Chapter 746 Oregon Laws 2003

AN ACT

HB 3659

Relating to state finance; creating new provisions; amending ORS 238.225, 238.694, 283.085, 283.087 and 283.089; appropriating money; limiting expenditures; and declaring an emergency.

Be It Enacted by the People of the State of Oregon:

SECTION 1. Sections 2 to 6 of this 2003 Act are added to and made a part of ORS chapter 286.

SECTION 2. As used in sections 2 to 6 of this 2003 Act, unless the context requires otherwise:

(1) “Article XI-O bonds” means general obligation bonds or other general obligation indebtedness issued or incurred under the authority of Article XI-O of the Oregon Constitution.

(2) “Bond administration fund” means the Article XI-O Bond Administration Fund established under section 5 of this 2003 Act.

(3) “Bond fund” means the Article XI-O Bond Fund established under section 4 of this 2003 Act.

(4) “Bond-related costs” means:

(a) The costs of paying the principal of, the interest on and the premium, if any, on Article XI-O bonds;

(b) The costs and expenses of issuing, administering and maintaining Article XI-O bonds including, but not limited to, redeeming Article XI-O bonds, paying amounts due in connection with bond insurance, other credit enhancements or the administrative costs and expenses of the State Treasurer and the Oregon Department of Administrative Services, including costs of consultants or advisors retained by the State Treasurer or the Oregon Department of Administrative Services for the purpose of issuing, administering or maintaining Article XI-O bonds;

(c) Capitalized interest on Article XI-O bonds;

(d) Costs of funding reserves for Article XI-O bonds, including costs of surety bonds and similar instruments;

(e) Rebates or penalties due the United States Government in connection with Article XI-O bonds; and

(f) Other costs or expenses that the State Treasurer or the Director of the Oregon Department of Administrative Services determines are necessary or desirable in connection with issuing, administering or maintaining Article XI-O bonds.

(5) “State agency” means a state officer, board, commission, corporation, institution, department or other state organization that has officers or employees participating in the Public Employees Retirement System.

SECTION 3. (1) Article XI-O bonds are a general obligation of the State of Oregon and must contain a direct promise on behalf of the State of Oregon to pay the principal of, the interest on and the premium, if any, on the Article XI-O bonds. The State of Oregon shall pledge its full faith and credit and taxing power to pay Article XI-O bonds; however, the ad valorem taxing power of the State of Oregon may not be pledged to pay Article XI-O bonds.

(2) The State Treasurer may issue Article XI-O bonds:

(a) To finance all or a portion of the state’s pension liabilities for retirement, health care or disability benefits, in an amount that produces net proceeds that do not exceed the State Treasurer’s estimate of those liabilities based on information provided to the State Treasurer by the Public Employees Retirement System, plus an amount determined by the State Treasurer to pay estimated bond-related costs. If Article XI-O bonds are issued for a purpose described in this paragraph, the Director of the Oregon Department of Administrative Services shall allocate the bond-related costs of those Article XI-O bonds among affected state agencies based on their payroll costs and shall bill those state agencies for an appropriate share of the bond-related costs on a monthly or other periodic basis. A state agency receiving a bill under this paragraph shall pay the amounts billed from the first moneys legally available to the state agency after paying the costs incurred for obligations under ORS 283.085 to 283.092.

(b) To refund Article XI-O bonds. The amount of Article XI-O bonds issued under this paragraph may not exceed the estimated costs of paying, redeeming or defeasing the refunded bonds, plus an amount determined by the State Treasurer to pay estimated bond-related costs. If Article XI-O bonds are issued under this paragraph, the Director of the Oregon Department of Administrative Services shall bill a state agency that was responsible for payment of the refunded bonds for an appropriate share of the bond-related costs on a monthly or other periodic basis. A state agency receiving a bill under this paragraph shall pay the amounts billed from the first moneys legally available to the state agency after paying the costs incurred for obligations under ORS 283.085 to 283.092.

(3) The net proceeds of Article XI-O bonds issued to finance all or a portion the state’s pension liabilities for retirement, health care or disability benefits must be transferred to the Public Employees Retirement Board for deposit in the Public Employees Retirement Fund established under ORS 238.660.

