House Bill No. 136

Introduced By wiseman

By Request of the Department of Corrections

A Bill for an Act entitled: "An Act establishing the Montana public-private partnership bond act; providing for the issuance of revenue bonds to provide funding for state services being contracted to a private entity; authorizing the board of investments to administer the program; and providing an effective date."


A statement of intent is required for this bill because the bill gives the board of investments authority to adopt administrative rules. In adopting rules, the board should look to existing rules that have been adopted for similar programs, such as the health facility authority. The rules should be designed to implement the policy provided for in [section 2].

Be it enacted by the Legislature of the State of Montana:

NEW SECTION. Section 1.  Short title. [Sections 1 through 29] shall be known as the "Montana Public-Private Partnership Bond Act".

NEW SECTION. Section 2.  Legislative declaration -- policy. (1) The legislature finds that:

(a)  it is often difficult for private parties to obtain the necessary capital to provide services under contract with various governmental units;

(b)  alternatives to traditional financial methods may enable the state and providers to improve the implementation of offering these essential public services; and

(c)  lowering the cost of borrowing to private parties should enable services to be provided to the state at a lower cost to the taxpayer.

(2)  It is the policy of the state of Montana to promote partnerships between governmental units and the private sector when the state can achieve cost-effectiveness in providing services by:

(a)  fostering and promoting, by all reasonable means, efficient capital markets and facilities for borrowing money by governmental units or private parties to pay for capital improvements necessary for the delivery of statutorily mandated services;

(b)  reducing, to the extent possible, the costs of providing services by affording governmental units and private parties an appropriate degree of flexibility and choice in obtaining financing for projects and minimizing marketing rates;

(c)  creating a means for governmental units and private parties to achieve more efficient access to the credit market through the use of [sections 1 through 29]; and

(d)  providing additional security for the payment of bonds held by investors and by further reducing borrowing costs.

NEW SECTION. Section 3.  Definitions. As used in [sections 1 through 29], unless the context requires otherwise, the following definitions apply:

(1)  "Agency" has the meaning provided in 2-18-101.

(2)  "Board" means the board of investments created in 2-15-1808.

(3)  "Bond" means any bond, refunding or advanced refunding bond, debenture, certificate, or other evidence of financial indebtedness issued by the board pursuant to [sections 1 through 29].

(4)  "Finance" means the process of supplying capital to allow a project to be completed.

(5)  "Governmental unit" means any unit within a state agency that is charged with providing a statutorily mandated service and that is authorized by statute to use private parties under contract in providing the statutorily mandated services.

(6)  "Partnership" means a contractual relationship between a governmental unit and a private party for the delivery of services.

(7)  "Private party" means an individual, partnership, for-profit or not-for-profit corporation, limited liability company, limited liability partnership, or other entity, that has received or is being considered for receiving a contract from a governmental unit to provide a service.

(8) (a)  "Project" means a facility necessary for the provision of a service required to be provided by the state through a governmental unit that for purposes of economy, efficiency, or flexibility is provided under contract by a private party.

(b)  Project includes a facility for persons with developmental disabilities, corrections, alcohol and drug treatment, prerelease, health treatment, mental health treatment, and child care and any facility required by an agency that has determined that it is in the best interests of the state to pursue the establishment of a partnership to provide statutorily mandated services.

(9)  "Project costs" means the costs of acquiring or improving any project, including the following:

(a)  the actual cost of acquiring or improving real estate for any project;

(b)  the actual cost of construction of all or any part of a project, including architect and engineering fees;

(c)  all expenses in connection with the authorization, sale, and issuance of bonds to finance a project;

(d)  bond reserves, premiums for insurance or guaranty of loan payments, and lease rentals pledged to pay the bonds; and

(e)  the interest on bonds for a reasonable time prior to construction until a period not later than 6 months after completion of construction.

(10)  "Reserve fund" means the fund created in [section 16].

(11)  "Service" means a function authorized to be provided through state government.

NEW SECTION. Section 4.  Liberal construction. [Sections 1 through 29] and the powers granted in [sections 1 through 29] must be liberally construed to effectuate the policies and purposes stated in [sections 1 through 29].

