Minnesota Session Laws - 1988, Regular Session

  

                         Laws of Minnesota 1988 

                        CHAPTER 694-H.F.No. 2396 
           An act relating to education; authorizing the sale of 
          college savings bonds; requiring a market and 
          feasibility study and report; authorizing the issuance 
          of zero coupon bonds; appropriating money. 
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
    Section 1.  [COLLEGE SAVINGS BONDS:  MARKET AND FEASIBILITY 
STUDY.] 
    Subdivision 1.  [REPORT REQUIRED.] The commissioner of 
finance, in cooperation with the higher education coordinating 
board, shall study and report to the legislature by September 1, 
1988, on the market for and feasibility of college savings 
bonds.  "College savings bonds" are state general obligation 
bonds on which interest is accrued and compounded annually but 
not paid until maturity, commonly known as zero coupon bonds.  
Sale and marketing efforts should be directed to Minnesota 
residents of low and moderate income whose children or 
grandchildren are likely to pursue higher education.  
    Subd. 2.  [FINDINGS.] The report must include findings on 
the following: 
    (1) the parental income levels at which a student is no 
longer eligible for state scholarship and grant assistance, but 
at which the cost of higher education may create severe 
financial hardship for the student's family; 
    (2) an estimate of the number of parents in this state at 
the income levels described in clause (1) whose children are 
likely to pursue higher education, including their social, 
economic, and geographic characteristics; 
    (3) the impact of the availability of financial aid on the 
savings practices of parents of future students and the extent 
to which the availability of college savings bonds might 
increase the amount saved; 
    (4) the estimated demand of parents and relatives for 
college savings bonds each year and over the next five years, 
and the estimated periodic rate of purchase; 
    (5) the demand for bonds of various denominations and the 
smallest denomination that can be sold and issued economically 
to those parents and relatives; 
    (6) the demand of parents and relatives for bonds of 
various maturities, and the implications of a variety of 
maturity dates for potential students and post-secondary 
institutions; 
    (7) a marketing strategy for the college savings bond 
program including strategies to: 
    (i) inform parents and relatives about the availability of 
the bonds; 
    (ii) take orders for the bonds; 
    (iii) insure that the bonds are purchased by residents of 
low and moderate income throughout this state; and 
    (iv) market the bonds at the lowest cost to the state; 
    (8) the demand of various institutions for the bonds, 
including business corporations, nonprofit corporations, and 
foundations, and a strategy to ensure that purchase of the bonds 
by these entities will not prevent individuals and parents and 
relatives of future students from buying them; 
    (9) the limitations, if any, that should be placed on bond 
purchasers' use of the bonds; 
    (10) an estimate of the cost of the strategy to market and 
underwrite the bonds; and 
    (11) the amount, if any, of bonds purchased for the benefit 
of a student that should not be considered in determining the 
financial need of an applicant for a state scholarship or grant 
under Minnesota Statutes, section 136A.121, or a part-time grant 
under Minnesota Statutes, section 136A.132. 
    Subd. 3.  [RECOMMENDATIONS.] The commissioner of finance 
may not sell college savings bonds under section 2 until reports 
have been submitted to the chair of the senate committee on 
education and the chair of the house of representatives 
committee on higher education and the commissioner has received 
their advisory recommendations on whether and how to sell the 
bonds. 
    Sec. 2.  [ZERO COUPON BONDS.] 
    Subdivision 1.  [DEFINITIONS.] For purposes of this 
section, the following terms have the meanings given them. 
    (a) "Compounded maturity amount" means the sum of the 
stated principal amount plus the interest payable at maturity on 
zero coupon bonds. 
    (b) "Serial maturity bonds" means bonds maturing on a 
specified day in two or more consecutive years and bearing 
interest at a specified rate payable periodically to maturity or 
prior redemption. 
    (c) "Zero coupon bonds" means bonds in a stated principal 
amount, maturing on a specified date or dates, and bearing 
interest that accrues and compounds to and is payable only at 
maturity or upon prior redemption of the bonds. 
    Subd. 2.  [AUTHORIZATION.] When authorized by law to issue 
state general obligation bonds, the commissioner may issue all 
or part of the bonds as serial maturity bonds or as zero coupon 
bonds or a combination of the two.  Except as otherwise provided 
by this section, bonds, including zero coupon bonds, must be 
issued and sold as provided under Minnesota Statutes, section 
16A.641.  The amount of bonds that may be issued under this 
