Title 9 Part 1644

Debt service as used in this Subchapter refers to the periodic provisions for payment of principal and interest on the outstanding indebtedness of the local agency.

Prior to the issuance of State housing bonds, debt service is limited to the provision for the payment of interest on the indebtedness. The local agency's indebtedness outstanding during this period will be temporary (short-term) indebtedness, having maturities not in excess of one year, whether the funds have been borrowed from the State or from private investors. The principal amounts of maturing temporary indebtedness will be periodically refunded out of the proceeds of the issue of new short-term obligations by the State or by the local agency, depending on the circumstances, and, ultimately, out of the proceeds of an issue of housing bonds by the State, as described in Part 1643, Financing.

Interest on local agency temporary indebtedness, whether to the State, as evidenced by certificates of indebtedness, or to private investors, as evidenced by temporary loan notes, is computed on the basis of a 360-day year, with each month considered as having 30 days. The date of issue, or effective date of issue, of the evidence of indebtedness is included, but not the date of maturity. The computation of interest on temporary indebtedness is illustrated in the following example, where it is assumed that a temporary loan note for $100,000 is dated January 28, 1947, matures on April 15, 1947 and bears an interest rate of 80 per cent per annum. The computation would be equally valid where the local agency had issued its certificate of indebtedness for an advance by the State representing the proceeds of an issue of short-term notes by the State.

Using the above conventions, determine the life of the note, in days, as follows:

Note that, in arriving at the number of days, January 31 has not been counted and that each full calendar month between the issue and maturity dates is counted as 30 days, regardless of the actual number of days in the respective months. This results from the application of the convention for the 30-day month. Special cases may arise where the date of issue or maturity is the 31st day of a month. These are handled by counting the 31st day as one day, if the issue date is the 31st day of the month, and by counting the month as 30 days, if the maturity date is the 31st day of the month.

Determine the daily rate of interest, in dollars, by multiplying the principal amount of the note by the interest rate and dividing the product by 360 days:

The quotient is carried out to six decimal places, and reduced to five decimal places. If the sixth decimal is four or less, it is dropped and the fifth decimal retained unchanged, but if the sixth decimal is five or more, the fifth decimal is increased by one when the sixth decimal is dropped.

Determine the amount of interest to be accrued at the end of each quarter in accordance with the illustration which follows:

When a full quarter is involved, the quarterly accrual is obtained by multiplying the monthly interest ($66.67) by the number of months (three) or $200. The total interest accrued can be checked by multiplying the aggregate life of the note, in days, by the daily interest rate and adjusting the interest for the final month for any possible difference, which should, at most, be not more than a few cents.

Interest on all indebtedness, temporary or permanent, is accrued quarterly, the computation of interest on temporary indebtedness being made as described in 1644-2.2, supra. The total amount of the quarterly accrual is initially charged to account 1420.1, Interest, for interest accrued during the development period and to account 4716, Interest on Indebtedness, for interest accrued during the operating period, the credit being to account 2132.1, Accrued Interest Payable—State of New York, for interest on advances made by the State, and to account 2132.2, Accrued Interest Payable—Temporary Loan Notes, for interest on funds borrowed from private investors. The cutoff point for interest initially charged to development costs is the date of substantial completion. The date of substantial completion, itself, is considered the first day of the operating period.

The accounting entries are as follows:

Entry (1): Through cash receipts register at time cash is received:

Dr. Account 1111—Development Fund

or

Dr. Account 1112—Administration Fund

Cr. Account 2230—Premium on Temporary Loan Notes

Note:

Entry (1) records the receipt of the premium in cash.

Entry (2): Through journal voucher for the quarterly pro rata write-off:

Dr. Account 2230—Premium on Temporary Loan Notes

Cr. Account 1420.1—Interest

or

Cr. Account 4716—Interest on Indebtedness

Note:

Entry (2) credits the appropriate interest cost or expense account with a pro rata portion of the premium applicable to the period.

