CHAPTER 1371. OBLIGATIONS FOR CERTAIN PUBLIC IMPROVEMENTS

Statutes > Texas Statutes > GOVERNMENT CODE > TITLE 9. PUBLIC SECURITIES > CHAPTER 1371. OBLIGATIONS FOR CERTAIN PUBLIC IMPROVEMENTS

GOVERNMENT CODE

TITLE 9. PUBLIC SECURITIES

SUBTITLE F. SPECIFIC AUTHORITY FOR STATE OR LOCAL GOVERNMENT TO

ISSUE SECURITIES

CHAPTER 1371. OBLIGATIONS FOR CERTAIN PUBLIC IMPROVEMENTS

SUBCHAPTER A. GENERAL PROVISIONS

Sec. 1371.001. DEFINITIONS. In this chapter:

(1) "Credit agreement" means a loan agreement, revolving credit

agreement, agreement establishing a line of credit, letter of

credit, reimbursement agreement, insurance contract, commitment

to purchase obligations, purchase or sale agreement, interest

rate management agreement, or other commitment or agreement

authorized by a governing body in anticipation of, related to, or

in connection with the authorization, issuance, sale, resale,

security, exchange, payment, purchase, remarketing, or redemption

of some or all of an issuer's obligations or interest on

obligations, or both, or as otherwise authorized by this chapter.

(2) "Eligible project" means:

(A) the acquisition or construction of or an improvement,

addition, or extension to a public works, including a capital

asset or facility incident and related to the operation,

maintenance, or administration of the public works, and:

(i) with respect to a property or a facility for the generation

of electric power and energy, fuel acquisition or the development

or transportation of power, energy, or fuel;

(ii) with respect to a property or a facility for a public

transportation system:

(a) a building, terminal, garage, shop, or other structure,

rolling stock, equipment, or another facility for mass public

transportation; or

(b) a vehicle parking area or a facility necessary or convenient

for the beneficial use and access of persons and vehicles to a

station, terminal, yard, car, or bus, or for the protection or

environmental enhancement of a facility for mass public

transportation; and

(iii) with respect to a property or a facility for a port

facility, a wharf or dock, a warehouse, grain elevator, or other

storage facility, a bunkering facility, port-related railroad or

bridge, floating plant or facility, lightering facility, cargo

handling facility, towing facility, or any other facility or aid

incident to or useful in the operation of a port facility;

(B) a causeway, bridge, tunnel, turnpike, highway, or

combination of those facilities, including:

(i) a necessary overpass, underpass, interchange, entrance

plaza, tollhouse, service station, approach, fixture, accessory,

or item of equipment, or a storage, administration, or other

necessary building; and

(ii) a property right or other interest acquired in connection

with those facilities;

purpose of attracting visitors and tourists to the county,

including a civic center, auditorium, exhibition hall, coliseum,

stadium, or parking area;

(D) a project for which there exists authorized but unissued

obligations approved by a majority of the voters of the issuer or

for which the issuer is authorized to issue other indebtedness

payable from ad valorem taxes;

(E) a project for which an issuer is authorized to issue revenue

bonds secured, in whole or in part, by revenue derived from or

related to student loans; or

(F) an approved venue project under Chapter 334 or 335, Local

Government Code.

(3) "Governing body" means the board, council, commission,

commissioners court, or other designated body, acting

individually or jointly as authorized by law, that is authorized

by law to issue public securities for or on behalf of an issuer.

(3-a) "Interest rate management agreement" means an agreement

that provides for an interest rate transaction, including a swap,

basis, forward, option, cap, collar, floor, lock, or hedge

transaction, a similar transaction, or any combination of those

types of transactions. The term includes:

(A) a master agreement that provides standard terms for

transactions;

(B) an agreement to transfer collateral as security for

transactions; or

(4) "Issuer" means:

(A) a home-rule municipality that:

(i) adopted its charter under Section 5, Article XI, Texas

Constitution;

(ii) has a population of 50,000 or more; and

(iii) has outstanding long-term indebtedness that is rated by a

nationally recognized rating agency for municipal securities in

one of the four highest rating categories for a long-term

obligation;

(B) a conservation and reclamation district created and

organized as a river authority under Section 52, Article III, or

Section 59, Article XVI, Texas Constitution;

163, Utilities Code;

(D) a metropolitan rapid transit authority, regional

transportation authority, or coordinated county transportation

authority created, organized, or operating under Chapter 451,

452, or 460, Transportation Code;

(E) a conservation and reclamation district organized or

operating as a navigation district under Section 52, Article III,

or Section 59, Article XVI, Texas Constitution;

(F) a district organized or operating under Section 59, Article

XVI, Texas Constitution, that has all or part of two or more

municipalities within its boundaries;

(G) a state agency, including a state institution of higher

education;

(H) a hospital authority created or operating under Chapter 262

or 264, Health and Safety Code, in a county that:

(i) has a population of more than 3.3 million; or

(ii) is included, in whole or in part, in a standard

metropolitan statistical area of this state that includes a

county with a population of more than 2.2 million;

