H. B. 3244

(Delegates Browning, Keener and Hall)

(Originating in the Committee on Pensions and Retirement)

[April 4, 2001]






A BILL to amend to amend chapter eight of the code of West Virginia, one thousand nine hundred thirty-one, as amended, said code by adding thereto a new article, designated article twenty-two-a, relating to the West Virginia municipal pension plan funding standard and recovery act; providing for declaration of policy, legislative findings and legislative intent; providing for definitions; providing for the issuance of bonds to fund the payment of annual benefits of certain policemen's pension and relief funds and certain firemen's pension and relief funds; providing for the issuance of bonds to amortize the unfunded actuarial accrued liability of certain policemen's pension and relief funds and certain firemen's pension and relief funds; providing for the method of bond issuance and the manner of sale of bonds; providing authority to enter into contracts with bondholders; providing for the terms and provisions of bonds, trust indentures and other agreements; providing for refunding bonds; providing for pledges and covenants relating to bonds; providing for legal remedies of bondholders; providing that bonds are negotiable instruments; providing that bonds are legal investments in the state; providing that bonds and the income therefrom are exempt from taxation in the state; providing that prior to the issuance of the first series of bonds by any municipality, such municipality shall have received a private letter ruling from the Internal Revenue Service which affirms that the interest on the proposed bonds is generally exempt from federal income taxation; providing that prior to the issuance of the first series of bonds by any municipality, such municipality shall request a resolution of the Legislature affirming the ability of the municipality to issue the proposed bonds; and providing for severability of provisions of this article.

Be it enacted by the Legislature of West Virginia:

That chapter eight of the code of West Virginia, one thousand nine hundred thirty-one, as amended, be amended by adding thereto a new article, designated article twenty-two-a, to read as follows:
ARTICLE 22A. MUNICIPAL PENSION PLAN FUNDING STANDARD AND RECOVERY ACT.
§8-22A-1.Short title.
This article shall be known and may be cited as the " Municipal Pension Plan Funding Standard and Recovery Act."
§8-22A-2.Declaration of policy; legislative findings; legislative intent.
The Legislature finds and declares that:
(a) Certain municipalities have established policemen's pension and relief funds and firemen's pension and relief funds pursuant to article twenty-two, chapter eight of this code for the respective benefit of the participating police officers and firefighters.
(b) The municipalities are obligated to fund these pension funds on an actuarially sound basis, and that the obligation of the pension funds to pay current benefits is a general obligation of the municipalities.
(c) Certain pension funds have significant unfunded actuarial accrued liabilities that are determined to be onerous to those municipalities and a threat to the welfare and safety of the participating public employees as well as to the general citizenry of the municipalities.
(d) This article provides for the determination and funding of the unfunded actuarial accrued liability of the pension funds through the issuance of bonds for the purpose of providing for the safety and soundness of the pension funds; for changes in the boards of trustees responsible for the administration of the funds for achieving improved management of the assets of the funds; and for changes in the policies and purposes in the investment of the assets of the funds.
(d) Any bonds issued pursuant to this article are declared to be refunding bonds issued for the purpose of redeeming the general obligation of the municipality issuing said bonds to pay accrued benefits otherwise payable by the pension fund determined pursuant to this article not to have sufficient assets to make such payments.
§8-22A-3. Definitions.
(a) Terms used in this article shall have the meaning ascribed to them in section two, article one of this chapter and in section three, article twenty-two of this chapter, unless the context in which the term is used in this article clearly requires a different meaning, or the term is defined in subsection (b) of this section.
(b) As used in this article, unless the context clearly requires a different meaning:
(1) "Actuarial accrued liability" means that portion of the actuarial present value of the pension fund benefits and expenses which is allocated to the period ending at the beginning day of the current plan year by the actuarial cost method.
(2) "Actuarial assumptions" means the demographic actuarial assumptions and the
economic actuarial assumptions when considered together.
(3) "Actuarial present value" means the value of an amount or series of amounts payable or receivable at various times, determined as of a given date by the application of a particular set of actuarial assumptions.
