Meeting of the Board of Regents | April 2008
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THE STATE EDUCATION DEPARTMENT / THE UNIVERSITY OF THE STATE OF NEW YORK / ALBANY, NY 12234 |
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TO: |
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FROM: |
Johanna Duncan-Poitier |
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SUBJECT: |
Proposed Amendment to the Regulations of the Commissioner Relating to Analysis of Average Interest Rates Applied to Capital Debt Incurred by the City of New York for School Purposes |
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DATE: |
March 27, 2008 |
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STRATEGIC GOAL: |
Goals 2 and 5 |
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AUTHORIZATION(S): |
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SUMMARY
Issue for Decision (Consent Agenda)
Should the Board of Regents amend section 175.41 of the Commissioner's Regulations to provide for a more accurate computation of the average interest rate used to apportion building aid to the City of New York?
Reason(s) for Consideration
Required by State Statute.
Proposed Handling
The question will come before the Regents EMSC Committee for approval at the April 2008 Regents meeting.
Procedural History
The proposed amendment was discussed by the Committee in January 2008.
Background Information
Section 3 of Part A-3 of Chapter 58 of the Laws of 2006 amended Education Law § 3602(6)(e)(1)(c) regarding the computation of the interest rate used to determine New York City's building aid allocation, but section 175.41 of the Regulations of the Commissioner, which prescribes the methodology for computing New York City’s interest rate has not been updated to reflect the statutory change. In addition, over time, State legislation has been amended to authorize New York City to use a variety of financing mechanisms that do not follow the traditional pattern of substantially level debt service payments. As a result, the current regulation is neither reflective of the statute nor an appropriate methodology for computation of the true cost of debt issued by New York City for the purpose of financing school construction. These changes are designed to update the regulations to align with statute.
Recommendation
Staff recommend that the Regents take the following action:
VOTED: That section 175.41 of the Regulations of the Commissioner of Education be amended, as submitted, effective May 8, 2008.
Timetable for Implementation
The amendment will become effective May 8, 2008.
Attachment
AMENDMENT OF THE REGULATIONS OF THE COMMISSIONER OF EDUCATION
Pursuant to Education Law sections 207 and 3602.
Section 175.41 of the Regulations of the Commissioner of Education is amended, effective May 8, 2008, to read as follows:
§ 175.41 Analysis of average interest rates applied to capital debt incurred by the City of New York for school purposes, or by the New York city transitional finance authority for school purposes if no such capital debt is incurred by the City of New York, for use in the apportionment of building aid to the city school district of the City of New York.
(a) Definitions. For the purpose of this section the following definitions shall apply:
(1) Obligation shall mean any amortized debt incurred by the City of New York for the funding of capital expenditures for school purposes of the city and its departments, agencies or subdivisions, including but not limited to the city school district of the City of New York and the School Construction Authority of the City of New York. In the event that no amortized debt is incurred by the City of New York for the funding of capital expenditures for school purposes, obligation shall mean any amortized debt incurred by the New York City transitional finance authority for the funding of capital expenditures for school purposes of the city and its departments, agencies or subdivisions, including but not limited to the City School District of the City of New York and the School Construction Authority of the City of New York.
(2) Total principal for school purposes shall mean that portion of the original proceeds received by the City of New York from the sale of an obligation that is expended for school purposes.
(3) Term shall mean the number of years represented by the amortization of an obligation, expressed to the nearest whole number of years.
(4) Total net [interest shall mean the interest expenditures required to be paid by the City of New York pursuant to the schedule of amortization of an obligation after any premiums or any accrued interest received by the city at the time of the sale of the obligation has been deducted] proceeds shall mean the sum of the total principal for school purposes less costs of issuance (including underwriters discount and bond insurance), less original issue discount, plus original issue premium attributable to such total principal for school purposes. Bond insurance, original issue discount and original issue premium shall be allocated to such principal on the basis of actual cost for that portion of principal. Costs of issuance, including underwriters discount, but not bond insurance, shall be allocated pro-rata on the basis of the ratio of proceeds (adjusted for original issue discount and premium only) attributable to school purposes to total proceeds (adjusted for original issue discount and premium only) in the bond series.
(5) [Average principal shall mean an amount equal to one half the total principal, rounded to the nearest whole dollar.
(6)] Average interest [shall mean an amount equal to the quotient of the total net interest divided by the term, rounded to the nearest whole dollar] rate shall be determined by doubling the semi-annual interest rate, compounded semi-annually, necessary to discount the debt service payments (including interest, principal and mandatory redemptions) from the payment dates to the dated date such that the sum of such discounted payments equal the total net proceeds.