(I) a hospital district in a county that has a population of

more than two million;

(J) a nonprofit corporation organized to exercise the powers of

a higher education loan authority under Section 53B.47(e),

Education Code;

(K) a county:

(i) that has a population of 3.3 million or more; or

(ii) that, on the date of issuance of obligations under this

chapter, has authorized, outstanding, or any combination of

authorized and outstanding, indebtedness of at least $100 million

secured by and payable from the county's ad valorem taxes and the

authorized long-term indebtedness of which is rated by a

nationally recognized rating agency of securities issued by local

governments in one of the four highest rating categories for a

long-term obligation;

(L) an independent school district that has an average daily

attendance of 50,000 or more as determined under Section 42.005,

Education Code;

(M) a municipality or county operating under Chapter 334, Local

Government Code;

(N) a district created under Chapter 335, Local Government Code;

(O) a junior college district that has a total headcount

enrollment of 40,000 or more based on enrollment in the most

recent regular semester; or

(P) an issuer, as defined by Section 1201.002, that has:

(i) a principal amount of at least $100 million in outstanding

long-term indebtedness, in long-term indebtedness proposed to be

issued, or in a combination of outstanding or proposed long-term

indebtedness; and

(ii) some amount of long-term indebtedness outstanding or

proposed to be issued that is rated in one of the four highest

rating categories for long-term debt instruments by a nationally

recognized rating agency for municipal securities, without regard

to the effect of any credit agreement or other form of credit

enhancement entered into in connection with the obligation.

(5) "Obligation" means a public security as defined by Section

1201.002 or other obligation that may be issued by an issuer and

that is expected to be rated, and before delivery is rated, by a

nationally recognized rating agency for municipal securities in

one of the three highest rating categories for a short-term debt

instrument or one of the four highest rating categories for a

long-term debt instrument. The term does not include an

obligation payable wholly or partly from ad valorem taxes unless:

(A) issuance of the obligation or an obligation refunded by the

obligation has been approved by the voters of the issuer in an

election held for that purpose; or

(B) the issuer:

(i) is authorized by law to issue public securities payable

wholly or partly from ad valorem taxes for the purpose for which

the obligation is to be issued; and

(ii) has complied with any conditions imposed by law before its

pledge of ad valorem taxes to pay the principal of or interest on

the obligation.

(6) "Obligation authorization" means a resolution, order, or

ordinance of a governing body authorizing the issuance of an

obligation.

(7) "Project cost" means a cost or expense incurred in relation

to an eligible project. The term includes:

(A) design, planning, engineering, and legal cost;

(B) acquisition cost of land or an interest in land;

(D) cost of machinery, equipment, and other capital assets

incident and related to the operation, maintenance, and

administration of an eligible project; and

(E) financing cost, including:

(i) interest on obligations and payments on credit agreements

during and after construction;

(ii) underwriter's discount or fee; and

(iii) cost of legal, financial, and other professional services.

(8) "Public works" means property or a facility for:

(A) the conservation, storage, supply, treatment, or

transmission of water;

(B) the treatment, collection, or disposal of water-carried

wastes or solid wastes;

power and energy;

(D) the acquisition, distribution, or storage of gas;

(E) a transit authority system, as defined by Section 451.001,

Transportation Code, or a public transportation system, as

defined by Section 452.001, Transportation Code;

(F) an airport as defined by Section 22.001, Transportation

Code;

(G) a port facility, including a facility for the operation or

development of a port or waterway or in aid of navigation or

navigation-related commerce in a port or on a waterway;

(H) a project as defined by Section 284.001, Transportation

Code; or

(I) the carrying out of a purpose or function for which an

issuer may issue public securities.

Added by Acts 1999, 76th Leg., ch. 227, Sec. 1, eff. Sept. 1,

1999. Amended by Acts 1999, 76th Leg., ch. 1064, Sec. 15, eff.

Sept. 1, 1999; Acts 2001, 77th Leg., ch. 669, Sec. 23, eff. Sept.

1, 2001; Acts 2001, 77th Leg., ch. 769, Sec. 8, 9, eff. Sept. 1,

2001; Acts 2001, 77th Leg., ch. 1420, Sec. 8.011(a), eff. Sept.

1, 2001.

Amended by:

Acts 2005, 79th Leg., Ch.

641, Sec. 4, eff. September 1, 2005.

Acts 2005, 79th Leg., Ch.

1005, Sec. 1, eff. June 18, 2005.

Acts 2006, 79th Leg., 3rd C.S., Ch.

9, Sec. 5, eff. May 31, 2006.

Acts 2007, 80th Leg., R.S., Ch.

1310, Sec. 1, eff. June 15, 2007.

Acts 2009, 81st Leg., R.S., Ch.

557, Sec. 4, eff. September 1, 2009.

Acts 2009, 81st Leg., R.S., Ch.

928, Sec. 4, eff. September 1, 2009.