SECTION 4. (1) The Article XI-O Bond Fund is established in the State Treasury, separate and distinct from the General Fund. Interest earned on the bond fund must be credited to the bond fund. Amounts credited to the bond fund are continuously appropriated to the Oregon Department of Administrative Services for the purpose of paying, when due, the principal of, the interest on and the premium, if any, on outstanding Article XI-O bonds. The Oregon Department of Administrative Services shall credit to the bond fund:

(a) Capitalized or accrued interest on Article XI-O bonds;

(b) Amounts appropriated or otherwise provided by the Legislative Assembly for deposit in the bond fund;

(c) Reserves established for the payment of Article XI-O bonds; and

(d) Amounts received in payment of a bill for bond-related costs in amounts and at times so that sufficient moneys are available in the bond fund to pay the principal of, the interest on and the premium, if any, on Article XI-O bonds when due.

(2) The department may create separate accounts in the bond fund for reserves and debt service for each series of Article XI-O bonds.

SECTION 5. (1) The Article XI-O Bond Administration Fund is established in the State Treasury, separate and distinct from the General Fund. Interest earned on the bond administration fund must be credited to the bond administration fund. Amounts credited to the bond administration fund are continuously appropriated to the Oregon Department of Administrative Services for payment of bond-related costs. The department shall credit to the bond administration fund:

(a) Proceeds of Article XI-O bonds that were issued to pay bond-related costs that are not credited to the bond fund;

(b) Amounts appropriated or otherwise provided by the Legislative Assembly for deposit in the bond administration fund; and

(c) Amounts received in payment of a bill for bond-related costs that are not credited to the bond fund.

(2) The department may create separate accounts in the bond administration fund.

SECTION 6. (1) In accordance with the applicable provisions of this chapter and ORS chapter 288, the State Treasurer, after consulting with the Director of the Oregon Department of Administrative Services, may issue Article XI-O bonds from time to time for the purposes described in section 3 (2) of this 2003 Act.

(2) Article XI-O bonds may:

(a) Be sold at a competitive or negotiated sale;

(b) Bear interest that is includable in or excludable from gross income under the Internal Revenue Code; and

(c) Be sold on terms approved by the State Treasurer, including terms related to the time of sale, the issuance of bonds in series, the maturity of each series and the interest borne by each series of bonds.

(3) Subject to the approval of the State Treasurer, the Director of the Oregon Department of Administrative Services may:

(a) Acquire municipal bond insurance, a letter of credit, a line of credit, surety bonds or another credit enhancement device for Article XI-O bonds; and

(b) Enter into related agreements.

(4) Subject to the approval of the State Treasurer, the Director of the Oregon Department of Administrative Services may:

(a) Enter into agreements with a trustee or escrow agent regarding the use and application of the amounts held in the Article XI-O Bond Fund or the Article XI-O Bond Administration Fund; and

(b) Transfer amounts credited to the bond fund or the bond administration fund to a trustee or escrow agent.

SECTION 7. ORS 238.225, as amended by section 1, chapter 9, Oregon Laws 2002, and section 1, chapter 5, Oregon Laws 2002 (third special session), is amended to read:

238.225. (1) A participating public employer shall, at intervals designated by the Public Employees Retirement Board, transmit to the board those amounts the board determines to be actuarially necessary to adequately fund the benefits to be provided by the contributions of the employer under this chapter. From time to time, the board shall determine the liabilities of the system and shall set the amount of contributions to be made by participating public employers, and by other public employers who are required to make contributions on behalf of members, to ensure that those liabilities will be funded no more than 40 years after the date on which the determination is made.

(2) For the purpose of the actuarial computation required under subsection (1) of this section:

(a) The school districts of the state shall be grouped together and regarded as a single employer; and

(b) All community college districts and the state shall be grouped together and regarded as a single employer.

(3) For the purpose of the actuarial computation required under subsection (1) of this section, any participating public employer may elect to be grouped with the state and all community college districts and treated as a single employer for actuarial purposes only. An election under this subsection may be made only by participating public employers other than school districts and community college districts. Any public employer that makes an election under this subsection may not revoke the election.