(4) "Actuarial valuation report" means a report that summarizes the calculations used to determine the normal cost and actuarial accrued liabilities of a pension fund according to a stated actuarial cost method and based upon stated demographic and economic actuarial assumptions, the payment necessary to amortize over a stated period any unfunded actuarial accrued liability disclosed, the payment necessary to prevent any increase in any disclosed unfunded actuarial liability, the actuarial balance sheet of the pension fund and other relevant financial and demographic data.
(5) "Actuarial value of assets" means the value of cash, investments and other property belonging to a pension fund, as used by an approved actuary for the purpose of preparing an actuarial valuation report.
(6) "Demographic actuarial assumptions" means estimates of rates of future occurrences concerning, but not limited to, mortality, terminations, disabilities and ages at retirement used in the preparation of actuarial valuations of the pension fund and other actuarial calculations.
(7) "Economic actuarial assumptions" means estimates of rates of future occurrences concerning, but not necessarily limited to, increases in salary, postretirement adjustments and increases in benefits payable and investment earnings, asset appreciation or depreciation and procedures to determine the actuarial value of assets used in the preparation of actuarial valuations of the pension fund and other actuarial calculations.
(8) "Pension fund" means a policemen's pension and relief fund or firemen's pension and relief fund established pursuant to article twenty-two of this chapter.
(9) "Pension fund year" means the 12 consecutive month period applicable to the pension fund which is utilized for various actuarial and financial purposes and which shall be a fiscal year commencing on July 1 and ending on June 30.
(10) "Retirement board" means the West Virginia municipal police and firemen's pension plans retirement board established pursuant to section four of this article.
(11) "Unfunded actuarial accrued liability" means the excess of the actuarial accrued liability over the actuarial value of assets, as determined by a qualified actuary and set forth in an actuarial valuation report.
§8-22A-4.Issuance of bonds.
(a) Notwithstanding any other provision of this code, a municipality with a pension fund that is funded less than fifty percent has the power, as provided by this article, to issue bonds, from time to time and in one or more series, to fund either (i) the amount necessary to pay the current annual benefits payable by the pension fund or (ii) the current annual contribution of the municipality necessary to achieve Tier I status within a reasonable period of time, not to exceed twenty years.
(b) The aggregate principal amount of bonds issued pursuant to the provisions of clause (a)(i) above in any fiscal year is limited to the aggregate principal amount necessary, after deduction of costs of issuance, underwriter's discount and original issue discount, if any, to fund the amount necessary to pay the current annual benefits payable by the pension fund.
 (c) The aggregate principal amount of bonds issued pursuant to the provisions of clause (a)(ii) above in any fiscal year is limited to the aggregate principal amount necessary, after deduction of costs of issuance, underwriter's discount and original issue discount, if any, to fund the current annual contribution of the municipality necessary to achieve tier I status within a reasonable period of time, not to exceed twenty years.
 (d) "Costs of issuance" include, but are not limited to, amounts necessary to fund any capitalized interest funds and any reserve funds, any costs relating to the issuance and determination of the validity of the bonds, fees for obtaining bond insurance, credit enhancements or liquidity administrative costs, fees incurred pursuant to subsection (f), section eight of this article, and costs attributable to the agreements described in section ten of this article.
§8-22A-5. Method of bond issuance.
(a) The bonds shall be authorized by an ordinance enacted by the governing body of the municipality. The ordinance may authorize the mayor or other municipal official, on behalf of the municipality, to enter into a trust indenture or agreement which shall stipulate the form of the bonds, whether the bonds are to be issued in one or more series, the date or dates of issue, the time or times of maturity, which shall not exceed fifteen years for bonds issued pursuant to clause (a) (i) of section nine of this article and forty years for bonds issued pursuant to clause (a) (ii) of section nine of this article, the rate or rates of interest payable on the bonds, which may be at fixed rates or variable rates and which interest may be current interest or may accrue, the denomination or denominations in which the bonds are issued, the conversion or registration privileges applicable to some or all of the bonds, the sources and medium of payment and place or places of payment, the terms of redemption, any privileges of exchangeability or interchangeability applicable to the bonds, and the entitlement of bondholders to priorities of payment or security in the amounts deposited in the pension liability redemption fund. Bonds shall be signed by the Mayor and any other official designated by ordinance and attested by the clerk of the municipality, by either manual or facsimile signatures.
