475.67 REFUNDING BONDS, OTHER OBLIGATIONS; VALIDITY; PROCEDURE.
Subdivision 1. Resolution conclusive as to validity.
No purchaser or owner of bonds or
other obligations issued by a municipality for the purpose of refunding its outstanding obligations
or floating indebtedness need inquire into the validity of the debts refunded by such bonds or
other obligations. The determination by resolution of the governing body to issue the bonds or
other obligations of the municipality for such purpose, as to such purchaser or owner, shall be
conclusive evidence of the validity of the debts thereby refunded.
Subd. 2. Invalid not made valid.
As between the municipality and the owner or holder
of any bond, warrant, or order so refunded, nothing in this section validates any invalid bond,
warrant, or order.
Subd. 3. Refunding conditions.
(a) Any or all obligations and interest thereon may be
refunded if and when and to the extent that for any reason the taxes or special assessments,
revenues, or other funds appropriated for their payment are not sufficient to pay all principal and
interest due or about to become due thereon.
(b) Any or all obligations of one or more issues regardless of their source of payment and
interest thereon may be refunded before their due dates, if:
(1) consistent with covenants made with the holders thereof; and
(2) determined by the governing body to be necessary or desirable:
(i) for the reduction of debt service cost to the municipality; or
(ii) for the extension or adjustment of the maturities in relation to the resources available
for their payment; or
(iii) for the issuance of obligations bearing a fixed rate of interest in the case of obligations
bearing interest at a rate varying periodically; or
(iv) in the case of obligations payable solely from a special fund, for the more advantageous
sale of additional obligations payable from the same fund or to relieve the municipality of
restrictions imposed by covenants made with the holders of the obligations to be refunded.
(c) The amount of interest which may be refunded from the proceeds of the refunding
obligations shall not exceed the amount of proceeds estimated to be required in excess of the
principal amount of refunded obligations to retire the refunded obligations in accordance with
(d) No general obligations, for which the full faith and credit of the issuer is pledged, shall
be issued to refund special obligations previously issued for any purpose, payable solely from a
special fund, unless the issuance is authorized by the election, hearing, petition, resolution, or
other procedure that would have been required as a condition precedent to the original issuance
of general obligations for the same purpose.
Subd. 4. Deadline for refunding obligations; conditions.
Refunding obligations shall not
be issued and sold more than six months before the date on which all obligations to be refunded
thereby will have matured or have been called for redemption in accordance with their terms,
unless the actions and conditions described in the following subdivisions of this section are taken
or exist at or before the time when the refunding obligations are delivered to the purchasers.
Subd. 5. Deposits.
The proceeds of the refunding obligations, less any accrued interest or
premium thereon required to be taken into account for purposes of meeting the debt service
savings test set forth in subdivision 12 or otherwise deposited in the debt service fund established
for the refunding obligations, less any amount set aside to pay the expenses of the refunding
described in subdivision 12, shall be deposited, together with any other funds available and
appropriated by the governing body for the purpose, in escrow with a suitable banking institution
within or without the state, whose deposits are insured by the Federal Deposit Insurance
Corporation, and whose combined capital and surplus is not less than $500,000.
Subd. 6. Investment.
The funds so deposited shall be invested in securities maturing or
callable at the option of the holder on such dates and bearing interest at such rates as shall be
required to provide funds sufficient, with any cash retained in the escrow account, to pay when
due the interest to accrue on each obligation refunded to its maturity or, if prepayable and called
for redemption, the earlier date on which it is called for redemption, and to pay the principal
amount of each such obligation at maturity or, if prepayable and called for redemption, at such
earlier redemption date, and to pay any premium required for redemption on that date; and the
governing body shall irrevocably appropriate for these purposes the escrow account and all
payments of principal and interest on the securities deposited therein, provided that any funds in
the escrow account in excess of the amounts from time to time needed for the foregoing purposes
may be remitted to the municipality.
Subd. 7. Notice of call.
Provision shall be made for notice of the call of any refunded
obligations to be redeemed before maturity to be given in accordance with their terms, and
in accordance with section
475.54, subdivision 4
, no later than 30 days after issuance of the
Subd. 8. Escrow account securities.
Securities purchased for the escrow account shall be
(a) general obligations of the United States, securities whose principal and interest payments
are guaranteed by the United States, and securities issued by the following agencies of the United
States: Banks for Cooperatives, Federal Home Loan Banks, Federal Intermediate Credit Banks,
Federal Land Banks, and the Federal National Mortgage Association; or
(b) obligations issued or guaranteed by any state or any political subdivision of a state, which
at the date of purchase are rated the highest or the next highest rating given by Standard and Poor's
Corporation, Moody's Investors Service, or a similar nationally recognized rating agency, but not
less than the rating on the refunded bonds immediately prior to the refunding.
Subd. 9. Escrow agent agreement.