NEW SECTION. Section 5.  Board to implement. The board may make and enforce orders, rules, and bylaws that are necessary or desirable for the implementation of [sections 1 through 29].

NEW SECTION. Section 6.  Participation voluntary. The use of the financing mechanism created by [sections 1 through 29] is entirely voluntary. A governmental unit or private party may not be required to sell bonds, bond anticipation notes, or notes to the board. The board is not obligated and may not be compelled to issue bonds under [sections 1 through 29].

NEW SECTION. Section 7.  Powers of board. In addition to all other powers conferred on the board by law, the board may:

(1)  sue and be sued;

(2)  adopt all procedural and substantive rules necessary for the administration of [sections 1 through 29];

(3)  make contracts, agreements, and other instruments necessary or convenient for the exercise of its powers under [sections 1 through 29];

(4)  purchase or hold bonds at prices and in a manner that the board considers advisable;

(5)  sell bonds acquired or held by the board at prices without relation to cost and in a manner that the board considers advisable;

(6)  issue bonds for the purpose of defraying all or a portion of the cost of a project and securing the payment of the bonds as provided in [sections 1 through 29];

(7)  invest funds not required for immediate use, as the board considers appropriate, subject to any agreements with bondholders;

(8)  with regard to a partnership:

(a)  prescribe the form of application or procedure required for a loan, the issuance of bonds, or the purchase of obligations;

(b)  fix the terms and conditions of the bond issuance or obligation purchase; and

(c)  enter into agreements with respect to the issuance of bonds or the purchase of obligations;

(9)  arrange for lines of credit from and enter into participation agreements with financial institutions;

(10)  render services to partnerships in connection with public or private sales of bonds that are eligible for purchase by the board under [sections 1 through 29] and charge the governmental unit, the private party, or the partnership for the services;

(11)  establish terms, interest rates, and provisions with respect to a purchase of bonds, anticipation notes, or other obligations, including:

(a)  the date and maturities of the bonds, bond anticipation notes, or other obligations;

(b)  provisions for redemption or payment before maturity; and

(c)  any other matters that the board determines to be necessary, desirable, or advisable for the loan or purchase;

(12)  in connection with any loan to a partnership or in connection with the purchase of bonds, bond anticipation notes, or other obligations, consider:

(a)  the lawfulness and validity of the purpose to be served by the loan or purchase;

(b)  the ability of the partnership to secure money from other sources and the costs of borrowing;

(c)  the ability of the partnership to repay the loan, bonds, bond anticipation notes, or other obligations;

(13)  appoint, employ, or contract for the services of officers, employees, agents, professional advisers, and consultants and pay compensation for their services;

(14)  procure insurance against any losses in connection with its property, operations, or assets in amounts and from insurers as it considers desirable;

(15)  subject to any agreement with bondholders, consent to the modification of the rate of interest, time of payment, and payment of any installment of principal, interest, security, or any other term of any contract, lease agreement, loan agreement, mortgage, mortgage loan, mortgage loan commitment, construction loan, advance contract, or other agreement;

(16)  enter into agreements or other transactions with and accept grants and the cooperation of any governmental unit in furtherance of [sections 1 through 29];

(17)  sell, purchase, or insure loans to finance project costs;

(18)  service, contract for, and pay for the servicing of loans;

(19)  accept services, appropriations, gifts, grants, bequests, and devises and use or dispose of them in carrying out [sections 1 through 29];

(20)  enter into agreements or other transactions with a federal agency, a governmental unit, a county, a consolidated government, a municipality, a private organization, or any other entity or organization in carrying out [sections 1 through 29];

(21)  with regard to property:

(a)  acquire real property, personal property, or any right, interest, or easement in real or personal property by gift, purchase, transfer, foreclosure, lease, or otherwise;

(b)  hold, sell, assign, lease, encumber, mortgage, or otherwise dispose of property;

(c)  hold, sell, assign, or otherwise dispose of any lease, mortgage, or loan owned by the board or in its control or custody;

