Section 56. Call provision in state bonds; refunding state bonds

1.
  Whenever in his opinion  it  is  to  the  advantage  of  the  state  the
  comptroller  when issuing and selling any bonds of the state may reserve
  to the state on such conditions as he may deem advisable and proper  the
  privilege of refunding or of redeeming at not more than three per centum
  above par value all or any part of such bonds prior to the date on which
  they shall be due and payable.
    2. Whenever the comptroller shall have reserved to the state the right
  to  redeem  or  refund  state  bonds pursuant to subdivision one of this
  section, he shall be authorized to issue refunding bonds  in  accordance
  with  the provisions of this subdivision. Such bonds may be issued prior
  to the first date on which he shall have reserved the right to refund or
  redeem the bonds to be refunded.
    (a) Refunding bonds shall be issued only when  the  comptroller  shall
  have  certified that, as a result of the refunding, there will be a debt
  service savings to the state on a present value basis as a result of the
  refunding transaction and that either (i)  the  refunding  will  benefit
  state  taxpayers  over  the  life of the refunding bonds by achieving an
  actual debt service savings each year during the term to maturity of the
  refunding bonds when debt service on the refunding bonds is expected  to
  be  paid  from  legislative  appropriations  or (ii) debt service on the
  refunding bonds shall be payable in annual installments of principal and
  interest which result in substantially level or declining  debt  service
  payments  pursuant  to  paragraph  (b)  of  subdivision  two  of section
  fifty-seven of this chapter. Such certification by the comptroller shall
  be conclusive as to matters contained therein after the refunding  bonds
  have been issued.
    For purposes of determining whether there is a debt service savings on
  a  present  value  basis the present value of the total payments of both
  principal and interest to become  due  on  the  refunding  bonds,  after
  deducting  any accrued interest or premium received by the state and not
  used to pay the principal of or interest on the bonds to be refunded  or
  costs  of  issuance of the refunding bonds, excluding all such principal
  and interest payments to be made from income received as a result of the
  investment of the proceeds from the sale of the refunding  bonds,  shall
  be less than the present value of the principal and interest payments to
  become  due  at their stated maturities on the principal amount of bonds
  to be refunded which are outstanding as of the date of the issue of  the
  refunding  bonds  after  deducting  therefrom  all  costs  and  expenses
  incidental to  the  issuance  of  the  refunding  bonds,  including  the
  development  of  the refunding plan, and of executing and performing the
  terms and conditions of the escrow contract and all fees and charges  of
  the  escrow  holder,  but only to the extent such costs and expenses are
  not paid from the proceeds of the refunding bonds. The present value  of
  debt  service  payments  pursuant  to  the  foregoing provisions of this
  subdivision shall be computed by discounting the principal and  interest
  payments  on  both the refunding bonds and the bonds to be refunded from
  the respective maturities thereof to the date of issue of the  refunding
  bonds  at  a  rate equal to the effective interest cost of the refunding
  bonds. The effective interest cost of the refunding bonds shall be  that
  rate  which  is  arrived  at  by  doubling the semi-annual interest rate
  (compounded  semi-annually)  necessary  to  discount  the  debt  service
  payments  on  the refunding bonds from the maturity dates thereof to the
  date of issue of the refunding bonds and to the bona fide initial public
  offering price including estimated accrued interest, or, if there is  no
  public offering, to the price bid including estimated accrued interest.
    (b) The proceeds of refunding bonds, including any premium received on
  the  sale  thereof,  and  any  amounts  that  may be appropriated by the

