Citations Affected: IC 4-4; IC 4-12; IC 8-9.5; IC 12-10; IC 20-12; IC 25-22.5; noncode.
Synopsis: Securitization of tobacco settlement funds. Establishes the
tobacco settlement authority and provides for the sale of bonds payable
from future tobacco settlement payments to the state. Establishes
procedures to be followed by the authority when entering into contracts
for certain services related to the issuance and sale of bonds. Makes
related changes in the statute governing distributions from the tobacco
master settlement agreement fund. Makes certain continuing and
temporary appropriations from the tobacco master settlement
agreement fund and authorizes the expenditure of money from the fund
in excess of the statutory spending limit if the total of those
appropriations exceeds that limit. Increases the income ceiling for
eligibility for the Hoosier Rx program from 135% to 185% of the
federal poverty guideline. Establishes a health professions scholarship
program. Appropriates money from the tobacco master settlement
agreement fund to the tobacco settlement authority.
Effective: July 1, 2003.
January 15, 2003, read first time and referred to Committee on Public Health.
February 17, 2003, amended, reported _ Do Pass. Recommitted to Committee on Ways and Means.
A BILL FOR AN ACT to amend the Indiana Code concerning state
offices and administration and to make an appropriation.
enhancement, swap agreement under IC 8-9.5-9, or item of expense
directly or indirectly payable or reimbursable by the authority and
related to the authorization, sale, or issuance of the bonds,
including, but not limited to, underwriting fees and fees and
expenses for professional consultants and fiduciaries.
Sec. 5. As used in this chapter, "master settlement agreement" has the meaning set forth in IC 24-3-3-6.
Sec. 6. As used in this chapter, "net proceeds" means the amount of proceeds remaining following each sale of bonds that is not required by the authority to pay the financing costs.
Sec. 7. As used in this chapter, "qualifying statute" has the meaning set forth in the master settlement agreement. For purposes of this chapter, IC 24-3-3 is the qualifying statute.
Sec. 8. As used in this chapter, "residual interests" means the income of the authority that is in excess of the authority's requirements for its reserve fund or to pay its operating expenses, debt service, whether at maturity or upon redemption, or any other contractual obligations under any resolution or that may be incurred in connection with the issuance of the bonds.
Sec. 9. As used in this chapter, "sales agreement" means any agreement authorized under this chapter in which the state sells to the authority a portion of the amounts and revenues required to be paid by tobacco product manufacturers to the state and the state's rights to receive the amounts and revenues under the master settlement agreement.
Sec. 10. As used in this chapter, "state" means the state of Indiana, acting by and through its budget agency, or any other state agency, state office, or state officer required by law or contract to act on behalf of the state of Indiana for a particular purpose.
Sec. 11. (a) The general assembly declares it to be the public policy of the state and a recognized governmental function to assist in securitizing the revenue stream from the master settlement agreement between the state and tobacco product manufacturers in order to provide a current and reliable source of revenue for the state. The purpose of this chapter is to establish a tobacco settlement authority having the power to purchase certain rights of the state under the master settlement agreement and to issue nonrecourse revenue bonds.
(b) This chapter, being necessary for the welfare of the state and its inhabitants, shall be liberally construed to effect the purposes thereof.
The rule of law that any doubt as to the existence of a power of the authority shall be resolved against the existence of that power is abrogated. Any doubt as to the existence of a power of the authority shall be resolved in favor of its existence.
Sec. 21. The authority may not:
(1) exercise the power of eminent domain; or
(2) levy taxes of any kind.
Sec. 22. (a) The authority may issue its bonds in principal amounts as may be necessary or appropriate to provide sufficient funds for:
(1) the exercise of any of its powers or achievement of its purposes;
(2) the payment of debt service on its bonds;
(3) the establishment of debt service or operating reserves to secure the bonds;
(4) the costs of issuance of its bonds and credit enhancements, if any; and
(5) all other financing costs or other expenditures of the authority incident to and necessary to carry out its purposes or powers.
The net proceeds of the bonds shall be deposited in the fund specified by law, except that the net proceeds of refunding bonds shall be deposited in accordance with a trust agreement of the authority.