(b) The bonds may be sold at public or private sale at a price or prices determined by the chief financial officer of the municipality. The ordinance may authorize the mayor and any other official of the municipality to enter into any agreements, on behalf of the municipality, as is necessary or desirable to effectuate the purposes of this article, including agreements to sell bonds to any person and to comply with the laws of any jurisdiction relating thereto.
(c) The trust indenture or agreement authorized in such ordinance may covenant as to the use and disposition of or pledge of funds made available for pension benefit payments, pension liability redemption payments or any reserve funds established pursuant to such indenture or agreement.
(d) Bonds may be issued without obtaining the consent of any department, division, commission, board, bureau or agency of the state and without any other proceedings or the occurrence of any other conditions or other things other than those actions, conditions or things which are specifically required by this article.
(e) Neither the mayor nor the municipal clerk, the chief financial officer, or any other person executing or attesting the bonds or any agreement authorized in this article shall be personally liable with respect to payment of the bonds or any payments by the pension fund.
(f) Notwithstanding any other provision of this code, the mayor with the approval of the governing body of the municipality (i) shall select, employ and compensate one or more persons or firms to serve as bond counsel or co-bond counsel who shall be responsible for the issuance of a final approving opinion regarding the legality of the bonds issued pursuant to this article; (ii) may select, employ and compensate one or more persons or firms to serve as underwriter or co-underwriter for any issuance of bonds pursuant to this article; and (iii) may select, employ and compensate one or more fiduciaries, financial advisors and experts, other legal counsel, placement agents, appraisers, actuaries and such other advisors, consultants and agents as may be necessary to effectuate the purposes of this article.
§8-22A-6. Contracts with bondholders; provisions of bonds and trust indentures and other agreements.
(a) The ordinance authorizing the issuance of the bonds may authorize officials of the municipality to enter into contracts, on behalf of the municipality, with or for the benefit of bondholders.
(b) In addition and not in limitation to the other provisions of this section, in connection with any bonds issued pursuant to this article, the ordinance authorizing the issuance of the bonds may authorize officials, on behalf of the municipality, to enter into: (i) commitments to purchase or sell bonds and bond purchase or sale agreements; (ii) agreements providing for credit enhancement or liquidity, including revolving credit agreements, agreements establishing lines of credit or letters of credit, insurance contracts, surety bonds and reimbursement agreements; and (iii) any other commitments, contracts or agreements necessary or desirable to issue the bonds.
(c) Any representation, warranty or covenant in any indenture of trust or trust agreement authorized by the bond ordinance, any bond or any other contract entered into pursuant to this article with any bondholder shall be a representation, warranty or covenant made by the municipality.
§8-22A-7. Proceeds from the sale of bonds.
The proceeds from the sale of bonds issued pursuant to this article, after payment of any costs of issuance of such bonds, shall be used to fund either the amount necessary to pay the current annual benefits payable by the pension fund or the current annual contribution of the municipality necessary to achieve Level 1 status within a reasonable period of time, not to exceed twenty- five years.
§8-22A-8. Refunding bonds.
(a) Subject to the provisions of the outstanding bonds issued under this article and subject to the provisions of this article, the municipality shall have the power to refund any outstanding bonds, whether the obligation refunded represents principal, premium or interest, in whole or in part, at any time.
(b) Refunding bonds shall mature at such time or times, which shall not exceed the longest original term of the bonds as issued, as provided by an ordinance adopted by the governing body of the municipality.
§8-22A-9. Pledges and covenants.
The bond ordinance may authorize the municipality to covenant and agree with the bondholders, and the indenture may so state, that the bonds issued pursuant to this article are issued to redeem a general obligation of the municipality and shall therefore constitute a direct and general obligation of the municipality; that the debt service payments on the bonds will be included in each budget along with all other amounts for payment and discharge of the principal of and interest on the debt of the municipality; that the full faith and credit of the municipality is pledged to secure the payment of the principal of and interest on the bonds; and that annual taxes shall be collected in an amount sufficient to pay the debt service payments on the bonds as they become due and payable. Provided, however, notwithstanding any provision anywhere to the contrary, any municipality may authorize the issuance of bonds pursuant to this article that does not pledge the full faith and credit of the municipality and shall not be a general obligation of the municipality so long as the municipality pledges a source of revenues or a special fund to the payment of the debt service on the bonds.