  legislature for the purposes thereof, shall be deposited directly in  an
  escrow fund created pursuant to this section, and amounts in such escrow
  fund,  and  income  earned thereon, shall be used only (i) to redeem the
  bonds to be refunded, (ii) to pay debt service on the refunding bonds or
  on  the  bonds  to  be refunded, (iii) to pay the costs of administering
  such fund, (iv) to pay any direct  or  indirect  costs  of  issuing  the
  refunding  bonds  and (v) to make any other payments required to be made
  with respect to the refunding transaction.
    (c) Amounts deposited in each escrow  fund,  with  the  income  earned
  thereon,  when  invested  as  directed  by  this  subdivision,  shall be
  sufficient to pay (i) all costs of issuance of the refunding bonds, (ii)
  all debt service on the refunding bonds or on the bonds to  be  refunded
  until  and  including  the  date that the bonds to be refunded are to be
  redeemed, except, at the option of the state comptroller,  debt  service
  scheduled  to  be  paid  from  appropriations  in  effect on the date of
  issuance of the refunding bonds, (iii) all costs  of  administering  the
  escrow  fund,  if  any, (iv) the principal of and any premium due on the
  bonds to be refunded on the date they are to be redeemed,  and  (v)  any
  other  payments  required  to  be  made in connection with the refunding
  transaction.
    (d) The comptroller is authorized  to  establish  an  escrow  fund  in
  connection with each issue of refunding bonds that he may sell from time
  to time, and he shall hold such funds outside the state treasury for the
  purposes enumerated in this section.
    (e)  All  money  in each escrow fund shall be held as cash or shall be
  invested  in  direct  obligations  of  the  federal  government,  direct
  obligations  the  principal  and interest of which are guaranteed by the
  federal government, or obligations the interest on which is exempt  from
  federal   income   taxation  and  which  are  fully  secured  by  direct
  obligations of  the  federal  government,  having  such  maturities  and
  interest  payment dates as required to make all payments to be made from
  the escrow fund as they come due. The earnings on such obligations shall
  remain in the escrow fund until required to be used to pay debt  service
  on  the refunding bonds, to pay debt service on the bonds to be refunded
  or to make other payments authorized to be made from  the  escrow  fund.
  Any money or investments remaining in any escrow fund after all refunded
  bonds  are  redeemed  and  after  all  expenses related to the refunding
  transaction have been paid shall be deposited in the general fund.
    (f) No appropriation shall be required for disbursement of moneys from
  any escrow fund created  pursuant  to  this  section,  or  the  earnings
  thereon,  for  the  purposes  enumerated  above, and the comptroller may
  covenant, on behalf of the state, with holders of  the  refunding  bonds
  and  the  bonds to be refunded that such disbursements will be made. The
  comptroller is also authorized to enter into such other agreements  with
  other  persons  as  he deems necessary or appropriate in connection with
  any refunding transaction.
    (g) Any refunding bonds issued pursuant to this section shall be  paid
  in  annual  installments which shall, so long as any refunding bonds are
  outstanding, be made in each year in which installments were due on  the
  bonds  to  be  refunded  and shall be in an amount which shall result in
  annual debt service payments which shall be less in each year  than  the
  annual  debt  service  payments  on the bonds to be refunded unless debt
  service on the refunding bonds is  payable  in  annual  installments  of
  principal  and  interest  which  will  result  in substantially level or
  declining debt service payments pursuant to paragraph (b) of subdivision
  two of section fifty-seven of this chapter.
    3. The state comptroller shall have  custody  of  the  securities  and
  other  assets  in  the  escrow  funds  created pursuant to this section;

  provided, however, that, subject to the rights  of  the  owners  of  the
  bonds,  the  state comptroller may contract with a bank or trust company
  for the maintenance, management and custody of the  escrow  funds.  Such
  bank  or  trust  company  shall  have  an office and be authorized to do
  business in the state and shall maintain a combined capital and  surplus
  of not less than seventy-five million dollars.
    4.  Except where inconsistent with the provisions of this section, the
  provisions of section fifty-seven of this chapter governing the original
  issuance of debt shall apply to the sale of refunding debt  pursuant  to
  this section.
    5.  Notwithstanding any other law, rule or regulation to the contrary,
  within thirty days of the delivery of any fixed rate, fixed  term  state
  obligations  issued  pursuant  to sections fifty-five and fifty-seven of
  this article, the state comptroller shall determine and certify  to  the
  director  of  the budget, the chairs of the senate finance committee and
  the assembly ways and means committee, the allowable bond yield on  such
  obligations  as  such allowable bond yield is determined pursuant to the
  provisions of the internal  revenue  code  of  1986,  as  amended.  With
  respect  to  any short-term series notes, flexible notes, or other notes
  on  which  interest  rates  may  vary  from  time  to  time,  the  state
  comptroller  shall  determine  and certify to the director of the budget
  and the chairs of the senate finance committee and the assembly ways and
  means committee as soon as is practicable after  the  maturity  of  such
  notes  on any state obligations issued pursuant to section fifty-five of
  this article the allowable  bond  yield  on  such  obligations  as  such
  allowable  bond  yield  is  determined pursuant to the provisions of the
  internal revenue code of 1986, as amended. Prior to making of a  payment
  of  any  rebate  to  the federal government, the state comptroller shall
  certify to the director of the budget  and  the  chairs  of  the  senate
  finance  committee  and the assembly ways and means committee the amount
  of the rebate required to be paid and  the  date  prior  to  which  such
  rebate  must  be  paid  in  order to maintain the exemption from federal
  income taxation of the interest paid on the obligations  for  which  the
  rebates are being made.
    6.  Notwithstanding any other law, rule or regulation to the contrary,
  no monies shall be expended for the purpose of redeeming serial bonds to
  maintain the exemption from federal taxation of  the  interest  paid  to
  holders  of state obligations issued pursuant to sections fifty-five and
  fifty-seven of this article, issued by the state of New York  until  the
  state  comptroller  has  certified to the director of the budget and the
  chairs of the senate finance committee and the assembly ways  and  means
  committee  their  determination, the amount of such bonds to be redeemed
  and the date upon which such bonds are to be redeemed.