Sec. 1371.002. CONSTRUCTION. This chapter shall be liberally

construed to achieve the legislative intent and purposes of this

chapter. A power granted by this chapter shall be broadly

interpreted to achieve that intent and those purposes.

Added by Acts 1999, 76th Leg., ch. 227, Sec. 1, eff. Sept. 1,

1999.

Sec. 1371.003. RELATIONSHIP TO OTHER LAW. (a) This chapter is

wholly sufficient authority within itself for the issuance of

obligations, the execution of a credit agreement, and the

performance of the other acts and procedures authorized by this

chapter or under any agreement, without reference to any other

laws or any restrictions or limitations contained in those laws.

Any restrictions or limitations contained in other laws do not

apply to the procedures prescribed by this chapter or to the

issuance of obligations, the execution of credit agreements, or

the performance of other acts authorized by this chapter.

(b) To the extent of any conflict or inconsistency between this

chapter and another law or a municipal charter, this chapter

controls.

conflict with this chapter to the extent convenient or necessary

to carry out any power or authority, express or implied, granted

by this chapter.

Added by Acts 1999, 76th Leg., ch. 227, Sec. 1, eff. Sept. 1,

1999.

Amended by:

Acts 2007, 80th Leg., R.S., Ch.

1310, Sec. 2, eff. June 15, 2007.

Sec. 1371.004. EFFECT OF FINDING OR DETERMINATION UNDER

DELEGATION OF AUTHORITY. A finding or determination made by an

officer or employee acting under the authority delegated to the

officer or employee under this chapter has the same force and

effect as a finding or determination made by the governing body.

Added by Acts 1999, 76th Leg., ch. 1064, Sec. 16, eff. Sept. 1,

1999.

SUBCHAPTER B. ISSUANCE AND APPROVAL OF OBLIGATION

Sec. 1371.051. AUTHORITY TO ISSUE OBLIGATION. As authorized and

approved by the governing body of an issuer, the governing body

may issue, sell, and deliver an obligation to:

(1) finance a project cost;

(2) refund an obligation issued in connection with an eligible

project; or

(3) finance all or part of a payment owed or to be owed on:

(A) the establishment of a credit agreement; or

(B) the settlement or termination, at maturity or otherwise, of

a credit agreement, whether the settlement or termination occurs:

(i) at the option of the issuer or the other party to the credit

agreement; or

(ii) by operation of the terms of the credit agreement.

Added by Acts 1999, 76th Leg., ch. 227, Sec. 1, eff. Sept. 1,

1999. Amended by Acts 2001, 77th Leg., ch. 769, Sec. 10, eff.

Sept. 1, 2001.

Amended by:

Acts 2007, 80th Leg., R.S., Ch.

1310, Sec. 3, eff. June 15, 2007.

Sec. 1371.052. TRANSPORTATION AUTHORITY OBLIGATION; ELECTION.

(a) A transportation authority created, organized, and operating

under Chapter 452, Transportation Code, may not issue an

obligation, other than a refunding obligation, that is payable in

whole or in part from its sales and use tax revenue and has a

maturity longer than five years unless an election required by

Section 452.352(b), Transportation Code, has been held and the

proposition has been approved.

(b) An obligation that is exempt from the election requirement

of Section 452.352(b), Transportation Code, by the terms of

Chapter 452, Transportation Code, is also exempt from the

election requirement of this section.

Added by Acts 1999, 76th Leg., ch. 227, Sec. 1, eff. Sept. 1,

1999.

Sec. 1371.0521. INDEPENDENT SCHOOL DISTRICT OBLIGATION. An

independent school district may not issue an obligation under

this chapter unless the obligation is authorized in accordance

with Section 45.003, Education Code.

Added by Acts 2001, 77th Leg., ch. 769, Sec. 11, eff. Sept. 1,

2001.

Sec. 1371.053. OBLIGATION AUTHORIZATION. (a) A governing body

must adopt or approve an obligation authorization before an

obligation may be issued.

(b) The obligation authorization must establish:

(1) the maximum amount of the obligation to be issued or, if

applicable, the maximum principal amount that may be outstanding

at any time;

(2) the maximum term for which obligations issued under the

authorization may be outstanding;

(3) the maximum interest rate the obligation will bear;

(4) subject to Subsection (c)(2), the manner of sale of the

obligation, which may be by public or private sale, the price of

the obligation, the form of the obligation, and the terms and

covenants of the obligation; and

(5) each source securing payment of the obligation.

(1) provide for the designation of a paying agent and registrar

for the obligation; and

(2) authorize one or more designated officers or employees of

the issuer to act on behalf of the issuer from time to time in

selling and delivering the obligation and setting the dates,

price, interest rates, interest payment periods, and other

procedures relating to the obligation, as specified in the

obligation authorization.

(d) An obligation may:

(1) be issued in a specified form or denomination;

(2) be payable:

(A) at one or more times;

(B) in installments or a specified amount or amounts;

(D) in a specified form;

(E) under specified terms and details; and

(F) in a specified manner; and

(3) be issued as redeemable before maturity at one or more

specified times.

