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Public Finance Alert- Proposed Rule Change Affecting Certain Refunding Transactions
By Jeffrey D. Winitsky on June 14, 2016

On June 6, 2016, the New Jersey Department of Community Affairs, Division of Local Government Services, Local Finance Board ("LFB") published a notice of proposed changes to the New Jersey Administrative Code that, if finally adopted, would allow any local unit subject to the "Local Authorities Fiscal Control Law" (N.J.S.A. 40A:5A-1 et seq.) to issue refunding bonds to realize debt service savings without the prior approval of the LFB if certain conditions are present at the time of such refunding and certain other requirements are met ("Proposed Rule Change").

 In particular, the Proposed Rule Change would have the effect of amending Chapter 31 of Title 5 of the New Jersey Administrative Code by adding a new Subchapter 8.1 to permit "local units" subject to the Local Authorities Fiscal Control Law (generally consisting of county improvement authorities, municipal utility authorities, housing authorities, parking authorities and fire districts) to issue refunding bonds to realize debt service savings without having to seek prior approval from the LFB if the following conditions are present:  (i) the present value savings are at least three percent (3%); (ii) the new debt service shall be structured such that no annual payment is more than it was under the original debt service schedule; (iii) the final maturity of the refunding bond does not extend the maturity date of the refunded debt; (iv) the debt savings are substantially level across the life of the refunding; and (v) the resolution allowing the refunding is adopted by at least two-thirds vote of the full membership of the governing body.

Under the Proposed Rule Change, after the foregoing conditions are met, issuers would be required to file with the LFB a comparison of the initial and refunding debt service schedules showing an annual present value savings; a summary of the refunding; an itemized accounting of all costs of issuance; a certification from the chief financial officer or equivalent for the local unit that all of the conditions set forth above have been met; and a resolution has been passed by at least two-thirds of the full membership of the governing body allowing for the refunding.

The Proposed Rule Change, if adopted, will permit local units subject to the Local Authorities Fiscal Control Law to move forward with refunding transactions more efficiently and effectively and will allow local units to more expediently capture interest costs savings without incurring additional costs and administrative impediments.  Comments on the Proposed Rule Change will be accepted by the New Jersey Department of Community Affairs ("DCA") for a period of 60 days (until August 5, 2016).  To that end, we will provide future notices to advise if and when the Proposed Rule Change is formally adopted.

For your reference, see a copy of the Notice of the Proposed Rule Change provided by the DCA: 

The attorneys at Parker McCay P.A. can be reached at any time to discuss the Proposed Rule Change in more detail and answer any questions you may have in connection with its application and impact.

Philip A. Norcross

Jeffrey D. Winitsky

Jeanne M. Stiefel

P: (856) 985-4021

P: (856) 985-4086

P: (856) 985-4024

Craig A. Gargano

Alexis B. Batten

P: (856) 985-4033

P: (856) 985-4067

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