptroller of the treasury
or the comptroller's designee prior to the issuance of the grant anticipation notes.
SECTION 4. Tennessee Code Annotated, Section 9-21-704, is amended by deleting the
section and substituting the following:
(a) Grant anticipation notes issued under this part must be secured by a pledge
of the money to be received pursuant to a grant contract between a state or federal
agency and a local government, in an amount not less than the principal amount of such
notes. At its discretion, the local government may add as additional security to the grant
anticipation notes one (1) or both of the following:
(1) A general obligation pledge; or
(2) A revenue pledge from a special revenue or enterprise fund, as
defined by generally accepted accounting principles, that benefits from the grant.
(b) Interest on grant anticipation notes may be a general obligation of a local
government, and the local government has the authority to levy ad valorem taxes for the
payment of interest on such notes. This section does not preclude a local government
from issuing capital outlay notes or bond anticipation notes in conjunction with grant
anticipation notes issued under this section; provided, that the proceeds from the sale of
any such capital outlay notes or bond anticipation notes must not be applied to the
payment of such grant anticipation notes.
SECTION 5. This act takes effect upon becoming a law, the public welfare requiring it.