(4) The computation of the contributions of a participating public employer that makes an election under the provisions of subsection (3) of this section shall be based only on the liabilities of the employer that are incurred after the effective date of the employer’s election. The board shall separately compute the contribution of the employer for the liabilities incurred by the employer before the effective date of the employer’s election.

(5) A participating public employer may make an election under subsection (3) of this section only by the adoption of a resolution or ordinance by the governing body of the public employer.

(6) Except as provided in subsection (2) of this section, the board may not require that any participating public employer be grouped with any other participating public employer for the purpose of the actuarial computation required under subsection (1) of this section. If two participating public employers merge or otherwise consolidate, and one of the public employers has made an election under subsection (3) of this section:

(a) The board may not require that the public employer that is the product of the consolidation be grouped with the state and all community college districts unless the public employer makes an election under subsection (3) of this section; and

(b) The board may require that the public employer that is the product of the consolidation make contributions based on the group rate only for those members for whom contributions based on the group rate were made before the consolidation.

(7) Except as provided in this section, the board may not group participating public employers for the purpose of the actuarial computation required by subsection (1) of this section.

(8) If a public employer is grouped with any other public employer for the purpose of the actuarial computation required under subsection (1) of this section[,] and the individual public employer makes a lump sum payment that is in addition to the normal contribution of the public employer [and that is designated for application only against accrued unfunded liabilities attributable to the employees of the individual public employer], the board shall adjust the amount of contributions to be made by the individual public employer to ensure that the benefit of the lump sum payment accrues only to the individual public employer making the payment. An individual public employer that makes a lump sum payment under the provisions of this subsection shall remain grouped with other public employers as provided in this section for the purpose of all liabilities of the employer that are not paid under this subsection. The board by rule may establish a minimum lump sum payment that must be made by an individual public employer before adjusting contributions under this subsection. Notwithstanding any minimum lump sum payment established by the board, the board must allow an individual public employer to make a lump sum payment under the provisions of this subsection if the payment is equal to the full amount of the individual public employer’s accrued unfunded liabilities.

(9) The board shall establish a separate account within the fund for each lump sum payment made under subsection (8) of this section or made by any other participating public employer that is not grouped with other public employers under this section. The board shall credit to each account all interest and other income received from investment of the account funds during the calendar year[, less any amounts withheld from earnings for administrative expenses under ORS 238.610 or paid into the reserve account established under ORS 238.670 (1)]. Except as provided in subsection (10) of this section, the board may not collect any administrative expense or other charge from the account or from earnings on the account. The account shall be used to offset contributions that the public employer would otherwise be required to make for the liabilities against which the lump sum payment is applied.

(10) The board may charge a participating public employer expenses for administration of an account established under subsection (9) of this section in an amount not to exceed $2,500 during the year in which the account is established and the immediately following two calendar years, and in an amount not to exceed $1,000 in all subsequent years.

[(10)] (11) If a participating public employer has any liabilities that are attributable to creditable service by employees of the employer before the participating public employer was grouped with other public employers, whether under the provisions of this section or pursuant to board rule, any lump sum payment made under subsection (8) of this section must be applied first against those liabilities, with the oldest such liability being paid first. Any amounts remaining after application under this subsection must be deposited in a separate account established under subsection (9) of this section.

SECTION 8. ORS 238.694 is amended to read:

238.694. (1) The Legislative Assembly finds that authorizing issuance of limited tax bonds or revenue bonds to finance pension liabilities may reduce the cost of public pensions to taxpayers and that the reduction of those costs to taxpayers is a matter of statewide concern.

(2) Notwithstanding any limitation on indebtedness or borrowing under state or local law, for the purpose of obtaining funds to pay the pension liability of a governmental unit, the governing body of a governmental unit may authorize and cause the issuance of limited tax bonds as defined in ORS 288.150, revenue bonds authorized by charter or pursuant to ORS 288.805 to 288.945, or any combination of those bonds. The governing body of a governmental unit may pledge the full faith and credit and taxing power of the governmental unit to the payment of the principal and interest on bonds issued under ORS 238.692 to 238.698, and any premium on those bonds.