(b) Before issuing bonds under this chapter, the authority shall publish a notice of its determination to issue the bonds. The notice shall be published one (1) time in a newspaper published and of general circulation in each of the four (4) counties having the greatest population in Indiana. No action to contest the validity of:
(1) a series of bonds issued by the authority; or
(2) any sales agreement entered into by the authority and the state related to the bonds;
may be brought after the fifteenth day following the publication of the notice. If an action challenging the bonds or sales agreement is not brought within the time prescribed by this subsection, the bonds or sales agreement shall be conclusively presumed to be fully authorized and valid under the laws of the state and any person or entity is estopped from further questioning the authorization, validity, execution, delivery, or issuance of the bonds or the sales agreement.
(c) The bonds, when issued, shall have all the qualities of
negotiable instruments, subject to provisions for registration,
under IC 26-1 and are incontestable in the hands of a bona fide
purchaser or owner of the bond for value. Bonds issued under this
chapter are exempt from the registration requirements of
IC 23-2-1 and any other state securities registration statutes.
(d) The authority's bonds shall:
(1) bear the date or dates;
(2) mature at the time or times;
(3) be in the denominations;
(4) be in the form;
(5) be registered or registrable in the manner;
(6) be made transferable, exchangeable, and interchangeable;
(7) be payable in the medium of payment and at the place or places;
(8) be subject to the terms of redemption;
(9) bear the fixed or variable rate or rates of interest;
(10) be payable at the time or times; and
(11) be sold at a public or negotiated sale in the manner and at the price or prices;
as the authority determines.
(e) The bonds shall be executed by one (1) or more officers of the authority and by the trustee or paying agent. Execution of the bonds may be by manual or facsimile signature.
(f) The bonds of the authority are subject to the terms, conditions, covenants, and protective provisions that are found necessary or desirable by the authority, including, but not limited to, pledges of the authority's assets, setting aside of reserves, and other provisions the authority finds are necessary or desirable for the security of bondholders.
(g) Any pledge of revenues to be derived by the authority under a sales agreement or from any other source, and the right to receive revenues under a sales agreement or from any other source, or any pledge of a special fund, account, or subaccount created by the authority, together with any investment earnings, is valid and binding at the time the pledge is made. Property so pledged is immediately subject to the lien of the pledge without any physical delivery thereof or further act. The lien of such a pledge is valid and binding as against all parties having claims of any kind in tort, contract, or otherwise against the authority, regardless of whether the parties have notice of the lien. Notwithstanding any other provision of law to the contrary, the resolution or trust agreement of the authority or any other instrument by which the
pledge is created need not be recorded or filed except in the
records of the authority to perfect the pledge.
(h) Neither a member of the board nor a person executing bonds or notes issued under this article is liable personally on the bonds or notes.
(i) The authority may, out of any funds or revenues available therefor, purchase its bonds in the open market.
Sec. 23. (a) The bonds issued under this chapter by the authority constitute the special obligations only of the authority and are payable solely from and secured exclusively by the pledge by the authority of certain funds and revenues, and rights to receive funds or revenues in accordance with this chapter. Neither the faith and credit or taxing power of the state or any political subdivision of the state is pledged to the payment of principal or interest on the bonds. Each bond of the authority must plainly state on its face that the bond does not constitute an indebtedness or lending of the credit of the state within the meaning or application of any constitutional provision or limitation but that it is payable solely as to both principal and interest from the funds, revenues, and rights pledged under this chapter. The provisions of this chapter and the covenants and undertakings of the authority as expressed in any proceedings preliminary to or in connection with the issuance of the bonds may be enforced by a bondholder by action for injunction or mandamus against the authority or any officer, agent, or employee of the authority, but no action for monetary judgment may be brought against the state for any violations of this chapter.