Added by Acts 1999, 76th Leg., ch. 227, Sec. 1, eff. Sept. 1,

1999. Amended by Acts 1999, 76th Leg., ch. 1064, Sec. 17, eff.

Sept. 1, 1999.

Sec. 1371.054. RATE OF INTEREST. (a) An obligation may bear no

interest or bear interest at any rate or rates not to exceed the

maximum net effective interest rate allowed by law, whether

fixed, variable, floating, adjustable, or otherwise, as

determined in accordance with the obligation authorization.

(b) The obligation authorization may provide a formula, index,

contract, or other arrangement for the periodic determination of

interest rates.

Added by Acts 1999, 76th Leg., ch. 227, Sec. 1, eff. Sept. 1,

1999.

Sec. 1371.055. EXECUTION OF OBLIGATION. (a) An obligation may

be executed, with or without a seal, with a manual or facsimile

signature, as specified in the obligation authorization.

(b) The signature on an obligation of a person who is no longer

an officer when the obligation is delivered to the purchaser is

valid and sufficient for all purposes.

authentication, or delivery of the obligation.

Added by Acts 1999, 76th Leg., ch. 227, Sec. 1, eff. Sept. 1,

1999.

Sec. 1371.056. AUTHORITY TO ENTER INTO AND EXECUTE CREDIT

AGREEMENTS. (a) An issuer may execute and deliver any number of

credit agreements in anticipation of, related to, or in

connection with the authorization, issuance, security, purchase,

payment, sale, resale, redemption, remarketing, or exchange of

some or all of the issuer's obligations or interest on

obligations, or both, at any time, without regard to whether the:

(1) obligations have been authorized or issued; or

(2) credit agreement was contemplated, authorized, or executed

in relation to the initial issuance, sale, or delivery of the

obligations.

(b) Except as provided by this section, a credit agreement must

substantially contain the terms and be for the period the

governing body approves. A credit agreement may provide that it:

(1) may be terminated with or without cause; or

(2) becomes effective at the option of another party to the

credit agreement, if the governing body first finds that the

option serves best the interests of the issuer.

employees of the issuer the authority to approve specific terms

of, to execute and deliver, or to terminate or amend in

accordance with its terms, a credit agreement or transactions

under a credit agreement on the behalf of the issuer, subject to

any condition the governing body specifies. The delegation must

include limits on:

(1) the principal amount or the notional amount;

(2) the term;

(3) the rate;

(4) the source of payment;

(5) the security;

(6) the identity or credit rating of an authorized counterparty;

(7) the duration of the authorization; and

(8) for an interest rate management agreement, the:

(A) fixed or floating rates;

(B) economic consequences;

(D) type;

(E) provider; and

(F) costs of credit enhancement.

(d) The cost to the issuer of a credit agreement or payments

owed by an issuer under a credit agreement may be paid from and

secured by any source, including:

(1) the proceeds from the sale of the obligation to which the

credit agreement relates;

(2) any revenue and money of the issuer that is available to pay

the obligation;

(3) any interest on the obligation or that may otherwise be

legally used; or

(4) ad valorem taxes if the credit agreement is authorized in

anticipation of, in relation to, or in connection with an

obligation that is wholly or partly payable from or is to be

wholly or partly payable from ad valorem taxes.

(e) A credit agreement is an agreement for professional services

but is not a contract subject to Subchapter I, Chapter 271, Local

Government Code.

(f) If a credit agreement is authorized and is executed in

anticipation of the issuance of an obligation described by

Section 1371.001(5)(B) because the issuer is authorized by

Subchapter C, Chapter 271, Local Government Code, to issue

certificates of obligation:

(1) notice required by Section 271.049, Local Government Code,

in addition to the other requirements for the notice, must

describe the time and place tentatively set for the adoption of

the order or ordinance authorizing the credit agreement, the

maximum amount and term of the obligations and credit agreement,

and the manner in which the certificates of obligation and credit

agreement will be paid; and

(2) the issuer may enter into the credit agreement and issue the

certificates of obligation only if:

(A) the municipal secretary or clerk or person with similar

authority does not receive a petition signed by at least five

percent of the registered voters of the issuer that protests the

issuance of the certificates of obligation or the execution of

the credit agreement before the later of the date tentatively set

for the adoption of the order or ordinance to authorize the

credit agreement or the date the order or ordinance is adopted;

(B) the issuance and execution are approved at an election held

for that purpose conducted as provided for a bond election under

Chapter 1251; or

Code, before the certificates of obligation are authorized.

(g) Payments received by an issuer under a credit agreement or

on termination of all or part of a credit agreement may be used

to:

(1) pay the obligations in anticipation of which, in relation to

which, or in connection with which the credit agreement was

entered into or pay the costs to be financed by the obligations

in anticipation of which, in relation to which, or in connection

with which the credit agreement was entered into;

(2) pay other liabilities or expenses that are secured on parity

with or senior to the obligations in anticipation of which, in

relation to which, or in connection with which the credit

agreement was entered into; or

(3) after the satisfaction of the obligations or costs described

by Subdivision (1) and of the liabilities and expenses described

by Subdivision (2) that are due, make payments for any other

purpose for which the issuer may issue obligations under this

subchapter or that is otherwise authorized by law, unless the

credit agreement is paid primarily from ad valorem taxes.