The municipality shall enter into an agreement with
the banking institution acting as escrow agent under which the agent shall acknowledge receipt
of the cash and securities and their sufficiency to comply with the requirements of this section,
and shall agree to hold them, and all money received in payment of principal and interest on the
securities, in a special trust account, and to remit from this account to each paying agent for
the refunded obligations sufficient funds to pay the principal and interest due thereon at each
maturity, interest payment date, and redemption date. The agent may be directed to reinvest the
balance held in the account from time to time in other securities of the kinds authorized in this
section, maturing or subject to redemption at the times and in the amounts required to meet all
payments of principal and interest when due on the refunded obligations, which securities may be
purchased from its own investment department at prices not higher than those at which similar
securities are currently being sold by it to others.
Subd. 10. Republication; failure.
The escrow agent shall be directed to cause notice of the
call of the refunded obligations which are to be prepaid to be republished not more than 90 nor
less than 45 days before the date fixed for their redemption, in the manner provided in subdivision
7; but failure to republish shall not affect the validity of the call for redemption.
Subd. 11.[Repealed, 1987 c 344 s 37
Subd. 12. Additional conditions.
In the refunding of general obligations, for which the full
faith and credit of the issuing municipality has been pledged, the following additional conditions
shall be observed: each such obligation, if repayable, shall be called for redemption prior to its
maturity in accordance with its terms no later than either (i) the earliest date on which it may be
redeemed without payment of any premium, or (ii) if the obligation is only prepayable with
payment of a premium, on the earliest date on which it may be redeemed with payment of the
least premium required by its terms. No refunding obligations shall be issued and sold more than
six months before the refunded obligations mature or are called for redemption in accordance
with their terms, unless either (i) as a result of the refunding the average life of the maturities is
extended at least three years or (ii) as of the nominal date of the refunding obligations the present
value of the dollar amount of the debt service on the refunding obligations, computed to their
stated maturity dates, after deducting any premium, is lower by at least three percent than the
present value of the dollar amount of debt service, on all general obligations refunded, exclusive
of any premium, computed to their stated maturity dates; provided that in computing the dollar
amount of debt service on the refunding obligations, any expenses of the refunding payable
from a source other than the proceeds of the refunding obligations or the interest derived from
the investment thereof shall be added to the dollar amount of debt service on the refunding
obligations. For purposes of this subdivision, the present value of the dollar amount of debt
service means the dollar amount of debt service to be paid, discounted to the nominal date of the
refunding obligations at a rate equal to the yield on the refunding obligations. Expenses of the
refunding include the amount, if any, in excess of the proceeds of the refunding obligations or
the principal amount of obligations to be refunded, whichever is the greater, which is required to
be deposited in escrow to provide cash and purchase securities sufficient to retire the refunded
obligations and unaccrued interest thereon in accordance with subdivision 6; charges of the
escrow agent and of the paying agent for the refunding obligations; and expenses of printing and
publications and of fiscal, legal, or other professional service necessarily incurred in the issuance
of the refunding obligations.
Subd. 13. Crossover refunding obligations.
Crossover refunding obligations may be issued
by a municipality without regard to the limitations in subdivisions 4 to 10. The proceeds of
crossover refunding obligations, less any proceeds applied to payment of the costs of their
issuance, shall be deposited in a debt service fund irrevocably appropriated to the payment of
principal of and interest on the refunding obligations until the date the proceeds are applied
to payment of the obligations to be refunded. The debt service fund shall be maintained as an
escrow account with a suitable financial institution within or without the state and amounts in it
shall be invested in securities described in subdivision 8 or in an investment contract or similar
agreement with a bank or insurance company meeting the requirements of section
. Excess proceeds, if any, of the tax levy pursuant to section
475.61, subdivision 1
made with respect to the obligations to be refunded, and any other available amounts, may be
deposited in the escrow account. In the resolution authorizing the issuance of crossover refunding
obligations, the governing body may pledge to their payment any source of payment of the
obligations to be refunded. The resolution may provide that the refunding obligations are payable
solely from the escrow account prior to the date scheduled for payment of the obligations to be
refunded and that the obligations to be refunded shall not be discharged if the amounts on deposit
in the escrow account on that date are insufficient. Subdivision 12 applies to crossover refunding
obligations, but the present value of debt service on the refunding and refunded obligations
shall be determined as of the date the proceeds are applied to payment of the obligations to be
refunded. Subject to section
475.61, subdivision 3
, in the case of general obligation bonds, taxes
shall be levied pursuant to section
and appropriated to the debt service fund in the amounts
needed, together with estimated investment income of the debt service fund and any other
revenues available upon discharge of the obligations refunded, to pay when due the principal of
and interest on the refunding obligations. The levy so imposed may be reduced by earnings to be
received from investments on hand in the debt service fund to the extent the applicable recording
officer certifies to the county auditor that the earnings are expected to be received in amounts
and at such times as to be sufficient, together with the remaining levy, to satisfy the purpose of
the levy requirements under section
History: (1946-1, 1946-2) 1921 c 185 s 1,2; 1933 c 232 s 2; 1949 c 682 s 17; 1971 c 903 s
5; 1973 c 494 s 13; 1976 c 324 s 14,15; 1978 c 521 s 1; 1Sp1985 c 14 art 8 s 55,56; 1987 c 344 s
33,34; 1988 c 702 s 13,14; 1991 c 342 s 19; 1993 c 271 s 6,7; 1996 c 399 art 2 s 12