(b) All property of the authority is public property devoted to an essential public and governmental function and purpose and is exempt from all taxes and special assessments, direct or indirect, of the state or a political subdivision of the state. All bonds issued under this chapter are issued by a body corporate and politic of this state, but not a state agency, and for an essential public and governmental purpose, and the bonds, the interest thereon, the proceeds received by the holder from the sale of the bonds to the extent of the holder's cost of acquisition proceeds received upon redemption prior to maturity, and proceeds received at maturity and the receipt of the interest and proceeds are exempt from taxation in the state for all purposes except the financial institutions tax imposed under IC 6-5.5 or a state inheritance tax imposed under IC 6-4.1.
Sec. 24. Contracts entered into by the authority shall be entered
into in the name of the authority and not in the name of the state
of Indiana. The obligations of the authority under the contracts are
obligations only of the authority and are not in any way obligations
of the state of Indiana.
Sec. 25. Bonds issued under the provisions of this chapter are hereby made securities in which all public officers and agencies of the state, all insurance companies, banking associations, investment companies, executors, administrators, trustees, and other fiduciaries may properly and legally invest funds, including capital in their control or belonging to them. These bonds are hereby made securities that may properly and legally be deposited with and received by any officer or agency of the state for any purpose for which the deposit of bonds or obligations of the state is now or may hereafter be authorized by law.
Sec. 26. (a) Without complying with any other law governing the sale or disposition of property by the state, the state may sell and assign to the authority, and the authority may purchase, all of the state's right to receive a portion not to exceed twenty percent (20%) of the state's annual share of the amounts and revenues due to the state under the master settlement agreement, and of the state's rights to receive those amounts and revenues. The state, including the governor and the attorney general, may take any action necessary or convenient to facilitate and complete the sale. The authority may take any action necessary or convenient to facilitate and complete the purchase.
(b) A sale and assignment made under this section is irrevocable. All or a portion of the amounts and revenues, and the right to receive the amounts and revenues, sold to the authority shall be pledged to the bondholders. The sale and assignment shall constitute and be treated as a true sale and absolute transfer of the property so sold and assigned and not as a pledge or other security interest granted by the state for any borrowing. The characterization of a sale and assignment as an absolute transfer shall not be negated or adversely affected by the fact that only a portion of the amounts and revenues due to the state under the master settlement agreement is being sold and assigned, by the state's acquisition or retention of an ownership interest in the portion of the amounts and revenues due under the master settlement agreement not so sold and assigned, or for any other reason.
(c) The state hereby covenants and agrees with the holders of any bonds that so long as any bonds of the authority issued under
this chapter are outstanding and unpaid, the state will not limit or
alter the rights vested in the authority to fulfill the terms of any
agreements made with, or make payments to, the holders of the
bonds or in any way impair the rights and remedies of the
bondholders, until the bonds, together with interest thereon, and
all costs and expenses in connection with any action or proceedings
by or on behalf of the bondholder are fully paid, satisfied, and
(d) The terms of any sales agreement must provide that on and after the effective date of the sale and assignment:
(1) the state shall have no right, title, or interest in the property sold and assigned;
(2) the property sold and assigned is the property of the authority and not the property of the state;
(3) the property sold and assigned shall be owned, received, held, and disbursed by the authority or its trustee or assignee, and not by the state;
(4) none of the property sold and assigned shall be subject to garnishment, levy, execution, attachment, or other process, writ, (including writ of mandate), or remedy in connection with the assertion or enforcement of any debt, claim, settlement, or judgment against the state; and
(5) the portion of the amounts and revenues due under the master settlement agreement that are sold and assigned to the authority must be paid directly to the authority or its trustee or assignee and shall not be considered money drawn from the state treasury.
(e) Any sales agreement may include such other agreements and covenants of the state as may be permitted by the constitution of the state and as may be necessary or convenient for the sale and assignment of the portion of the amounts and revenues due under the master settlement agreement and the issuance of bonds to finance the purchase by the authority.
(f) The state shall:
(1) notify the independent auditor and the escrow agent under the master settlement agreement that a portion of the amounts and revenues due under the master settlement agreement has been sold and assigned to the authority; and
(2) irrevocably instruct the independent auditor and the escrow agent that, after the date of the notice under subdivision (1), the portion of the amounts and revenues due under the master settlement agreement sold and assigned to
the authority is to be paid directly to the trustee under the
trust agreement of the authority for the benefit of the owners
of the bonds secured by a pledge of those amounts and
revenues, until the bonds are no longer outstanding under the
resolution or trust agreement.