(3) Limited tax bonds authorized under this section must be issued in the manner prescribed by ORS chapters 287 and 288 for the issuance of limited tax bonds. A county may not issue limited tax bonds under this section for an amount that exceeds five percent of the real market value of the taxable property within the boundaries of the county.

(4) Revenue bonds authorized under this section need not comply with the procedure specified in ORS 288.815.

(5) A governmental unit that issues limited tax bonds or revenue bonds under this section may also issue limited tax bonds or revenue bonds for the purpose of refunding the bonds.

(6) A governmental unit may enter into indentures or other agreements with trustees or escrow agents for the issuance, administration or payment of bonds authorized under this section.

[(7) The state may not issue bonds under the provisions of this section.]

SECTION 9. ORS 283.085 is amended to read:

283.085. As used in ORS 283.085 to 283.092, 286.515 and 286.525:

(1) “Available funds” means funds appropriated or otherwise made available by the Legislative Assembly to pay amounts due under a financing agreement for the fiscal period in which the payments are due, together with any unexpended proceeds of the financing agreement, and any reserves or other amounts which have been deposited in trust to pay amounts due under the financing agreement.

(2) “Credit enhancement agreement” means any agreement or contractual relationship between the state and any bank, trust company, insurance company, surety bonding company, pension fund or other financial institution providing additional credit on or security for a financing agreement or certificates of participation authorized by ORS 283.085 to 283.092, 286.515 and 286.525.

(3) “Director” means the Director of the Oregon Department of Administrative Services.

(4)(a) “Financing agreement” means a lease purchase agreement, an installment sale agreement, a loan agreement or any other agreement:

(A) To finance real or personal property that is or will be owned and operated by the state or any of its agencies;

(B) To finance infrastructure related to a facility that is owned and operated by the state;

(C) To finance infrastructure components that are owned or operated by a local government agency of this state if the director determines that financing the infrastructure will facilitate the construction or operation of an adult or juvenile corrections facility or a public safety training facility owned and operated by the state or any of its agencies; [or]

(D) To finance all or a portion of the state’s pension liabilities for retirement, health care or disability benefits, in an amount that produces net proceeds that do not exceed the State Treasurer’s estimate of those liabilities based on information provided to the State Treasurer by the Public Employees Retirement System; or

[(D)] (E) To refinance previously executed financing agreements.

(b) As used in this subsection, “infrastructure” includes, but is not limited to, sewer and water systems and road improvements.

(5) “Personal property” means tangible personal property, software and fixtures.

(6) “Property rights” means, with respect to personal property, the rights of a secured party under ORS chapter 79, and, with respect to real property, the rights of a trustee or lender under a lease authorized by ORS 283.089 (5).

(7) “Software” means software and training and maintenance contracts related to the operation of computing equipment.

(8) “Treasurer” means the State Treasurer.

SECTION 10. ORS 283.087 is amended to read:

283.087. With the approval of the State Treasurer, the Director of the Oregon Department of Administrative Services may enter into financing agreements in accordance with ORS 283.085 to 283.092, 286.515 and 286.525, upon such terms as the director and the treasurer find to be advantageous to the state. Financing agreements shall be subject to the following limitations:

(1) Amounts payable by the state under a financing agreement shall be limited to available funds. In no circumstance shall the state be obligated to pay amounts due under a financing agreement from any source other than available funds. If there are insufficient available funds to pay amounts due under a financing agreement, the lender may exercise any property rights which the state has granted to it in the financing agreement, against the property which was purchased with the proceeds of the financing agreement, and apply the amounts so received toward payments scheduled to be made by the state under the financing agreement.

(2) No property rights may be granted in property unless the property is being acquired, substantially improved or refinanced with the proceeds of a financing agreement, or is land on which such property is located.

(3) For periods after June 30, 1989, the principal amount of financing agreements entered into by the state pursuant to ORS 283.085 to 283.092, 286.515 and 286.525 shall be treated as an amount of bonds and shall be subject to the provisions of ORS 286.505 to 286.545.

(4) The limitations of subsection (3) of this section shall not apply to financing agreements which are used to refinance previously executed financing agreements. The expenditure of funds used to finance previously executed financing agreements and pay the costs incurred to issue the new financing agreements shall be recorded using administrative budget limitations.

