Arizona Revised Statutes
Title 35 - Public Finances
§ 35-458.01 - Commercial paper; variable rate bonds; compound interest bonds; bonds subject to tender

35-458.01. Commercial paper; variable rate bonds; compound interest bonds; bonds subject to tender
A. Bonds issued by a city or town may bear interest at any rate or rates not in excess of the maximum voted rate, payable at the times determined by the governing body, provided that each such bond may be evidenced by one instrument, or if commercial paper by a succession of instruments each bearing interest payable only at maturity. Bonds issued under this section shall be subject to the following:
1. The bonds may bear interest at a fixed or variable rate or any combination thereof, none of which exceeds the maximum voted rate.
2. A variable rate shall be based on any objective measure of the current value of money borrowed such as the announced prime rate of a bank, the rates borne by obligations of the United States or an index or other formula provided for by the governing body. The governing body shall employ a recognized agent in municipal bonds to market and remarket the bonds or commercial paper issued and to establish an interest rate in accordance with the approved index or formula.
3. The governing body may grant to the owner of any bond a right to tender, or may require the tender of, such bond for payment or purchase at one or more times before maturity and, in such event, shall enter into appropriate agreements with any bank, financial institution, insurance company or indemnity company for purchase of bonds so tendered. Such agreement may provide that while the bonds are held by the bank, financial institution, insurance company or indemnity company the bonds may bear interest at a rate higher than when the bonds are held by other owners, but not in excess of the maximum voted rate.
4. If bonds are tendered before maturity under an agreement to pay for or purchase bonds when tendered, the city or town may provide for the purchase and resale of such bonds pursuant to the tenders without extinguishing the indebtedness represented by them or incurring new indebtedness on the resale, whether or not such bonds are represented by the same instruments when purchased as when resold.
5. Compensation for the resale of the bonds shall not be based on or measured by the difference between the price at which the bonds are purchased and the price at which they are resold.
B. The governing body may contract with a bank, financial institution, insurance company or indemnity company to provide additional security for the bonds in the form of a line of credit, letter of credit, insurance policy or other security, may pay the costs of such additional security from amounts provided in the bond issue or from other available sources and may enter into reimbursement obligations in connection therewith, subject to the following:
1. Any reimbursement obligation entered into with the bank, financial institution, insurance company or indemnity company shall not provide for the payment of interest in excess of the maximum voted rate. The reimbursement obligation does not constitute separate indebtedness of the city or town but is payable from the same source as the bonds, or from other available revenues, as determined by the governing body.
2. Administrative costs related to the reimbursement obligation may be deducted from bond proceeds or may be treated as interest, and these costs may be added to and paid from the proceeds of taxes levied to pay interest on the bonds, subject to the maximum rate and amount approved by the voters.
C. If the bonds are issued as commercial paper or bear interest at a variable rate, taxes shall be levied for the payment of principal and interest on such bonds based on the assumption that the bonds will bear interest at the maximum rate permitted under the terms of their issuance. If monies collected pursuant to such levy are more than sufficient to pay currently maturing principal and interest, the excess may be retained in the fund for the payment of interest and principal of the bonds and the next succeeding tax levy shall be reduced by the amount of the excess or the excess shall be used in whole or in part to pay the fees of any bank, financial institution, insurance company or indemnity company which has agreed to provide monies with which to buy bonds tendered for purchase or is providing additional security for the bonds.
D. Variable rate bonds and commercial paper may be sold at competitive public sale or at negotiated sale. Notwithstanding section 35-457, a competitive public sale may be accomplished pursuant to a notice of sale which states such terms and conditions as may be provided by the governing body. The governing body shall distribute the notice of sale in the manner deemed to be in the best interests of the city or town.
E. If the bonds are to be issued in the form of commercial paper the governing body shall first provide for the establishment of the schedule for the maturities of the bonds within the maximum period permitted by the voted proposition. The individual instruments representing the bonds shall mature over shorter periods and may be retired with proceeds of subsequent instruments, or with the proceeds of definitive bonds, but they shall be finally paid according to the schedule of bond maturities or earlier. Bonds issued in the form of commercial paper may be sold through an agent in the form of instruments which mature at intervals the agent determines to be most advantageous to the issuer after giving public notice to potential investors as determined by the governing body.
F. Bonds may be issued as compound interest bonds bearing interest payable only at maturity but compounded periodically until that date at a rate no higher than the maximum voted rate. Notwithstanding section 35-458, taxes to pay the compound interest shall be levied annually and accumulated as the interest accrues unless the compound interest bonds are part of an issue which is amortized according to a plan that calls for the payment of other bonds as to principal and interest in earlier years and in amounts which would at least equal the annual interest payments on such compound interest bonds at the rate or rates borne by the bonds.

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