(d)  release or relinquish any right, title, claim, interest, easement, or demand, however acquired, including any equity or right of redemption;

(e)  make any disposition by public or private sale, with or without public bidding;

(f)  commence any action to protect or enforce any right conferred upon the board by law, mortgage, contract, or other agreement;

(g)  bid for and purchase property at any foreclosure or other sale or acquire or take possession of property in lieu of foreclosure;

(h)  operate, manage, lease, dispose of, and otherwise deal with property in any manner necessary or desirable to protect the interests of the board or the holders of its bonds if the action is consistent with any agreement with the holders of the bonds;

(22)  collect reasonable interest, fees, and charges in connection with making and servicing its lease agreements, loan agreements, mortgage loans, bonds, commitments, and other evidences of indebtedness. Interest, fees, and charges are limited to the amounts required to pay the costs of the board, including operating and administrative expenses and reasonable allowances for losses that may be incurred.

(23)  procure insurance or guaranties in amounts and in the form that the board considers necessary or desirable, from any party, against any loss in connection with its lease agreements, loan agreements, mortgage loans, and other assets or property; and

(24)  do all acts and things necessary, convenient, or desirable to carry out the powers expressly granted or necessarily implied in [sections 1 through 29].

NEW SECTION. Section 8.  Powers of governmental unit. (1) A governmental unit applying for funding of a project under [sections 1 through 29] may:

(a)  enter into contracts with private parties, for a period no longer than 20 years, in order to obtain the availability of facilities necessary for providing a service. A contract may contain a provision allowing the governmental unit the right to provide for the uninterrupted delivery of a service, including the right of reentry, even if the governmental unit determines that the private party is deficient or incapable of performing the contract to provide the service.

(b)  assign contracts for the benefit of bondholders and other parities; or

(c)  subject to subsection (2), enter into other contracts or agreements and make covenants reasonably required by the board, its underwriters, or trustee.

(2)  An agency's use of the financing alternatives under [sections 1 through 29] may not be construed as a general obligation of the state of Montana or as a commitment from the legislature to provide for the continued payment of debt service on any obligation issued under [sections 1 through 29].

NEW SECTION. Section 9.  Availability to private party. A private party may apply for financing under [sections 1 through 29], subject to the following conditions:

(1)  There must be a demonstrated willingness by both a governmental unit and the private party to form a partnership for the delivery of a service.

(2)  There must be documentation that the service to be provided is statutorily mandated and that the governmental unit has the authority to provide the service.

NEW SECTION. Section 10.  Procedure prior to financing projects. In addition to meeting the other requirements contained in [sections 1 through 29] or in state or federal law, the following requirements must be met before financing is finalized and provided:

(1)  A contract must be approved by the board and executed by the governmental unit and the private party.

(2)  The governmental unit, the private party, and any other third parties involved in the financing are required to execute, covenant, deliver, and assign as necessary all documents, representations, assignments, collateral, and any other conditions that the board, its agents, underwriters, or attorneys may reasonably determine to be necessary to adequately protect the board, the governmental unit, and the state from default, financial loss, or other harm and to provide an opportunity to achieve the greatest cost savings on the bonds.

(3)  The financing must be determined by the public hearing process provided for in [section 11] to be in the public interest and to be consistent with the legislative purposes and findings set forth in [section 2].

(4)  The applicant shall submit a statement indicating that contracts to construct the project will require all contractors to comply with Title 18, chapter 2, part 4.

(5)  Adequate provision must be made in the loan agreement, lease, or other credit arrangement regarding a project to provide for the payment of debt service on the bonds issued to finance the project, to create and maintain reserves for payment of the debt service, and to meet all costs and expenses of issuing and servicing the bonds.

NEW SECTION. Section 11.  Public hearing. A governmental unit seeking funding under [sections 1 through 29] shall hold a public hearing to determine whether or not the proposed project is in the public interest. The decision regarding public interest is determined by the governmental unit, not the board. Notice of the public hearing must be published in a newspaper of general circulation in the community where the project would be located. Notice must be given at least once a week for 2 weeks prior to the date of the public hearing. The notice must include the time and place of the hearing, the general nature of the project, the name of the borrower or user of the project, and the estimated cost of the project.