Sec. 27. Members of the board, the officers and employees of the authority, the agents of the authority, and any other persons executing bonds issued under this chapter are not subject to personal liability or accountability by reason of any act authorized by this chapter, including, without limitation, the issuance of bonds, the failure to issue bonds, the execution of bonds, and the exercise of any other powers contemplated by this chapter.
Sec. 28. (a) The authority is prohibited from filing a voluntary petition under chapter 9 of the federal bankruptcy code or any corresponding chapter or section that may, from time to time, be in effect. A governmental officer, governmental organization, or other entity or person may not authorize the authority to be a debtor under chapter 9 of the federal bankruptcy code or any successor or corresponding chapter or sections.
(b) This section shall be part of any contractual obligation owed to the holders of bonds issued under this chapter. Any such contractual obligation shall not subsequently be modified by state law before the date that is three hundred sixty-six (366) days after the date upon which the authority no longer has any bonds outstanding.
Sec. 29. The authority shall dissolve not later than two (2) years from the date of final payment of all of its outstanding bonds and the satisfaction of all outstanding obligations of the authority, except to the extent necessary to remain in existence to fulfill any outstanding covenants or provisions with bondholders or third parties made in accordance with this chapter. Upon dissolution of the authority, all of the authority's property shall be transferred and assigned to the state and the authority shall execute all necessary assignments and other documents as may be necessary or convenient to transfer and assign its property to the state, including the authority's right, title, or ownership interest in amounts and revenues due under the master settlement agreement, which amounts shall be deposited in the state general fund.
Sec. 30. Before issuing any bonds, the authority shall enter into a sales agreement that includes the agreement of the state to:
(1) diligently enforce the authority's right to receive the portion of the amounts and revenues due under the master
settlement agreement and sold under the sales agreement, to
the full extent permitted by the master settlement agreement;
(2) diligently enforce the qualifying statute as contemplated by the master settlement agreement against all tobacco product manufacturers that are selling tobacco products in Indiana and are not signatories to the master settlement agreement;
(3) neither amend the master settlement agreement nor take any other action that would in any way:
(A) alter, limit, or impair the authority's right to receive the portion of the amounts and revenues due under the master settlement agreement and sold under the sales agreement;
(B) limit or alter the rights vested in the authority by this chapter or other law to fulfill its agreements with the bond owners; or
(C) impair the rights and remedies of the bond owners or the security for the bonds;
until the bonds, together with the interest on the bonds and all costs and expenses in connection with any action or proceedings by or on behalf of the bond owners, are fully paid and discharged (however, nothing in this subdivision shall be construed to preclude the state's regulation of smoking and taxation and regulation of the sale of cigarettes or other tobacco products);
(4) not amend, supersede, or repeal the qualifying statute in any way that would violate section 26(c) of this chapter; or
(5) take no action that would adversely affect the tax exempt status of any tax exempt bonds issued by the authority.
Sec. 31. The authority shall contract with an independent certified public accountant for an annual financial audit of the authority. The certified public accountant shall present an audit report not later than seven (7) months after the end of each fiscal year of the authority.
Sec. 32. The state board of accounts may at any time conduct an audit of the authority.
Sec. 33. The authority shall submit copies of its annual budget and the audit report referred to in section 31 of this chapter to the budget director, the legislative council, and the state board of accounts.
Sec. 34. Income or revenues of the authority not required to meet its obligations (including redemption obligations on its bonds)
shall be paid over to the state general fund if directed by the
Sec. 35. (a) As used in this section, "sale portion" means the portion of the punitive damage award payment that is equal to the percentage determined under section 26 of this chapter.
(b) This section applies upon the entry of a judgment that includes a punitive damage award in a civil action related to tobacco products in which:
(1) the state or an agency of the state is the party to the action receiving the award; and
(2) a tobacco manufacturer who participates in the master settlement agreement is the party against whom the judgment was entered.