§8-22A-10. Legal remedies of bondholders.
Any bondholder, except to the extent that the rights given by this article may be restricted by the municipal ordinance authorizing the issuance of the bonds or by the trust indenture or agreement authorized in such ordinance, may by civil action, mandamus or other proceeding, protect and enforce any rights granted under this article, or granted by the bond ordinance or by the trust indenture or agreement authorized in such ordinance, and may enforce and compel the performance of all duties required by this article, by the bond ordinance or by the trust indenture or agreement authorized in such ordinance.
§8-22A-11. Nature of bonds; legal investments.
(a) The bonds issued under the provisions of this article shall be and have all the qualities of negotiable instruments under the Uniform Commercial Code of this state and shall not be invalid for any irregularity or defect in the proceedings for the issuance thereof, and shall be incontestable in the hands of bona fide purchasers or holders thereof for value.
(b) Notwithstanding any other provision of this code, the bonds issued pursuant to this article are securities in which all public officers and bodies of this state, including the investment management board, all municipalities and other political subdivisions of this state, all insurance companies and associations and other persons carrying on an insurance business, including domestic for life and domestic not for life insurance companies, all banks, trust companies, societies for savings, building and loan associations, savings and loan associations, deposit guarantee associations and investment companies, all administrators, guardians, executors, trustees and other fiduciaries and all other persons whatsoever who are authorized to invest in bonds or other obligations of the state may properly and legally invest funds, including capital, in their control or belonging to them.
§8-22A-12. Exemption from taxation.
All bonds issued under the provisions of this article and the income therefrom shall be exempt from taxation by the state of West Virginia, or by any county, school district or municipality thereof, except inheritance, estate and transfer taxes.
§8-22A-13. Internal Revenue Service determination.
No bonds shall be issued under this article until a municipality in the state of West Virginia has received a determination from the United States Internal Revenue Service that the interest on the bonds to be issued under the provisions of this article is excludable from the gross income of the owners of such bonds for federal income tax purposes pursuant to the Internal Revenue Code and such interest is not an item of tax preference for purposes of the federal alternative minimum tax imposed upon individuals and corporations under the Internal Revenue Code. This section shall not be read to require that subsequent municipalities desiring to issue bonds pursuant to this article shall obtain such a determination, or that a determination shall be obtained prior to the issuance of subsequent series of bonds by the municipality which initially obtained the determination, unless required by the United States Internal Revenue Service.
§8-22A-14. Legislative review.
Prior to the issuance of the first series of bonds by any municipality pursuant to this article, such municipality shall notify the Governor, the President of the Senate and the Speaker of the House that the municipality has enacted an ordinance authorizing the issuance of such bonds, that the municipality has a letter of intent from an underwriter which is willing to purchase the bonds, that the municipality has received a determination from the United States Internal Revenue Service as required in section eighteen of this article, that the municipality has received a preliminary opinion from a law firm which has a national reputation in the field of municipal law and whose opinions are generally accepted by the purchasers of municipal securities that the bonds will not constitute debt within the meaning of any limitation of the constitution of the state of West Virginia and that the municipality has complied with all other requirements of this article and said municipality shall request in such notice that the legislature adopt a resolution affirming the ability of the municipality to issue such bonds. No municipality shall issue any bonds pursuant to the provisions of this article until the legislature has adopted the resolution referenced in this section. This section shall not be read to require that subsequent municipalities desiring to issue bonds pursuant to this article shall obtain such a resolution from the legislature, or that a resolution of the legislature shall be obtained prior to the issuance of subsequent series of bonds by the municipality which initially obtained the resolution of the legislature.
§8-22A-15. Severability.
If any section, subsection, subdivision, subparagraph, sentence or clause of this article is adjudged to be unconstitutional or invalid, such adjudication shall not affect the validity of the remaining portions of this article, and, to this end, the provisions of this article are hereby declared to be severable.