NEW SECTION. Section 12.  Criteria for public hearing. The criteria for considering and evaluating public input from the public hearing or public comment during a comment period must be in accordance with criteria established by rule by the agency to which the governmental unit is attached.

NEW SECTION. Section 13.  Bonds of board. (1) From time to time, the board may by resolution issue negotiable bonds:

(a)  to finance loans or refinance its loans to partnerships;

(b)  to finance the purchase of bonds, loans, or mortgages or from governmental units or private parties;

(c)  to establish or replenish reserves securing the payment of its bonds;

(d)  to finance all other expenditures of the board incident to and necessary or convenient in carrying out [sections 1 through 29];

(e)  to renew bonds and notes and to pay notes, including interest;

(f)  to refund bonds by the issuance of new bonds, whether or not the bonds to be refunded have matured;

(g)  to, in part, refund outstanding bonds and, in part, finance any of its other purposes; and

(h)  in anticipation of the sale of its securities under [sections 1 through 29] and in conjunction with temporary notes and renewal notes.

(2)  Except as otherwise expressly provided by resolution of the board, every issue of its bonds and notes is an obligation of the board payable out of any revenue, assets, or money of the board, subject only to agreements with the holders of particular bonds or notes pledging particular revenue, assets, or money.

(3)  The bonds must be authorized by resolutions of the board, must bear a date, and must mature at times as provided in the resolutions. The bonds may be issued as serial bonds payable in annual installments, as term bonds, or as a combination of serial and term bonds. The bonds must:

(a)  bear interest at a rate or rates;

(b)  be in denominations;

(c)  be in a form, either coupon or registered;

(d)  carry registration privileges;

(e)  be executed to effectuate validity;

(f)  be payable in a medium of payment, at places inside or outside the state; and

(g)  be subject to terms of redemption as provided in resolutions of the board.

(4)  The bonds may be sold at public or private sale at prices, which may be above or below par, that are determined by the board.

NEW SECTION. Section 14.  Limitation on amounts. The board may not issue any bonds or notes, except for bonds or notes issued to fund or refund outstanding bonds or notes, that cause the total outstanding indebtedness of the board under [sections 1 through 29] to exceed $50 million.

NEW SECTION. Section 15.  Provisions of resolutions or indenture. Subject to existing agreements, a resolution or indenture authorizing bonds may contain provisions that include:

(1)  pledging all or any part of the revenue, property, or assets of the board, including lease agreements, loan agreements, mortgages, and obligations securing them, in order to secure the payment of the bonds;

(2)  the use and disposition of the gross income from lease agreements, loan agreements, and mortgages owned by the board and the payment of the principal of mortgages owned by the board;

(3)  the setting aside of reserves for debt service funds in the hands of a trustee, paying agents, and other depositories and the regulation and disposition of reserves;

(4)  limitations on the purpose for which the proceeds of the sale of bonds may be applied and the pledge of the proceeds to secure the payment of the bonds;

(5)  limitations on the issuance of additional bonds, the terms upon which additional bonds may be issued and secured, and the refunding of outstanding bonds;

(6)  the procedure, if any, by which the terms of any contract with bondholders may be amended or abrogated, the amount of bonds the holders of which shall consent to the amendment or abrogation, and the manner in which consent may be given;

(7)  a commitment to:

(a)  employ adequate and competent personnel at reasonable compensation;

(b)  set salaries, fees, and charges as may be determined by the board in conjunction with the agency; and

(c)  maintain suitable facilities and services for the purpose of carrying out its programs;

(8)  vesting in a trustee property, rights, powers, and duties as the board determines to be necessary;

(9)  defining the acts or omissions that constitute a default in the obligations and duties of the board to the holders of the bonds and providing for the rights and remedies of the holders of the bonds in the event of default, including as a matter of right the appointment of a receiver; and

(10)  any other matters of like or different character that in any way affect the security or protection of the holders of the bonds.