(i) When a particular maturity of bonds has more than one interest rate, the principal amount allocated to school purposes shall be allocated pro-rata based on the ratio of principal amount of an interest rate in a maturity to the total principal amount of the maturity
(ii) When there are proceeds of more than one series of bonds in a calculation period, then the average interest rate shall be determined by doubling the semi-annual interest, compounded semi-annually, necessary to discount the debt service payments (including interest, principal and mandatory redemptions) from the payment dates to the dated date of the series of bonds with the earliest dated date such that the sum of such discounted payments equals the sum of the net proceeds discounted to the dated date of the series of bonds with the earliest dated date.
(iii) The interest rate for adjustable rate bonds shall be determined by taking the municipal swap index selected by the commissioner (or if such index is no longer available, using comparable data) averaged over the last 10 years, plus the costs of credit facilities, remarketing fees, broker-dealers fees and auction agent fees, as applicable, that are in effect at the time of the issuance of the bonds.
(iv) If there is an interest rate swap associated with the adjustable rate bonds that creates a synthetic fixed rate, then the interest rate shall be determined by the sum of the fixed swap rate plus the cost of credit facilities, remarketing fees, broker-dealers fees and auction agent fees, as applicable, that are in effect at the time of the issuance of the bonds.
(b) The analysis of the actual average interest rate and of the estimated average interest rate which must be submitted by the Comptroller of the City of New York to the commissioner by September 1st of the current year pursuant to [section 3602(6)(e)(3)] sections 3602(6)(e)(1)(c) and 3602(6)(e)(2)(a)(ii) of the Education Law shall [consist of] include such data as is prescribed by the commissioner, including but not limited to the following:
(1) A listing of all obligations incurred by the City of New York for the period from July 1st of the prior calendar year to June 30th of the current calendar year. Such listing shall include for each obligation listed and for that portion of each obligation listed that is for school purposes:
(i) the total principal;
(ii) the term;
(iii) the total net [interest] proceeds;
(iv) the average [principal] interest rate; [and]
(v) the [average] total interest
(vi) if the bonds are floating-rate bonds or attached to swap(s), include the swap rate, the cost of credit facilities, remarketing fees, broker-dealers fees and auction agent fees, as applicable
(vii) costs of issuance, including breakout of underwriters discount and bond insurance; and
(viii) original issues premiums and discounts.
(2) A statement certifying that the data provided pursuant to paragraph (1) of this subdivision reasonably reflects anticipated obligations to be incurred by the City of New York for the period from July 1st of the current calendar year to June 30th of the next calendar year, or, in the alternative, a listing of all anticipated obligations to be incurred by the City of New York for such period that shall include for each obligation listed and for that portion of each obligation listed that is for school purposes:
(i) the total principal;
(ii) the term;
(iii) the total net [interest] proceeds;
(iv) the average [principal] interest rate; [and]
(v) the [average] total interest.
(vi) if the bonds are floating-rate bonds or attached to swap(s), include the swap rate, the cost of credit facilities, remarketing fees, broker-dealers fees and auction agent fees, as applicable;
(vii) costs of issuance, including breakout of underwriters discount and bond insurance; and
(viii) original issue premiums and discounts.
(c) Upon review and approval of the listing provided by the Comptroller of the City of New York pursuant to paragraph (b)(1) of this section, the commissioner shall determine the actual average interest rate applied to all [capital debt] obligations incurred by the City of New York during the base year, as required by [sections 3601-a(6)(e)(2) and] section 3602(6)(e)(2) of the Education Law [, by dividing the sum of the average principal for all such obligation]. The actual average interest shall be determined using the methodology described in paragraph (a)(5) of this section. Such actual average interest rate shall be expressed as a decimal [to five places] rounded to the nearest eighth of [one-one hundredth] one percent.
(d) Upon review and approval of the statement of the Comptroller of the City of New York certifying that the data provided pursuant to paragraph (b)(1) of this section reasonably reflects anticipated obligations to be incurred by the City of New York for the period from July 1st of the current calendar year to June 30th of the next calendar year, the commissioner shall certify that the actual average interest rate applied to all [capital debt] obligations incurred by the City of New York during the base year shall be the estimated average interest rate applied to all [capital debt] obligations to be incurred by the City of New York during the current year, or, in the alternative, upon review and approval of the listing provided by the Comptroller of the City of New York pursuant to paragraph (b)(2) of this section, the commissioner shall determine the estimated average interest rate applied to all [capital debt] obligations to be incurred by the City of New York during the current year [by dividing the sum of the average interest for all obligations included on such listing by the sum of the average principal for all such obligations]. The estimated average interest shall be determined using the methodology described in paragraph (a)(5) of this section. Such estimated average interest rate shall be expressed as a decimal [to five places] rounded to the nearest eighth of [one-one hundredth] one percent.