BILL NUMBER: S5654A

SPONSOR: MARTINEZ
 
TITLE OF BILL:

An act to amend the local finance law, in relation to the delivery of
the good faith deposit following award of the bonds to the successful
bidder

 
PURPOSE:

This legislation would allow local governments to collect good faith
deposits only after determining the successful bidder of a bond offer
instead of including them as integral part of the bid for bonds in order
to reduce costs and administrative burdens on municipalities, school
districts and district corporations.

 
SUMMARY OF PROVISIONS:

Section 1. Amends Section 58.00(c)(3) of the local finance law by remov-
ing the requirement that each bidder shall deposit a certified or cash-
ier's check when participating in a bid for bond issued by a local
              

government. Instead, only successful bidders, as determined by the muni-
cipality, school district or district corporation, would be requested to
do so.

Section 2. Sets forth the effective date.

 
JUSTIFICATION:

There are substantial administrative burdens and costs associated with
returning multiple good faith deposits received in connection with the
public sale of bonds by municipalities, school districts and district
corporations.

Pursuant to Section 58.00(c)(3) of the New York State Local Finance Law
the good faith deposit must be not less than one-half of one per centum
of the amount of bonds to be bid for. For example, for a bond issue with
a par amount of $10,000,000, the required good faith deposit must be at
least $50,000. The good faith deposit is applied as part payment for the
bonds or retained by the municipality, school district or district
corporation selling said bonds as liquidated damages in case the
successful bidder does not take up and pay for the bonds in accordance
with the terms of the notice of sale.

Typically, depending on the size, there can be as many as five to ten or
more bids received for a single bond issue. Each bid must be accompanied
by a good faith deposit. If a municipality, school district or district
corporation is selling more than one series of bonds on the same date,
the number of deposits received increases substantially. For conven-
ience, most bidders send their good faith deposit to the municipality,
school district or district corporation selling the bonds in the form of
cash by wire transfer to an account designated by said municipality,
school district or district corporation. A few bidders may send a certi-
fied or cashier's check in lieu of a wire.

The law also provides that the deposit may be made in the form of a
surety bond; however, there are presently no insurance companies in New
York State that meet the rating criteria set forth in Section 58.00(c)
(3) of the New York State Local Finance Law for providing a surety bond.
In addition, deposits are also received from banks and underwriting
firms that do not ultimately submit a bid for the bonds.

Following the award of the bonds, the municipality, school district or
district corporation must return all of the deposits submitted by the
unsuccessful bidders. This task can take several hours or more to
complete and typically requires the time and attention of several staff
members of the municipality, school district or district corporation.

For each deposit to be returned, the municipality, school district or
district corporation must obtain and/or confirm wire instructions from
the unsuccessful bidder, undertake the multi-layer approval process for
sending outgoing wires, pay any costs associated with sending a wire
imposed by their banking institution and also account for or document
the receipt and return of the wires as part of the internal bookkeeping
and/or reconciliation process of said municipality, school district or
district corporation.

Due to the large number of wires that must be sent, there is an
increased likelihood of errors or mistakes, which would require addi-
tional time spent by the staff of the municipality, school district or
district corporation to address. Deposits are sometimes not returned
until the day following the sale. A reduction in the number of wires
being sent by a municipality, school district or district corporation
will lessen opportunities for wire fraud or related threats.

Amending this practice will reduce these administrative burdens and
costs following a bond sale by allowing the delivery of a good faith
deposit by the successful bidder following award of the bonds to said
successful bidder by the sale officer.

 
LEGISLATIVE HISTORY:

2021-22: A.9809

 
FISCAL IMPLICATIONS:

To be determined.

 
EFFECTIVE DATE:
This act shall take effect immediately.