NEW SECTION. Section 16.  Reserve fund. (1) The board may establish and maintain a reserve fund, into which the following may be deposited or transferred:

(a)  all proceeds of bonds required to be deposited in the fund by terms of a contract between the board and its bondholders or a resolution of the board with respect to the proceeds of bonds;

(b)  the proceeds of any bond issue that is authorized for purpose of deposit;

(c)  all money appropriated to the reserve fund; and

(d) any other money or funds of the board that it decides to deposit in the fund.

(2) (a)  All money held in the reserve fund must be used solely for:

(i)  the payment of the principal of or interest on the bonds secured in whole or in part by the fund or the debt service fund payments with respect to the bonds; or

(ii) the purchase or redemption of the bonds, or the payment of interest on the bonds, or the payment of any redemption premium required to be paid when the bonds are redeemed prior to maturity.

(b) (i)  Subject to subsection (2)(b)(ii), money in the reserve fund may not be withdrawn at any time in an amount that reduces the fund to an amount less than the sum of minimum reserve requirements established in the resolutions or indentures of the board for the fund.

(ii) With respect to bonds secured in whole or in part by the fund, money may be withdrawn for the purpose of making payment when due of principal, interest, redemption premiums, and debt service fund payments for which other money that is pledged is not available.

(3)  Money in the reserve fund in excess of the required amount may be withdrawn at any time by the board, but may only be transferred to another fund or account established for purposes of [sections 1 through 29].

(4)  Notwithstanding any provision of Title 17, chapter 6, the board may lend money for deposit to the reserve fund in an amount equal to any deficiency in the required debt service reserve. The loans must be made on reasonable terms and conditions as the board considers proper, including without limitation terms and conditions providing that the loans need not be repaid until the obligations of the board secured and to be secured by the reserve fund are no longer outstanding.

NEW SECTION. Section 17.  Additional reserves, funds, and accounts. The board may in its discretion establish additional reserves or other funds or accounts necessary, desirable, or convenient to further the accomplishment of the purposes of [sections 1 through 29] or to comply with the provisions of its resolution or agreements.

NEW SECTION. Section 18.  Trust indenture. (1) In the discretion of the board, the bonds of the board may be secured by a trust indenture between the board and a corporate trustee, which may be a trust company or bank having the power of a trust company inside or outside the state. A trust indenture may contain provisions for protecting and enforcing bondholders' rights and remedies that are reasonable and proper and not in violation of law, including covenants setting forth the duties of the board in relation to the exercise of its powers and the custody, safeguarding, and application of all money. The board may provide by a trust indenture for the payment of the proceeds of the bonds and the revenue to the trustee under the trust indenture of another depository and for the method of disbursement, with safeguards and restrictions that it considers necessary.

(2)  All expenditures incurred in carrying out a trust indenture may be treated as part of the general overhead cost of the board.

NEW SECTION. Section 19.  Refunding bonds. The board may provide for the issuance of refunding bonds to refund any outstanding bonds that have been issued under [sections 1 through 29], including the payment of any redemption of the bonds. The issuance of bonds, the maturities and other details, the rights of the holders, and the rights, duties, and obligations of the board are governed by the appropriate provisions of [sections 1 through 29] that relate to the issuance of bonds. The proceeds of refunding bonds may be applied to the purchase, redemption, or payment of outstanding bonds. Pending the application of the proceeds of refunding bonds and other available funds to the payment of principal, accrued interests, and any redemption premium on the bonds being refunded and, if permitted in the resolution authorizing the issuance of the refunding bonds or in the trust agreement securing them, to the payment of interest on refunding bonds and expenses in connection with refunding, the proceeds may be invested in securities as the board considers appropriate.

NEW SECTION. Section 20.  Negotiability of bonds. A bond issued under [sections 1 through 29] is fully negotiable for all purposes of the Uniform Commercial Code, Title 30, chapters 1 through 9, and a holder or owner of a bond or of a coupon appurtenant to it, by accepting the bond or coupon, is conclusively presumed to have agreed that the bond or coupon is fully negotiable for all purposes of the Uniform Commercial Code.