section may not exceed the amount of authorized, but previously 
unissued, bonds for higher education facilities.  Higher 
education facilities include capital projects for the University 
of Minnesota, the state universities, community colleges, and 
technical institutes.  The stated principal amount of zero 
coupon bonds must be used to determine the principal amount of 
bonds issued under the laws authorizing issuance of state 
general obligation bonds. 
    Subd. 3.  [MARKETING PLAN.] Based on the results of the 
study required under section 1, the commissioner and the higher 
education coordinating board shall develop a plan for marketing 
college savings bonds.  The marketing plan must include 
appropriate disclosures to potential buyers, including 
information on the types of savers for whom long-term, 
tax-exempt bonds may not be appropriate investments.  The 
program must also include strategies to: 
     (1) inform parents and relatives about the availability of 
the bonds; 
     (2) take orders for the bonds; 
     (3) target the sale of the bonds to Minnesota residents 
whose progeny are likely to seek higher education; and 
    (4) market the bonds at the lowest cost to the state. 
    Before implementing the marketing plan, the commissioner of 
finance and the higher education coordinating board shall seek 
the advisory recommendations of the chairs of the senate finance 
and house of representatives appropriations committees about the 
plan. 
    Subd. 4.  [SALE.] Except as otherwise provided in this 
subdivision, zero coupon bonds, or a series of bonds including 
zero coupon bonds, must be sold at public sale at a price not 
less than 98 percent of their stated principal amount.  No state 
trunk highway bond may be sold for a price of less than par and 
accrued interest.  The commissioner may sell bonds directly to 
the public or to financial institutions for prompt resale to the 
public upon the terms, conditions, and restrictions the 
commissioner prescribes.  The commissioner should make bonds 
available for sale to financial institutions located in 
neighborhoods where low or moderate income persons reside.  The 
commissioner may enter into all contracts considered necessary 
or desirable to accomplish the sale in an economical manner.  
The commissioner may contract for investment banking and banking 
services only after receiving competitive proposals for the 
services. 
    Subd. 5.  [DENOMINATIONS; MATURITIES.] Based on the results 
of the study required under section 1, the commissioner shall 
determine the appropriate denominations and maturities for the 
bonds.  The legislature intends to make bonds available in as 
small denominations as is feasible given the costs of marketing 
and administering the bond issue.  Bonds in denominations of 
$1,000 must be made available.  If not economical, the minimum 
denomination bonds need not be made available for bonds of all 
maturities.  For purposes of this subdivision, "denomination" 
means the compounded maturity amount of the bond. 
    Subd. 6.  [SINKING FUND.] The commissioner's order 
authorizing the issuance of zero coupon bonds must also 
establish a separate sinking fund account for the zero coupon 
bonds in the state bond fund.  There is annually appropriated 
from the general fund to each zero coupon bond account, 
beginning in the year in which the zero coupon bonds are issued, 
an amount not less than the sum of: 
    (1) the total stated principal amount of the zero coupon 
bonds that would have matured from their date of issue to and 
including the second July 1 following the transfer of 
appropriated money, if the bonds matured serially in an equal 
principal amount in each year during their term and in the same 
month as their stated maturity date; plus 
    (2) the total amount of interest accruing on the stated 
principal amount of the bonds and on interest previously 
accrued, from the bonds' date of issue to and including the 
second July 1 following the transfer of appropriated money; less 
    (3) the amount in the sinking fund account for the payment 
of the compounded maturity amount of the bonds, including 
interest earnings on amounts in the account.  This appropriation 
is in lieu of all other appropriations made with respect to zero 
coupon bonds.  The appropriated amounts must be transferred from 
the general fund to the sinking fund account in the state bond 
fund by December 1 of each year. 
    Sec. 3.  [APPROPRIATION.] 
    The amount necessary to pay for the cost of the marketing 
study under section 1, subdivision 2, and the marketing plan 
under section 2, subdivision 3, is appropriated to the 
commissioner of finance out of the proceeds of the college 
savings bonds.  The cost of the marketing study must not exceed 
$60,000.  
    Sec. 4.  [REPEALER.] 
    Sections 1 to 3 are repealed December 31, 1989. 
    Sec. 5.  [EFFECTIVE DATE.] 
    This act is effective the day following final enactment and 
applies to authorizations of state bonds under laws enacted 
before or after the effective date of this act. 
    Approved April 28, 1988