Bipartisan Group of Senators Advance Additional Municipal Debt Reform Legislation

by McNees Wallace & Nurick LLC

A bipartisan group of Pennsylvania Senators led by Senators John Eichelberger (R) and Rob Teplitz (D), the majority and minority chairs of the Senate’s Local Government Committee, and including Senators Mike Folmer (R) and John Blake (D), has introduced another package of municipal debt reform bills that would dramatically change the way local governments issue debt.  Senate Bills 901 through 904 follow the prior introduction of Senate Bills 292 through 296 in February and contain a number of the same reforms proposed in the earlier reform bills, as well as some new proposals.  Readers interested in learning more about the earlier package of reform bills are directed to the summary available at our website, at  Unlike those earlier proposals, however, the Senate has begun to consider two of the bills after unanimous approval by its Local Government Committee, suggesting greater renewed in approving these reforms.


Senate Bill 901, the first of the new reform bills proposed by Senators Eichelberger and Teplitz, proposes a number of changes to the Local Government Unit Debt Act (LGUDA), some of which were contained in Senate Bill 294.  For example, Senate Bill 901 prohibits the collection of fees by municipalities in exchange for issuing a guaranty.  A similar provision is contained in Senate Bill 294.

The hallmark feature common to Senate Bills 294 and 901, however, is the establishment of new debt issuance approval process which requires local government units to obtain a preliminary approval from the Department of Community and Economic Development (DCED) prior to authorizing the incurrence of debt and seeking the “final” approval of DCED  under LGUDA.  To obtain the requisite preliminary approval, the local government unit must submit information regarding the proposed financing, the local government unit’s fiscal health and its compliance with federal municipal bond disclosure laws and state municipal laws.

Both bills contain this preliminary debt issuance approval process requirement, although the proposal in Senate Bill 901 is different from Senate Bill 294 in certain respects.  For instance, Senate Bill 901 reduces the maximum amount of time that DCED may review an application for preliminary approval from ninety days to sixty days, although DCED will be entitled to the sixty-day review period automatically.  Under Senate Bill 294, DCED is given thirty days to review an application, but may unilaterally extend the period to ninety days upon giving notice to the applicant.

Senate Bill 901 also clarifies that the requirement to provide audited financial statements means “current” financial statements; the language in Senate Bill 294 allows the use of older audited financial statements, if determined to be “recent enough” by DCED.  Senate Bill 901 also does not include a right of DCED to require a conference on a proposed financing with the issuer, which may speed up the approval process (although DCED might still request a conference notwithstanding).

Senate Bill 901 changes Senate Bill 294’s public disclosure requirements for applications.  Senate Bill 294 requires that all preliminary approval documents be posted to the Internet.  This requirement is eliminated in Senate Bill 901 in favor of a requirement that all documentation of LGUDA proceedings, including preliminary approvals, constitutes public records.

Senate Bill 901 also makes a number of changes to LGUDA that are not made by Senate Bill 294.  For instance, Senate Bill 901 changes the concept of “self-liquidating debt” in LGUDA.  The bill changes the definition of this term to clarify that any debt on which a payment has been made pursuant to a municipal guaranty no longer qualifies as self-liquidating.  The bill also limits the use of municipal guarantees in connection with such debt to only guarantees of federal loans and loans issued by the Pennsylvania Infrastructure Investment Authority or other state agencies and instrumentalities, and only where the debt issued is for a water and/or sewer project.  Finally, the bill requires that engineer’s certificates executed in connection with the issuance of self-liquidating debt that contain an increase in gross revenues greater than 5% in any year specifically justify such increase.

Senate Bill 901 proposes new requirements to the current DCED approval process.  The bill requires local government units to include with their requests for DCED approval proof of obtainment of the required financial security to insure the completion of projects to be financed.  Local government units also are required to disclose all disbursements to be made from the proceeds of the borrowing.  Costs of issuance are capped at 2% of the amount of debt issued.  For local government units electing to issue debt through a private negotiated sale, the bill imposes additional reporting requirements if the amount of the debt to be issued exceeds $5,000,000.  If this limit was exceeded, the local government unit is required to document that a private negotiated sale in excess of the limit is necessary and in the best financial interest of the local government unit.

Senate Bill 901 also outlines the role a local government unit’s financial advisors and attorneys play in the issuance of debt.  The bill states that such professionals stand in a fiduciary relationship with the local government unit, and therefore are required to “perform loyally, in good faith, and in a manner the attorney or financial advisors reasonably believes to be in the best interests of the local government unit.”  The bill further provides that such individuals “shall act with such care, including reasonable inquiry, skill and diligence that a person of ordinary prudence would use under similar circumstances.”