NEW SECTION. Section 21.  Tax-exempt status. Except for inheritance, estate, and gift taxes, bonds issued under [sections 1 through 29], their transfer, and their income, including any profits made on their sale, are free from taxation by the state or any political subdivision or other instrumentality of the state. The board is not required to pay recording or transfer fees or taxes on instruments recorded by it.

NEW SECTION. Section 22.  Validity of pledge. A pledge by the board is valid and binding from the time that the pledge is made. The revenue, money, or property pledged and received by the board is immediately subject to the lien of the pledge without any physical delivery or further act. The lien of any pledge is valid and binding against all parties having claims of any kind in tort, contract, or otherwise against the board, regardless of whether the parties have notice of the lien. The resolution or any other instrument by which a pledge is created is not required to be recorded. After issuance, all bonds of the board are conclusively presumed to be fully authorized by and issued under all the laws of this state, and any person or governmental unit is estopped from questioning their proper authorization, sale, issuance, execution, or delivery by the board.

NEW SECTION. Section 23.  Signatures of board members. If any of the board members whose signatures appear on bonds or coupons cease to be members before the delivery of the bonds, their signatures are valid and sufficient for all purposes as if the members had remained in office until delivery.

NEW SECTION. Section 24.  Exemption from execution and sale. All property of the board, other than its revenue or funds received pursuant to [sections 1 through 29], is exempt from levy and sale by virtue of an execution, and an execution or other judicial process may not issue against the property. A judgment against the board may constitute a charge or lien upon the revenue or funds pledged by the board.

NEW SECTION. Section 25.  Taxation of projects. (1) Notwithstanding the fact that title to a project may be in the board or a governmental unit, a project is subject to taxation to the same extent, in the same manner, and under the same procedures as privately owned property in similar circumstances if the project is leased to or held by a private interest on both the assessment date and the date that the levy is made in that year. A project is not subject to taxation in any year if the project is not leased to or held by a private interest on both the assessment date and the date that the levy is made in that year.

(2)  When personal property owned by the board or a governmental unit is taxed under this section and the personal property taxes are delinquent, levy by warrant for distraint for collection of the delinquent taxes may be made only on the personal property against which the taxes were levied.

NEW SECTION. Section 26.  Nonimpairment by state. In accordance with the constitutions of the United States and the state of Montana, the state pledges that it will not in any way impair the obligations of any agreement between the board and a partnership or between the board and the holders of bonds issued by the board, including but not limited to an agreement to administer a loan program financed by the issuance of bonds and to employ a staff sufficient and competent for this purpose.

NEW SECTION. Section 27.  Credit of state not pledged. Obligations issued under the provisions of [sections 1 through 29] do not constitute a liability or obligation or a pledge of the faith and credit of the state but are payable solely from revenue or funds of the board generated or received for purposes of [sections 1 through 29]. An obligation issued under [sections 1 through 29] must contain on the face of the obligation a statement to the effect that the state of Montana is not liable for the obligation, the obligation is not a debt of the state, and the faith, credit, and taxing power of the state are not pledged to the payment of the principal of or the interest on the obligation.

NEW SECTION. Section 28.  Annual audit. The board's books and records must be audited at least once each fiscal year by or at the direction of the legislative auditor. The actual costs of the audit must be paid from the board's funds.

NEW SECTION. Section 29.   Annual report. By December 31 of each year, the board shall publish a financial report for distribution to the governor, the legislature, and the public. Distribution to the legislature is accomplished by providing two copies to the legislative services division and a copy to a legislator on request. The report must include a statement of the board's current financial position with respect to its activities under [sections 1 through 29] and a summary of its activities pursuant to [sections 1 through 29] during the previous year.

NEW SECTION. Section 30.  Severability. If a part of [this act] is invalid, all valid parts that are severable from the invalid part remain in effect. If a part of [this act] is invalid in one or more of its applications, the part remains in effect in all valid applications that are severable from the invalid applications.

NEW SECTION. Section 31.  Effective date. [This act] is effective July 1, 1997.