(a) It is a matter of statewide concern that certain covenants made by public bodies regarding a pledge of revenues to secure bonds not be impaired by subsequent initiative or referendum measures.
(b) The covenants described in paragraph (a) of this subsection usually are in the form of a promise to charge and collect rates, fees, tolls, rentals or other charges sufficient to produce moneys to maintain a specified level of debt service coverage.
(c) The possibility that the covenants described in paragraph (a) of this subsection might be rolled back, frozen or otherwise subjected to subsequently imposed conditions or restrictions negatively affects the ability of public bodies to market their bonds, to obtain credit enhancement and to obtain satisfactory ratings on their bonds.
(2) Therefore, the Legislative Assembly declares that covenants are material to the security for bonds and to investors’ expectations regarding timely payment of the bonds.
(3) An elector-approved initiative or referendum measure that purports to change ordinances or resolutions affecting rates, fees, tolls, rentals or other charges has no force or effect if giving force and effect to the change would impair existing covenants made with existing bond owners.
(4) A public body may enter into rate covenants that obligate the public body to periodically set rates and charges:
(a) That generate pledged revenues at specific levels including, but not limited to, a specific monetary charge for each unit of commodity or service provided or a schedule of rates and charges that includes fixed and variable components;
(b) At levels sufficient to maintain underlying credit ratings assigned to bonds by one or more nationally recognized credit rating services without regard to improvement in credit ratings due to the additional security provided for the bonds by a credit enhancement device;
(c) That generate pledged revenues each year in amounts at least equal to operations and maintenance expenses of the system that produces the pledged revenues, plus debt service on revenue bonds and other borrowings, plus an additional amount that is reasonably required to obtain favorable terms for the revenue bonds and other borrowings; or
(d) In accordance with a formula established in the operative document governing revenue bonds or other borrowings. The formula may provide for rates and charges to be determined by reference to factors including, but not limited to:
(A) Historical operating expenses;
(B) Projected future operating expenses;
(C) The funding of depreciation;
(D) The costs of capital improvements;
(E) The costs of complying with contractual obligations and covenants;
(F) The costs of complying with regulatory requirements;
(G) Reports of independent consultants regarding the level of pledged revenues required to operate and maintain a utility in accordance with prudent utility practice;
(H) Debt service on the revenue bonds or other borrowings bonds; and
(I) The moneys needed to establish or maintain reserves required by law or contract and the moneys needed to maintain an unencumbered carryforward fund balance or working capital to meet unanticipated expenses or fluctuations in revenues that may arise.
(5) Without regard to the date of execution of a rate covenant, a rate covenant authorized by this section is a contract that binds the public body and is enforceable against the public body in accordance with the terms of the rate covenant. [2007 c.783 §51]