(h) An issuer may agree to pay or receive a payment on early

termination of an interest rate management agreement due to a

breach or for another reason as provided by the interest rate

management agreement. The agreement may specify the payment by a

specific amount, by a formula, or by a process or algorithm.

(i) A credit agreement secured in the manner described by

Subsection (d)(4) may be executed without an election or the

imposition of an ad valorem tax for the credit agreement unless

required by the Texas Constitution. If the Texas Constitution

requires an election for the credit agreement, the election must

be held substantially in the manner provided for an election

under Chapter 1251.

(j) An issuer may enter into an interest rate management

agreement transaction only:

(1) if the issuer has either entered into at least three

interest rate management transactions before November 1, 2006, or

has entered into one or more interest rate management

transactions with notional amounts totaling at least $400 million

before that date; or

(2) as provided by Subsection (k).

(k) An issuer may enter into an interest rate management

transaction if:

(1) the governing body has adopted, amended, or ratified during

the preceding two years a risk management policy governing

entering into and managing interest rate management agreements

and transactions that addresses:

(A) conditions, if any, under which the issuer may enter into an

interest rate management agreement transaction without

independent advice from a financial advisor or swap advisor who

has experience in interest rate management transactions; and

(B) authorized purposes, permitted types and creditworthiness of

counterparties, credit risks and other risks, liquidity, methods

of selection of counterparties, and limits concerning awarding a

transaction, monitoring, and exposure;

(2) the issuer has received from the counterparty:

(A) if the transaction was not awarded through a competitive

bidding process:

(i) a statement that, in the counterparty's judgment, the

difference in basis points between the rate of the transaction

and the mid-market rate for a comparable transaction falls within

the commonly occurring range for comparable transactions;

(ii) a statement of the amount of the difference as determined

by the counterparty; or

(iii) if the counterparty does not know of a comparable

transaction or mid-market rate, a statement of another suitable

measure of pricing acceptable to the counterparty; and

(B) the counterparty's disclosure of any payments the

counterparty made to another person to procure the transaction;

and

(3) the governing body or an authorized officer or employee of

the issuer has determined that the transaction will conform to

the issuer's interest rate management agreement policy after

reviewing a report of the chief financial officer of the issuer

that identifies with respect to the transaction:

(A) its purpose;

(B) the anticipated economic benefit and the method used to

determine the anticipated benefit;

(D) the notional amount, amortization, and average life compared

to the related obligation;

(E) any floating indices;

(F) its effective date and duration;

(G) the identity and credit rating of the counterparties;

(H) the cost and anticipated benefit of transaction insurance;

(I) the financial advisors and the legal advisors and their

fees;

(J) any security for scheduled and early termination payments;

(K) any associated risks and risk mitigation features; and

(L) early termination provisions.

(l) While an interest rate management agreement transaction is

outstanding, the governing body of the issuer shall review and

ratify or modify its related risk management policy at least

biennially.

Added by Acts 1999, 76th Leg., ch. 227, Sec. 1, eff. Sept. 1,

1999. Amended by Acts 1999, 76th Leg., ch. 1064, Sec. 18, eff.

Sept. 1, 1999.

Amended by:

Acts 2007, 80th Leg., R.S., Ch.

1310, Sec. 4, eff. June 15, 2007.

Sec. 1371.057. REVIEW AND APPROVAL OF OBLIGATION, CREDIT

AGREEMENT, AND CONTRACT BY ATTORNEY GENERAL. (a) Before an

obligation may be issued or a credit agreement executed, a record

of the proceedings of the issuer authorizing the issuance,

execution, and delivery of the obligation or credit agreement and

any contract providing revenue or security to pay the obligation

or credit agreement must be submitted to the attorney general for

review.

(b) If the attorney general finds that the proceedings

authorizing an obligation or credit agreement conform to the

requirements of the Texas Constitution and this chapter, the

attorney general shall approve them and deliver to the

comptroller a copy of the attorney general's legal opinion

stating that approval and the record of proceedings. After

approval, the obligation or credit agreement may be executed and

delivered, exchanged, or refinanced from time to time in

accordance with those authorizing proceedings.

agreement provides that the issuer intends to refinance the

obligation or a payment under the credit agreement with refunding

bonds issued under Chapter 1207, then the obligation or payment

shall be treated, for purposes of attorney general review and

approval, as having the intended term and payment schedule of the

refunding bonds.

Added by Acts 1999, 76th Leg., ch. 227, Sec. 1, eff. Sept. 1,

1999. Amended by Acts 1999, 76th Leg., ch. 1064, Sec. 19, eff.

Sept. 1, 1999.

Amended by:

Acts 2005, 79th Leg., Ch.