Senate Bill 901 also establishes new criminal penalties that are far broader than the penalties contained in the prior reform package.  Under the bill, any officer or member of the governing body of the local government unit who knowingly participates in the commission by the local government of an “ultra vires act,” or files or assists in the filing of a materially false or misleading certification or statement with DCED, is guilty of a second degree misdemeanor, and may be sentenced to pay a fine of not more than $5,000, or a term of imprisonment of up to two years, or both.  An “ultra vires act” is defined to mean any act which the local government unit lacks the authority to perform, or is in excess of the authority granted to the local government unit.  Financial advisors and attorneys that assist in the commission of these crimes face similar penalties.  In addition, firms associated with a convicted financial advisor or lawyer may be barred from future representation under LGUDA for a period of two years.

Finally, in an effort to pay for these reforms and the expected increase in the cost of enforcing LGUDA, the bill increases filing fees by $200, and provides that all fees collected by DCED shall be earmarked for its use.  It is expected that the dedication of all LGUDA filing fees to DCED will result in an expansion of DCED staff responsible for the review of applications.

Senate Bill 901 was introduced on June 7, 2013 by Senator Eichelberger and referred to the Senate Local Government Committee.  The bill is co-sponsored by Senators Blake, Folmer, Teplitz, John Yudichak (D), Dominic Pileggi (R), John Wozniak (D), Tim Solobay (D), Pat Vance (R) and Bob Mensch (R).  The bill was approved unanimously by the Committee and sent to the Senate on June 26, 2013.  The Senate has begun to consider the bill.

The next bill in this reform package is Senate Bill 902, which amends the Municipality Authorities Act in two ways.  First, this bill tightens up the existing prohibition on the use of authority funds for non-authority purposes, which went effect last August under Act 73 of 2012.  Senate Bill 902 clarifies that this prohibition applies to any money borrowed pursuant to LGUDA and requires that such funds be account-restricted.  The bill also specifies that a violation of the Municipality Authorities Act’s conflict of interest provisions constitutes a violation of the State’s ethics laws, effectively giving enforcement authority to the State Ethics Commission, local district attorneys and the Office of Attorney General, all of whom share enforcement duties under the ethics laws.  The reform proposals contained in Senate Bill 902 were not included in the prior reform package introduced in February.

Senate Bill 902 was introduced on June 7, 2013 by Senator Blake and referred to the Senate Local Government Committee.  The bill is co-sponsored by Senators Eichelberger, Teplitz, Folmer, John Rafferty (R), Judith Schwank (D), Yudichak, Pileggi, Wozniak, Solobay, Lisa Boscola (D) and Lawrence Farnese (D).  The bill was approved unanimously by the Committee and sent to the Senate on June 26, 2013.  The Senate has begun to consider the bill.

Senate Bill 903 proposes amendments to the Municipality Authorities Act and LGUDA to prohibit the use of qualified interest rate management agreements, i.e., swaps and other derivatives products by local government units and municipal authorities.  The prohibition on swaps is identical to the prohibition proposed in Senate Bill 293, which was introduced in February as part of the prior municipal debt reform proposal.  Senate Bill 903 also removes references to swaps contained in LGUDA which were left intact under Senate Bill 293, but provides that those removed provisions continue to apply to swaps in effect prior to the effective date of the bill.  The bill also contains criminal provisions applicable to municipal authorities that are identical to those proposed in Senate Bill 901 as to municipalities.

Senate Bill 903 was introduced on June 7, 2013 by Senator Folmer and referred to the Senate Local Government Committee.  The bill is co-sponsored by Senators Teplitz, Eichelberger, Blake, Boscola, Pat Browne (R), Yudichak, Wozniak and Solobay.

Senate Bill 904, the final bill in this municipal debt reform package, extends the prohibition on swaps proposed in Senate Bill 903 to the City of Philadelphia.  The bill was introduced on June 7, 2013 by Senator Teplitz and referred to the Senate Local Government Committee, and is co-sponsored by Senators Folmer, Blake, Eichelberger, Boscola, Yudichak, Wozniak, Solobay, James Brewster (D), Farnese and Michael Waugh (R).

As with the prior package of reform bills introduced in February, municipalities, school districts and their hired professionals should carefully monitor the status of these bills.  The Senate Local Government Committee has already approved unanimously Senate Bills 901 and 902 and sent them to the full Senate for consideration.  Municipal officers and representatives should contact their financial professionals or bond counsel if they have questions about the local impact of these proposals.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© McNees Wallace & Nurick LLC | Attorney Advertising

Written by:

McNees Wallace & Nurick LLC

McNees Wallace & Nurick LLC on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.