# OCC Interpretive Letter No. 858: Letter concludes that the Philadelphia Authority for Industrial Development Pension Funding Bonds, Series 1999A - 1999C are Type I investment securities as defined in 12 CFR 1.2(i), and qualify for a 20 percent risk-weight under the OCC's risk-based capital regulations. 03/17/99

> Federal · Agency guidance · In force

URL: https://www.frixlaw.com/law-library/statutes/OCC_INT0858

## Section

- **Citation:** OCC Interpretive Letter No. 858
- **Heading:** Letter concludes that the Philadelphia Authority for Industrial Development Pension Funding Bonds, Series 1999A - 1999C are Type I investment securities as defined in 12 CFR 1.2(i), and qualify for a 20 percent risk-weight under the OCC's risk-based capital regulations. 03/17/99
- **Jurisdiction:** Federal
- **Kind:** Agency guidance
- **Status:** In force
- **Text as of:** August 14, 2026
- **Source:** Compiled text
- **Location:** OCC Interpretive Letters / Letter concludes that the Philadelphia Authority for Industrial Development Pension Funding Bonds, Series 1999A - 1999C are Type I investment securities as defined in 12 CFR 1.2(i), and qualify for a 20 percent risk-weight under the OCC's risk-based capital regulations. 03/17/99

## Text

Act No. 205 of the General Assembly of the Commonwealth of Pennsylvania,
1
approved December 18, 1984 (P.S. 1005) as amended (Pension Plan Act or Act).
Comptroller of the Currency
Administrator of National Banks
Washington, DC 20219
March 17, 1999
Interpretive Letter #858
April 1999
12 CFR 1
Re: Philadelphia Authority for Industrial Development Pension
Funding Bonds (City of Philadelphia Retirement System)
Series 1999A - 1999C
Dear [ ]:
This responds to your letter on behalf of [ ] requesting that the Office
of the Comptroller of the Currency (OCC) conclude that the Philadelphia Authority for
Industrial Development Pension Funding Bonds, Series 1999A - 1999C (Bonds) are Type I
investment securities as defined in 12 C.F.R. § 1.2(i), and qualify for a 20 percent risk-weight
under the OCC’s risk-based capital regulations. Based on your representations, and for the
reasons discussed below, we conclude that the Bonds are Type I investment securities that
qualify for a 20 percent risk weight under those regulations.
Background
The Philadelphia Authority for Industrial Development (Authority) is issuing the Bonds
pursuant to, inter alia, the Municipal Pension Plan Funding Standard and Recovery Act, to
1
fund a portion of the unfunded actuarial accrued liabilities (Unfunded Liability) for the
retirement system of the City of Philadelphia, Pennsylvania (City). You represent that the
Bonds will be issued and secured under a Trust Indenture dated January 15, 1999 (Indenture)
between the Authority and [ ], as trustee (Trustee).
The City’s Home Rule Charter and the Pension Plan Act impose funding and other
requirements on the City’s pensions plans. The Home Rule Charter requires the City to
maintain an actuarially sound pension and retirement system for all its officers and employees,
ated January 15, 1999 (Indenture)
between the Authority and [ ], as trustee (Trustee).
The City’s Home Rule Charter and the Pension Plan Act impose funding and other
requirements on the City’s pensions plans. The Home Rule Charter requires the City to
maintain an actuarially sound pension and retirement system for all its officers and employees,