The accounting entries are as follows:

Entry (1): Through the journal voucher at the time the funds are re-

ceived by the escrow agent, who retains the premium and invests the

funds so that they are available to pay interest at the date of maturity

of the temporary loan notes:

Dr. Account 1115—Special Deposits

Cr. Account 2230—Premium on Temporary Loan Notes

Entry (2): Through journal voucher for the quarterly pro rata write-off:

Dr. Account 2230—Premium on Temporary Loan Notes

Cr. Account 1420.1—Interest

or

Cr. Account 4716—Interest on Indebtedness

Interest on temporary indebtedness, when paid, is charged directly to the applicable accrued interest payable account, the credit being to Development Fund (account 1111) or Administration Fund (account 1112), as the case may be. Checks for interest on temporary indebtedness to the State should be made payable to “Comptroller—State of New York”.

As described in Part 1643, Financing, the issuance of housing bonds by the State is entirely within the discretion of the State Comptroller. Bonds may, therefore, be issued by the State prior to the date of substantial completion, or subsequent thereto. The issuance of bonds simultaneously with substantial completion will, ordinarily, be fortuitous. The date of substantial completion has an important bearing on the debt service on the bond issue, as it not only controls the apportionment of the interest charge to development and operations, but also the provision for amortization. Prior to the date of substantial completion, debt service on the bond issue is limited to the provision of interest only. Subsequent to the date of substantial completion, the debt service will include a provision for amortization of the indebtedness, as well as the provision for interest.

The State Housing Debt Fund is used by the Comptroller as a debt service fund to receive remittance for debt service on bond issues from local agencies and to make payments of interest and amortization to bondholders. Under the terms of the various contracts for State aid, local agencies are required to make payments of interest and amortization on their indebtedness to the State in such amounts and at such times as will enable the Comptroller to meet the debt service on the State's housing bonds. The contracts further provide that remittances for debt service must be in the hands of the Comptroller at least 15 days in advance of the date that payment is due by the State to the bondholders. Interest on the bonds is, ordinarily, payable semiannually and amortization is payable annually, the amortization payment date coinciding with an interest payment date. The division will endeavor to give the local agency timely notice, but the primary responsibility for living up to the terms of the contract and meeting the debt service on time is the local agency's. Remittances for debt service on bonds will be made by the local agency to the division, for transmittal to the Comptroller, and not to the Comptroller direct. Checks for debt service on bond issues should be made payable to “Comptroller—State of New York”. The Comptroller may also pay into the State Housing Debt Fund the premiums, if any, received on the sale of housing bonds and the interest received on State Housing Fund investments.

The first interest payment to bondholders is, ordinarily, due six months after the date of issue of the bonds and the interest is payable semiannually thereafter. Local agencies will accrue interest on State housing bonds at the end of each quarter beginning with the month of issue at the rate of one quarter of the annual interest on the bonds for each full calendar quarter of the interest year falling within the fiscal year. Interest for fractional parts of a quarter is computed on the basis of a 90-day quarter, regardless of the actual number of days in that quarter. In computing interest for fractional parts of a month, the first day of an interest year falling within that month is counted, but not the last day of an interest year.

The charge for interest accrued on bonds is to account 1420.1, Interest, for interest accrued prior to the date of substantial completion, and applicable to the development period, and to account 4716, Interest on Indebtedness, for interest accrued subsequent to the date of substantial completion, and applicable to the operating period. The date of substantial completion is considered as the first day of the operating period. The credit for interest accrued on housing bonds is made to account 2132.1, Accrued Interest Payable—State of New York. A further allocation of interest charges to the cost of related programs should then be made as described in section 1644-2.4 of this Part. However, after the bonds have been issued, the basis for the allocation is the proportion that the amount borrowed for the related program in the bond sale budget bears to the total bond issue. Prior to the issuance of bonds, it will be recalled, the basis of the allocation is the proportion that the amount requisitioned for the related program on the most recent certificate of purposes bears to the total amount borrowed.