1005, Sec. 2, eff. June 18, 2005.

Acts 2007, 80th Leg., R.S., Ch.

1310, Sec. 5, eff. June 15, 2007.

Sec. 1371.058. REGISTRATION. On receipt of the documents

required by Section 1371.057(b), the comptroller shall register

the record of the proceedings relating to the issuance of

obligations or the execution of a credit agreement.

Added by Acts 1999, 76th Leg., ch. 1064, Sec. 19, eff. Sept. 1,

1999.

Sec. 1371.059. VALIDITY AND INCONTESTABILITY. (a) If

proceedings to authorize an obligation or credit agreement are

approved by the attorney general and registered by the

comptroller, each obligation or credit agreement, as applicable,

or a contract providing revenue or security included in or

executed and delivered according to the authorizing proceedings

is incontestable in a court or other forum and is valid, binding,

and enforceable according to its terms.

(b) Notwithstanding Subsection (a) and Section 1371.003, and

except as provided by this subsection, an obligation authorized

by this chapter is not valid, binding, or enforceable unless the

obligation is approved by the attorney general and registered by

the comptroller in accordance with Chapter 1202. The attorney

general's approval and registration by the comptroller is not

required for an obligation:

(1) to which Chapter 1202 does not apply or that is exempt from

approval and registration as provided by Section 1202.007(a)(1),

(2), (3), (4), (6), or (7); or

(2) that matures within one year after the issuer receives

payment for the obligation, regardless of whether the obligation

is evidenced by an instrument with a nominal term of longer than

one year.

credit agreement, or in a credit agreement, may agree to waive

sovereign immunity from suit or liability for the purpose of

adjudicating a claim to enforce the credit agreement or

obligation or for damages for breach of the credit agreement or

obligation. This subsection does not apply to an issuer that is:

(1) a state agency, including a state institution of higher

education; or

(2) a county with a population of 900,000 or more.

Added by Acts 1999, 76th Leg., ch. 227, Sec. 1, eff. Sept. 1,

1999. Redesignated from Government Code Sec. 1371.057(c) and

amended by Acts 1999, 76th Leg., ch. 1064, Sec. 19, eff. Sept. 1,

1999.

Amended by:

Acts 2007, 80th Leg., R.S., Ch.

1310, Sec. 6, eff. June 15, 2007.

Sec. 1371.060. REFINANCING, RENEWAL, OR REFUNDING OF OBLIGATION

OR CREDIT AGREEMENT. An obligation, including accrued interest,

or a credit agreement may from time to time be refinanced,

renewed, or refunded by the issuance of another obligation or

credit agreement.

Added by Acts 1999, 76th Leg., ch. 227, Sec. 1, eff. Sept. 1,

1999. Renumbered from Government Code Sec. 1371.058 by Acts 1999,

76th Leg., ch. 1064, Sec. 19, eff. Sept. 1, 1999.

Sec. 1371.061. MANAGEMENT REPORTS. (a) If a governing body

authorizes an interest rate management agreement transaction, the

governing body shall designate an officer of the issuer to

monitor and report on the transaction. At least annually, the

designated officer shall present to the governing body a written

report, signed by the designated officer, on all outstanding

interest rate management agreement transactions conducted for the

issuer. The report must:

(1) describe the terms of the transactions;

(2) contain a statement:

(A) of the fair value of each transaction;

(B) of the value of any collateral posted to or by the issuer

under the transactions with each counterparty at the year's end;

and

(3) identify with respect to each transaction the counterparty,

any guarantor of the counterparty's obligations under the

transaction, and the credit ratings of the counterparty and the

guarantor; and

(4) state whether the continuation of the transactions under the

agreement would comply with the issuer's interest rate management

agreement policy.

(b) This section does not apply to an issuer that has entered

into:

(1) at least three interest rate management agreement

transactions before November 1, 2006; or

(2) one or more interest rate management agreement transactions

with notional amounts totaling at least $400 million before

November 1, 2006.

Added by Acts 2007, 80th Leg., R.S., Ch.

1310, Sec. 7, eff. June 15, 2007.

SUBCHAPTER C. FINANCIAL ASPECTS OF OBLIGATION

Sec. 1371.101. OBLIGATION AS NEGOTIABLE INSTRUMENT AND

INVESTMENT SECURITY. An obligation is:

(1) a negotiable instrument; and

(2) an investment security to which Chapter 8, Business &

Commerce Code, applies.

Added by Acts 1999, 76th Leg., ch. 227, Sec. 1, eff. Sept. 1,

1999.

Sec. 1371.102. USE OF CERTAIN PROCEEDS. (a) The proceeds from

the sale of an obligation may be deposited or invested in any

manner and in any obligation specified in the obligation

authorization.

(b) A project cost incurred before the issuance of an obligation

issued to finance the related eligible project may be reimbursed

from the proceeds from the sale of the obligation.

Added by Acts 1999, 76th Leg., ch. 227, Sec. 1, eff. Sept. 1,

1999.