(5) The state or any state agency shall not enter into financing agreements under any provision of law other than ORS 283.085 to 283.092, 286.515 and 286.525 if the principal amount of the financing agreement, together with the principal amount of any financing agreement previously issued by the state or a state agency for the same project, exceeds $100,000.

(6) Upon the request and with the approval of the Chief Justice of the Supreme Court or the State Court Administrator, the Director of the Oregon Department of Administrative Services may enter into financing agreements in accordance with ORS 283.085 to 283.092, 286.515 and 286.525, on behalf of the Judicial Department.

(7) Financing agreements may bear interest that is includable in, or is excludable from, gross income under the Internal Revenue Code.

SECTION 11. ORS 283.089 is amended to read:

283.089. With the approval of the State Treasurer, the Director of the Oregon Department of Administrative Services may:

(1) Enter into agreements with trustees to hold financing agreement proceeds, payments and reserves as security for lenders, and to issue certificates of participation in the right to receive payments due from the state under a financing agreement. Amounts held with a trustee shall be invested by the trustee at the direction of the treasurer. Interest earned on any investments held by a trustee as security for a financing agreement may, at the option of the director, be credited to the accounts held by the trustee and applied in payment of sums due under a financing agreement.

(2) Enter into credit enhancement agreements for financing agreements or certificates of participation, provided that such credit enhancement agreements shall be payable solely from available funds and amounts received from the exercise of property rights granted under such financing agreements.

(3) Use the gross proceeds of financing agreements [to finance the costs of acquiring or refinancing property, plus] for the purposes described in ORS 283.085 (4) and to pay the costs of reserves, credit enhancements and other costs associated with [obtaining] issuing, administering and maintaining the financing.

(4) Use a single financing agreement to finance property to be used by multiple state agencies.

(5) Subject to ORS 283.087 (2), grant leases of real property with a trustee or lender. Such leases may be for a term which ends on the date on which all amounts due under a financing agreement have been paid or provision for payment has been made, or 10 years after the last scheduled payment under a financing agreement, whichever is later. Such leases may grant the trustee or lender the right to evict the state and exclude it from possession of the real property for the term of the lease if the state fails to pay when due the amounts scheduled to be paid under a financing agreement or otherwise defaults under a financing agreement. Upon default, the trustee or lender may sublease the land to third parties and apply any rentals toward payments scheduled to be made under a financing agreement.

(6) Subject to ORS 283.087 (2), grant security interests in personal property to trustees or lenders. Such security interests shall attach and be perfected on the date the state takes possession of the personal property, or the date the lender advances money under a financing agreement, whichever is later. A security interest authorized by this section shall have priority over all other liens and claims. Upon default, the secured party shall have the rights and remedies available to a secured party under ORS chapter 79 for a first, perfected security interest in goods and fixtures. No later than 10 days after a security interest authorized by this section attaches, the state shall cause a financing statement for the security interest to be filed with the Secretary of State in the same manner as financing statements are filed for goods; however, failure to file such a statement shall not affect the perfection of the security interest.

(7) Pledge for the benefit of trustees and lenders any amounts which are deposited with a trustee in accordance with a financing agreement. The pledge shall be valid and binding from the time it is made, the amounts so pledged shall immediately be subject to the lien of the pledge without filing, physical delivery or other act, and the lien of the pledge shall be superior to all other claims and liens of any kind whatsoever.

(8) Bill any state agency [which] that benefits from [property acquired with the proceeds of] a financing agreement for an appropriate share of the financing costs, including debt service, on a monthly or other periodic basis, and deposit payments received in connection with such billings with a trustee as security for a financing agreement. Any state agency receiving such a bill shall pay the amounts billed from the first amounts legally available to it. The director shall allocate in appropriate shares the financing costs of a financing agreement entered into for the purpose described in ORS 283.085 (4)(a)(D) among all state agencies based on their payroll costs. As used in this subsection, “state agency” has the meaning given that term in section 2 of this 2003 Act.