The charge for the payment of interest on housing bonds made in advance by the local agency is held in suspense in account 1124, State Housing Debt Fund, until the date the Comptroller is scheduled to make the payment to the bondholders. Payment of interest on housing bonds therefore entails two entries, as follows:

Entry (1): When the voucher for the remittance of the interest to the division is drawn:

Debit: Account 1124, State Housing Debt Fund $XXX

Credit: Account 1111, Development Fund $XXX

or

Account 1112, Administration Fund $XXX

Entry (2): By journal entry, on the date the interest is due to be paid to the bondholders.

Debit: Account 2132.1, Accrued Interest

Payable, State of New York $XXX

Credit: Account 1124, State Housing Debt Fund $XXX

Explanation:

To record the payment of semiannual interest, due____, 19 ____, on State housing bonds by the State Comptroller.

Entry (3):

Debit: Account 1124, State Housing Debt Fund $XXX

Credit: Account 1420.8, Premium on State Housing Bonds $XXX

Explanation:

To record the premium on housing bond issue no. ____, as per letter from Division of Housing dated ____,19__.

Interest received by the State Comptroller on State Housing Fund investments (see Part 1645, Investments) will ordinarily be paid into the State Housing Debt Fund and applied to the payment of interest on housing bonds outstanding in the same manner as premiums received on the sale of bonds. The recording of interest on State Housing Debt Fund investments is on a cash basis, that is, the interest earned is not periodically accrued, as is the case with interest on other investments, but the entry is made whenever the local agency is notified by the division as to the amount of the interest received by the Comptroller. Upon receipt of such notice, a journal entry is made charging account 1124, State Housing Debt Fund, with the amount of the interest received by the Comptroller, and crediting the applicable development cost or operating income account, as described in Part 1645, Investments. As with the premium on State housing bonds, the division will then notify the local agency, in advance of the date the local agency is called upon to remit the interest on the bond issue for deposit in the State Housing Debt Fund, as to how much of the interest on State Housing Fund investments, if any, the Comptroller intends to apply to the payment of the interest on the bonds and the local agency will then remit the difference between the scheduled interest and the interest on State Housing Fund investments applied. The actual amount remitted will be paid in the manner previously described (see entry [1], § 1644-3.5 above) and account 1124, State Housing Debt Fund, is charged. On the date the interest is due to be paid to the bondholders, entry (2) above (§ 1644-3.5) is made, charging the full scheduled amount of the interest payment, before the deduction for the interest on State Housing Fund investments applied, to the accrued interest payable account and crediting account 1124, State Housing Debt Fund. Note that the amount of the quarterly accrual for the interest on the bonds, computed as per section 1644-3.3, is not affected by either the receipt or the application of the interest on State Housing Fund investments.

The retirement of indebtedness by making periodic repayments of the principal amount of the indebtedness is known as amortization. With respect to the amortization of indebtedness of the local agency to the State, representing the proceeds of a housing bond issue by the State, the accounting entries will reflect the following:

Entry (4):

Debit: Account 4717, Amortization of Indebtedness $XXX

Credit: Account 2600, Accumulated Amortization $XXX

Explanation:

To record quarterly provision for amortization on housing bond issue no. ____.

Like the interest on housing bonds, the remittance for the installment of amortization must be forwarded to the division, for transmittal to the State Comptroller, so that it is in the latter's hands, for deposit in the State Housing Debt Fund, at least 15 days in advance of the date the amortization is due to be paid to the bondholders. The entry for the remittance of amortization will come through the voucher register, as follows:

Entry (5):

Debit: Account 1124, State Housing Fund $XXX

Credit: Account 1112, Administration Fund $XXX

Note:

That the credit for the remittance will always be to the administration fund, inasmuch as no part of the provision for amortization may be charged to development costs or to the related programs.

Entry (6):

Debit: Account 2313, Indebtedness Amortized, State of

New York $XXX

Credit: Account 1124, State Housing Debt Fund $XXX

Explanation:

To record the payment of amortization on housing bond issue no. ____.