Sec. 1371.103. SECURITY FOR OBLIGATION. (a) An obligation must

be secured solely by:

(1) the proceeds from the sale of other obligations;

(2) the proceeds from the sale of revenue bonds payable from the

revenue to be received from a public works or a specified user of

a public works;

(3) any revenue that the issuer is authorized by the

constitution, a statute, or the charter of a home-rule

municipality to pledge to the payment of an obligation;

(4) a credit agreement; or

(5) any combination of those sources.

(b) A governing body may secure an obligation and pay the cost

of a credit agreement executed and delivered in connection with

the financing of a project cost with:

(1) the sources permitted by this chapter; and

(2) ad valorem taxes to the extent the project cost relates to

an eligible project financed or to be financed with obligations

payable from ad valorem taxes.

Added by Acts 1999, 76th Leg., ch. 227, Sec. 1, eff. Sept. 1,

1999. Amended by Acts 1999, 76th Leg., ch. 1064, Sec. 20, eff.

Sept. 1, 1999.

Sec. 1371.104. SOURCE OF REPAYMENT OF OBLIGATION. An obligation

must be repaid from:

(1) a source of security for the payment of the obligation;

(2) money received from a credit agreement; or

(3) any other revenue legally available for the payment of the

obligation.

Added by Acts 1999, 76th Leg., ch. 227, Sec. 1, eff. Sept. 1,

1999.

Sec. 1371.105. PLEDGE OR LIEN ON RESOURCES, ASSETS, OR FUND OF

ISSUER. (a) A pledge or lien provided for in the resolution,

order, ordinance, or other proceedings authorizing a public

security, a credit agreement, or another agreement on a resource

of the issuer, including revenue or income, on an asset of the

issuer, or on a fund maintained by the issuer to secure payment

of the public security or to secure a payment required by a

credit agreement or other agreement:

(1) is valid and binding without further action by the issuer

according to its terms and without being filed or recorded,

except in the records of the issuer;

(2) is effective from the time of payment for and delivery of

the public security or execution of the credit agreement or other

agreement until:

(A) the public security or other payment has been paid;

(B) payment of the public security has been provided for; or

been satisfied; and

(3) is effective as to an item on hand or later received, and

the item is subject to the lien or pledge without physical

delivery of the item or other action.

(b) This section does not exempt an issuer from a duty to:

(1) record a lien on real property; or

(2) submit a public security issue for approval by the attorney

general and registration by the comptroller.

Added by Acts 1999, 76th Leg., ch. 227, Sec. 1, eff. Sept. 1,

1999.

Sec. 1371.106. PLEDGE OF OR LIEN ON SALES OR USE TAX REVENUE.

This chapter does not affect a restriction imposed by Chapter

321, Tax Code, on a pledge of or lien on sales and use tax

revenue.

Added by Acts 1999, 76th Leg., ch. 227, Sec. 1, eff. Sept. 1,

1999.

SUBCHAPTER D. ADVISERS RETAINED FOR THE ISSUANCE OF PUBLIC

SECURITIES AND RELATED MATTERS

Sec. 1371.151. DEFINITIONS. In this subchapter:

(1) "Advice" means the advice provided by an adviser regarding

activities described by Sections 1371.154(b)(2)(A)-(C).

(2) "Adviser" means a person who provides advice regarding

activities described by Sections 1371.154(b)(2)(A)-(C).

(3) "Interest rate management agreement" means an agreement that

provides for an interest rate transaction, including:

(A) a swap, basis, forward, option, cap, collar, floor, lock, or

hedge; or

(B) any combination of these types of agreements or

transactions.

(4) "Municipal finance professional" means an individual, other

than an individual whose functions are solely clerical or

ministerial, whose activities include:

(A) underwriting, trading, or the sale of municipal securities;

(B) financial advisory or consultant services for issuers in

connection with the issuance of public securities, the execution

and delivery of interest rate management agreements, or the

investment of the proceeds of public securities;

securities, provided that the research or advice relates to an

activity described by Paragraph (A) or (B); or

(D) any other activity that involves direct or indirect

communication with public investors regarding public securities,

provided that the activity relates to an activity described by

Paragraph (A) or (B).

(5) "Public security" has the meaning assigned by Section

1202.001.

Added by Acts 2007, 80th Leg., R.S., Ch.

991, Sec. 7, eff. September 1, 2007.

Sec. 1371.152. EXEMPTIONS. This subchapter does not apply to:

(1) an issuer who has more than $3 billion in outstanding

obligations as of September 1, 2007, or to a nonprofit

corporation investing funds on behalf of such an issuer;

(2) a person acting as a financial adviser with respect to an

issuance of public securities by an issuer created under Chapter

8503, Special District Local Laws Code, delivered before January

1, 2010, under a contract that was in effect on September 1,

2007, and that has not been modified since that date;

(3) an employee of an issuer providing advice to the issuer or

to another issuer;

(4) a state agency:

(A) created by Section 49-b, Article III, Texas Constitution; or

(B) the head of which is an officer in the executive department

under Section 1, Article IV, Texas Constitution; or

(5) a corporation created under Chapter 505, Local Government

Code, by a municipality located in a county bordering the Rio

Grande River.