(9) Purchase fire and extended coverage or other casualty insurance for property which is acquired or refinanced with proceeds of a financing agreement, assign the proceeds thereof to a lender or trustee to the extent of their interest, and covenant to maintain such insurance while the financing agreement is unpaid, so long as available funds are sufficient to purchase such insurance.

SECTION 12. (1) The provisions of ORS 286.505 to 286.545 do not apply to Article XI-O bonds issued for the purposes described in section 3 (2) of this 2003 Act during the biennium beginning July 1, 2003.

(2) The provisions of ORS 286.505 to 286.545 do not apply to obligations issued under ORS 283.085 (4)(a)(D) during the biennium beginning July 1, 2003.

SECTION 13. (1) Notwithstanding ORS 283.087 (3), the provisions of ORS 286.505 to 286.545 do not apply to financing agreements issued during the biennium beginning July 1, 2003, for the purpose described in ORS 283.085 (4)(a)(D).

(2) In the biennium beginning July 1, 2003, the Director of the Oregon Department of Administrative Services, with the approval of the State Treasurer, may enter into financing agreements:

(b) To refund financing agreements entered into under this section. The amount of financing issued under this paragraph may not exceed the estimated costs of paying, redeeming or defeasing the refunded financing agreements, plus an amount determined by the State Treasurer to pay the estimated costs of reserves, credit enhancements and other costs associated with issuing, administering and maintaining the financing.

(3) The net proceeds of financing agreements entered into for the purpose described in ORS 283.085 (4)(a)(D) must be transferred to the Public Employees Retirement Board for deposit in the Public Employees Retirement Fund established under ORS 238.660.

SECTION 14. (1) If House Joint Resolution 18 (2003) is approved by the people at the special election held throughout this state on the date specified in section 2, chapter 592, Oregon Laws 2003 (Enrolled House Bill 2651), notwithstanding any other law limiting expenditures of the Oregon Department of Administrative Services for the payment of expenses of the Oregon Department of Administrative Services from fees, moneys or other revenues, including Miscellaneous Receipts, but excluding lottery funds and federal funds, for the biennium ending June 30, 2005, the limitation on expenditures for the Oregon Department of Administrative Services established by chapter 389, Oregon Laws 2003 (Enrolled House Bill 5002), as modified by Emergency Board action, if any, is increased for the purpose of implementing sections 2 to 6 of this 2003 Act by:

(a) $191,164,785 for debt service; and

(b) $9,454,955 for bond-related costs.

(2) If House Joint Resolution 18 (2003) is not approved by the people at the special election held throughout this state on the date specified in section 2, chapter 592, Oregon Laws 2003 (Enrolled House Bill 2651), notwithstanding any other law limiting expenditures of the Oregon Department of Administrative Services for the payment of expenses of the Oregon Department of Administrative Services from fees, moneys or other revenues, including Miscellaneous Receipts, but excluding lottery funds and federal funds, for the biennium ending June 30, 2005, the limitation on expenditures for the Oregon Department of Administrative Services established by chapter 389, Oregon Laws 2003 (Enrolled House Bill 5002), as modified by Emergency Board action, if any, is increased for the purpose of financing, under ORS 283.085 to 283.092, all or a portion of the state’s pension liabilities for retirement, health care or disability benefits by:

(a) $196,200,647 for debt service; and

(b) $20,510,532 for the costs of reserves, credit enhancements and other costs associated with issuing, administering and maintaining the financing.

SECTION 15. (1) Sections 1, 2, 3, 4, 5, 6 and 12 of this 2003 Act become operative only if the amendment to the Oregon Constitution proposed by House Joint Resolution 18 (2003) is approved by the people at a special election held throughout this state on the date specified in section 2, chapter 592, Oregon Laws 2003 (Enrolled House Bill 2651).

(2) Sections 1, 2, 3, 4, 5, 6 and 12 of this 2003 Act become operative on the effective date of the constitutional amendment proposed by House Joint Resolution 18 (2003).

SECTION 16. This 2003 Act being necessary for the immediate preservation of the public peace, health and safety, an emergency is declared to exist, and this 2003 Act takes effect on its passage.

Approved by the Governor September 2, 2003

Filed in the office of Secretary of State September 2, 2003

Effective date September 2, 2003

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