§ 159I-13. Sources and security for units of local government.
§ 159I‑13. Sourcesand security for units of local government.
(a) The source or sources of and the security for payment ofeach loan agreement shall be determined by the governing body of such unit oflocal government and shall be set forth in the loan agreement.
(b) In the event that, under the provisions of The LocalGovernment Bond Act a bond order authorizing the issuance of bonds that pledgethe faith and credit of a unit of local government, that is otherwiseauthorized to issue bonds under the act, for the purpose of providing funds forone or more purposes that constitute eligible projects within the meaning ofthis Chapter has taken effect, then, in lieu of issuing any bonds authorized orany bond anticipation note in anticipation of such bonds, but not sold anddelivered pursuant to such order, the governing body of any unit of localgovernment may enter into a loan agreement authorized by this Chapter and maypledge the faith and credit of such unit to secure its obligation to make thepayments required under such loan agreement or a credit facility in support ofsuch loan agreement, provided the following conditions are met:
(1) The aggregate principal amount due under such loan agreementdoes not exceed the aggregate amount of authorized but unissued bonds, or anybond anticipation notes in anticipation of such bonds, under the bond order;and
(2) The project to be acquired is a purpose for which proceedsof bonds or bond anticipation notes may be expended under the bond order.
(c) Each unit of local government may agree to apply to thepayment of a loan agreement any available source or sources of revenues of suchunit and, to the extent the generation of such revenues is within the power ofsuch unit, to enter into covenants to take action in order to generate suchrevenues, provided such agreement to use such sources to make payments or suchcovenant to generate revenues does not constitute a pledge of the unit's taxingpower.
(d) Each unit of local government otherwise having the power oftaxation may enter into loan agreements constituting a continuing contract andproviding for the making of payments in ensuing fiscal years from any availablesource or sources of revenues, including the proceeds of taxes realized fromthe exercise of the unit's power of taxation, appropriated by the unit in itsannual budget provided:
(1) The governing body of such unit shall have appropriatedsufficient funds to pay any amount to be paid under the loan agreement in thefiscal year in which such contract is entered into, this appropriation to bemade prior to the entering into of the loan agreement;
(2) There is included in the loan agreement a provisionautomatically cancelling the loan agreement in the event the governing body ofthe unit decides not to appropriate funds to make payment in an ensuing fiscalyear in which event the obligation of the unit to make any future payments inany ensuing fiscal year shall cease;
(3) No deficiency judgment requiring the exercise of the unit'spower of taxation may be entered against the unit in any action for breach of acontractual obligation authorized by this subsection; and
(4) The taxing power of the unit is not pledged to secure anypayments to be made pursuant to the loan agreement and the Agency shall haveagreed that it has no right to require the exercise of a unit's power oftaxation to secure such loan agreement.
No loan agreement may contain a nonsubstitution clause which restrictsthe right of a unit to replace or provide a substitute for any project financedpursuant to the loan agreement.
(e) The obligation of a unit of local government with respect tothe sources of revenues authorized by subsections (c) and (d) of this sectionshall be specifically identified in the proceedings of the governing bodyauthorizing the unit to enter into a loan agreement. This loan agreement shallbe valid and binding from the date the unit enters into the loan agreement. The sources of payment so specifically identified and then held or thereafterreceived by a unit, any fiduciary, or the Agency shall immediately be subjectto the lien of the loan agreement without any physical delivery of such sourcesor further act. This lien shall be valid and binding as against all partieshaving claims of any kind in tort, contract, or otherwise against a unitwithout regard to whether such parties have notice thereof. The proceedings,the loan agreement, or any other document or action by which the lien on asource of payment is created need not be filed or recorded in any manner otherthan as provided in the Chapter.
Any loan agreement secured by a source or sources of revenue authorizedby subsection (b), (c) or (d) of this section may provide additional securityby the granting of a security interest in the project financed to securepayment of the purchase money provided by the loan agreement, including a deedof trust on any real property so acquired.
(f) The interest payable by a unit to the Agency on any loanagreement may be at such rate or rates, including variable rates, as may bedetermined by the Local Government Commission with the approval of thegoverning body of such unit. Such approval may be given as the governing bodyof such unit may direct, including without limitation, a certificate signed bya representative of the unit designated by the governing body of such unit. TheAgency may determine that it is necessary that certain provisions in theAgency's bonds or notes be reflected, in similar terms, in loan agreements, sothat if it is necessary to vary the interest rate or call the principal priorto maturity of certain of the Agency's bonds or notes the Agency will have thepower to effect a similar variation in interest rate or a similar call prior tomaturity of certain loan agreements. Accordingly, in fixing the details of aloan agreement, the governing body of such unit may provide that a loanagreement be:
(1) Made payable from time to time on demand or tender forpurchase by the Agency, provided a credit facility supports such a loanagreement. A credit facility is not required if the governing body of suchunit specifically determines that a credit facility is not required upon afinding and determination by the governing body that the absence of a creditfacility will not affect the unit's ability to make payments on demand ortender, and will not materially and adversely affect the financial position ofthe unit and the entering into of the loan agreement at a reasonable interestcost to the unit;
(2) Additionally supported by a credit facility;
(3) Made subject to redemption or a mandatory tender forpurchase by the unit prior to maturity; and
(4) Bear interest at a rate or rates that may vary for suchperiod or periods of time, all as may be provided in the proceedings of thegoverning body providing for the entering into of the loan agreement,including, without limitation, such variations as may be permitted pursuant toa par formula.
(g) As used in this section:
(1) "Credit facility" means an agreement entered intoby the unit of local government with a bank, savings and loan association, orother banking institution; an insurance company, reinsurance company, suretycompany or other insurance institution; a corporation, investment banking firmor other investment institution; or any financial institution providing forprompt payment of all or any part of the principal or purchase price (whetherat maturity, presentment, or tender for purchase, redemption, or acceleration),redemption premium, if any, and interest on any loan agreement payable ondemand or tender by the Agency, in consideration of the unit agreeing to repaythe provider of such credit facility in accordance with the terms andprovisions of the agreement; the provider of any credit facility may be locatedeither within or without the United States of America.
(2) "Par formula" shall mean any provision or formulaadopted by the unit to provide for the adjustment from time to time, of theinterest rate or rates borne by any loan agreement, including:
a. A provision providing for such adjustment so that thepurchase price of such loan agreement in the open market would be as close topar as possible.
b. A provision providing for such adjustment based upon apercentage or percentages of a prime rate or base rate, which percentage orpercentages may vary or be applied for different periods of time.
c. A provision providing for such adjustment based upon theadjustments of the interest rate or rates of the Agency's bonds and notes, or
d. Such other provision as the unit may determine to beconsistent with this Chapter and will not affect the unit's ability to pay theprincipal of and the interest on any loan agreement, and will not materiallyand adversely affect the financial position of the unit and the entering intoof the loan agreement at a reasonable interest cost to the unit.
(h) Any loan agreement may provide for an acceleration of therepayment schedule. (1989, c. 756, s.1.)