IC 34-51-3-6 does not apply to such a punitive damage award.
(c) Upon entry of a judgment described in this section, the right of the state or an agency of the state to receive the sale portion of the punitive damage award payment described in this section is assigned to the authority. For as long as this assignment is in effect, any sale portion of a punitive damage award payment received by the state, or an agency of the state, in settlement of a judgment described in this section or as satisfaction or partial satisfaction of a judgment to which this section applies shall be considered to be held for the benefit of the authority and shall be remitted immediately after receipt of the payment to the authority subject to any pledge under this chapter.
(d) The authority may spend money received under this section in accordance with this chapter, subject to any pledge under this chapter.
(e) That portion of the punitive damages award in excess of the sale portion under this section shall be paid to the state or an agency of the state, as applicable, and used as otherwise provided by law.
(f) The assignment under this section terminates upon the earlier of the date on which:
(1) the authority is dissolved pursuant to section 29 of this chapter;
(2) all outstanding bonds and other agreements of the authority have been paid in full or otherwise discharged; or
(3) a state court has entered a final judgment from which no further appeal is allowed ordering the judgment debtor tobacco manufacturer to pay the state both its obligations under the master settlement agreement and any punitive
damages to be paid to the state without setoff, credit or
reduction of one (1) obligation on account of the other.
Sec. 36. (a) As used in this section, "bond service provider" means any bond counsel, other attorney, financial adviser, senior managing underwriter, or verification agent who provides bond services.
(b) As used in this section, "bond services" includes legal, financial, and other services by a bond service provider rendered in conjunction with the issuance and sale of bonds. The term does not include services provided by nationally recognized credit rating agencies, co-managing underwriters and selling group members, or forecasters of cigarette consumption and providers of similar reports for use in an official statement or other disclosure document in connection with the sale of bonds.
(c) If the authority determines that a bond service required by the authority cannot be performed by employees of the authority, the authority shall enter into a contract for the bond service with a bond service provider. The authority shall have wide discretion in establishing criteria for entering into contracts under this section and selecting the bond service providers the authority considers to be necessary or appropriate to provide bond services. In the exercise of this discretion, the authority shall consider all proposed fee schedules and the public interest in achieving issuance and sale of bonds on terms and conditions most favorable to the authority. Notwithstanding any other provision of this section to the contrary, the general assembly finds that it is in the public interest to enter into contracts for bond services with Indiana based and minority and women's business enterprises.
(d) The authority shall seek responses to requests for qualifications for a contract for bond services under this section. Requests for qualifications for bond services must include the following:
(1) The factors or criteria that will be used in evaluating the responses.
(2) A statement concerning the relative importance of price and the other evaluation factors.
(3) A statement concerning whether the response must be accompanied by a certified check or other evidence of financial responsibility.
(4) A statement concerning whether discussions may be conducted with responsible respondents.
the same manner as money is invested by the public employees
retirement fund under IC 5-10.3-5. The treasurer of state may contract
with investment management professionals, investment advisors, and
legal counsel to assist in the investment of the fund and may pay the
state expenses incurred under those contracts from the fund. Interest
that accrues from these investments shall be deposited in the fund.
Money in the fund at the end of the state fiscal year does not revert to
the state general fund.
(h) (g) The state general fund is not liable for payment of a shortfall
in expenditures, transfers, or distributions from the Indiana tobacco
master settlement agreement fund or any other fund due to a delay,
reduction, or cancellation of payments scheduled to be received by the
state under the master settlement agreement. If such a shortfall occurs
in any state fiscal year, the budget agency shall make the full transfer
to the regional health facilities construction account and then reduce all
remaining expenditures, transfers, and distributions affected by the
The amount of each appropriation is determined under STEP
THREE of the following formula:
STEP ONE: Subtract the sum of the appropriations made in IC 4-12-7-9 and subsection (a)(1) from the amount available under subsection (c).
STEP TWO: Divide the appropriation by the sum of the appropriations made under subsection (a)(2) through (a)(7) and subsection (b).
STEP THREE: Multiply the STEP ONE remainder by the STEP TWO quotient.