Added by Acts 2007, 80th Leg., R.S., Ch.

991, Sec. 7, eff. September 1, 2007.

Amended by:

Acts 2009, 81st Leg., R.S., Ch.

87, Sec. 11.015, eff. September 1, 2009.

Sec. 1371.153. EXEMPTIONS FOR CERTAIN ADVICE. This subchapter

does not apply to advice to an issuer regarding:

(1) a loan or a line of credit by a depository institution to an

issuer in a transaction not involving the issuance of a public

security offered to a third party or parties; or

(2) a deposit of funds with a depository institution in

compliance with another statute of this state.

Added by Acts 2007, 80th Leg., R.S., Ch.

991, Sec. 7, eff. September 1, 2007.

Sec. 1371.154. FINANCIAL ADVISER OR INVESTMENT ADVISER

QUALIFICATIONS AND REQUIREMENTS FOR CERTAIN AGREEMENTS AND

TRANSACTIONS. (a) This section applies to a financial adviser

or an investment adviser who advises the issuer in connection

with:

(1) an interest rate management agreement;

(2) the execution or delivery of a public security; or

(3) the investment of the public security proceeds.

(b) To be eligible to be a financial adviser or an investment

adviser under this subchapter, the adviser must:

(1) be registered:

(A) as a dealer or investment adviser in accordance with Section

12 or 12-1, The Securities Act (Article 581-12 or 581-12-1,

Vernon's Texas Civil Statutes); or

(B) with the United States Securities and Exchange Commission

under the Investment Advisers Act of 1940 (15 U.S.C. Section

80b-1 et seq.), if the adviser is providing advice on the

investment of bond proceeds and not on the issuance of a public

security or an interest rate management agreement;

(2) have relevant experience in providing advice to issuers in

connection with:

(A) the issuance of public securities;

(B) the valuation of interest rate management agreements; or

(3) acknowledge in writing to the issuer that in connection with

the transaction for which the adviser is providing advice the

adviser:

(A) is acting as the issuer's agent; and

(B) has complied with the requirements of this subchapter.

Added by Acts 2007, 80th Leg., R.S., Ch.

991, Sec. 7, eff. September 1, 2007.

Sec. 1371.155. REQUIREMENTS. (a) An adviser, including an

adviser that is not required to be registered under Section

1371.154(b)(1)(A), shall comply with the following with respect

to all services contemplated under this subchapter to be provided

in this state:

(1) in conducting services as an adviser of the issuer, the

adviser shall deal fairly with all persons and may not engage in

any deceptive, dishonest, or unfair practice;

(2) in recommending to an issuer any transaction involving the

issuance of public securities, the execution and delivery of

interest rate management agreements, or the investment of

proceeds of securities, the adviser shall have reasonable grounds

for making the recommendation based on the information made

available by the issuer or information the adviser otherwise

knows about the issuer;

(3) the adviser may not in any year, directly or indirectly,

give or permit to be given to an employee or an elected or

appointed official of an issuer gifts or services of value,

including gratuities, that have a total cumulative value of more

than $100;

(4) the adviser may not, directly or indirectly, provide or

agree to provide payment to a person who is not affiliated with

the adviser for a solicitation of advisory business for the

adviser; and

(5) the adviser may not act as adviser to an issuer before the

second anniversary of the date of making a contribution to an

official of the issuer if the contribution is made by:

(A) the adviser;

(B) a municipal finance professional associated with the

adviser; or

a municipal finance profession associated with the adviser.

(b) Notwithstanding Subsection (a)(3), this section does not

prohibit an adviser, including an adviser that is not required to

be registered under Section 1371.154(b)(1)(A), from:

(1) giving an employee or an elected or appointed official of an

issuer occasional gifts of meals or tickets to theatrical,

sporting, or other entertainments hosted by the adviser;

(2) sponsoring legitimate business functions for the issuer that

are recognized by the Internal Revenue Service as deductible

business expenses; or

(3) providing to the issuer or an employee or elected or

appointed official of the issuer gifts of reminder advertising.

including an adviser that is not required to be registered under

Section 1371.154(b)(1)(A), to an issuer under Subsection (b) may

not be so frequent or so extensive that a question of impropriety

is raised.

(d) Notwithstanding Subsection (a)(5), this section does not

prohibit an adviser, including an adviser that is not required to

be registered under Section 1371.154(b)(1)(A), from acting as an

adviser to an issuer if the only contributions made to an

official of the issuer before the second anniversary of the date

of making a contribution described by Subsection (a)(5):

(1) were made by municipal finance professionals who were

entitled to vote; and

(2) were not in excess of $250 for each election.

Added by Acts 2007, 80th Leg., R.S., Ch.

991, Sec. 7, eff. September 1, 2007.

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Texas Codes and Statutes

CHAPTER 1371. OBLIGATIONS FOR CERTAIN PUBLIC IMPROVEMENTS