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53 P.S. § 895.302(d).
2
53 P.S. § 102 and § 404(a).
3
53 P.S. § 202.
4
You represent that the Service Agreement requires the City to pay amounts sufficient
5
to pay when due, inter alia, the principal or redemption price of, and interest on, the Bonds.
You also represent that the Service Agreement provides that the City’s obligations are absolute
and unconditional, and are not subject to any set-off or diminution.
53 P.S. §§ 895.302 and 1001. Failure to pay the full amount of the payment
6
requirements of the Funding Alternative when due, may be remedied by the institution of legal
proceedings for mandamus. 53 P.S. § 1001. Any person beneficially interested, including the
Authority, has standing to institute a legal proceeding for mandamus. Id. The Indenture and
the Service Agreement purportedly authorize the Trustee to proceed by mandamus to compel
the budgeting and payment of all amounts due under the Service Agreement. The Public
Employee Retirement Study Commission (Commission) may also issue an order requiring the
City to comply with the Pension Plan Act. 53 P.S. § 895.307. If the City fails to comply with
any lawful order of the Commission, the Commission may institute legal proceedings for
injunction, mandamus or other appropriate remedy at law or in equity to enforce compliance
with, or restrain violations of, the Commission’s orders. Id.
Under the City’s Home Rule Charter, the City Council may by ordinance enter into a
7
contract with a duration of more than one year without making appropriations beyond the
current year. Section 2-309 of the City’s Home Rule Charter
dings for
injunction, mandamus or other appropriate remedy at law or in equity to enforce compliance
with, or restrain violations of, the Commission’s orders. Id.
Under the City’s Home Rule Charter, the City Council may by ordinance enter into a
7
contract with a duration of more than one year without making appropriations beyond the
current year. Section 2-309 of the City’s Home Rule Charter. Those contracts are valid and
binding on the City even though no appropriations have been made for the ensuing years for
and to obtain an annual actuarial valuation and computation of any related Unfunded Liability.
2
The Pension Plan Act requires the City to budget for and provide minimum annual
contributions to its pension plans, payable from revenues of the City, that take the Unfunded
Liability into consideration. The Pension Plan Act also provides alternatives for reducing or
3
eliminating the Unfunded Liability (described as “Funding Alternatives” in the Act). The
4
Funding Alternative chosen by the City is a service agreement between the City and the
Authority under which the Authority will provide financial services to the City, including the
funding of all or a portion of its Unfunded Liability (Service Agreement). You represent that
5
the Funding Alternative and the Service Agreement were approved by ordinance (Bill No.
980789), and adopted by the City’s City Council on December 19, 1998.
The Pension Plan Act requires all payments under the Service Agreement to be paid in full
when due and to be included in the City’s annual budget. Moreover, the City’s Home Rule
6
Charter requires the City to appropriate monies for the amounts due under contracts, like the
Service Agreement, in its annual operating budget. The City’s Home Rule Charter requires
7
ity Council on December 19, 1998.
The Pension Plan Act requires all payments under the Service Agreement to be paid in full
when due and to be included in the City’s annual budget. Moreover, the City’s Home Rule
6
Charter requires the City to appropriate monies for the amounts due under contracts, like the
Service Agreement, in its annual operating budget. The City’s Home Rule Charter requires
7

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which the contract is in operation; but it is the duty of the City Council to make appropriations
from year to year to pay amounts coming due under those contracts. Id.
Section 2-302 of the City’s Home Rule Charter.
8
The Philadelphia City Council may by ordinance authorize contracts for services to be
9
rendered over a period of more than one year without making appropriations beyond the
current year. The Council must make subsequent appropriations from year to year to pay
amounts coming due under its contracts. Section 2-309 of the City’s Home Rule Charter.
Such expenditures are to be met out of annual operating appropriations and thus out of current
revenues. Id.
12 U.S.C. § 24(Seventh)
10
the City to balance its budget each year by raising revenue sufficient to pay all budgeted
obligations. As a result, the City is obligated, by reason of the mandatory inclusion of the
8
Service Agreement obligations in its annual budget, to raise taxes, if necessary, to make its
payments under the Service Agreement.
You assert that the Bonds are limited obligations of the Authority, payable from amounts
received from the City pursuant to the Service Agreement. Although the Authority has no
taxing power, you represent that the City is obligated by the Pension Plan Act, the City’s Home
Rule Charter, and the Service Agreement to appropriate monies from the revenues of the City,
including taxes, to satisfy its budget obligations.
9
You believe that the Bonds qualify as Type I securities regardless of the applicable
“appropriations clause” in the City’s Home Rule Charter
ority has no
taxing power, you represent that the City is obligated by the Pension Plan Act, the City’s Home
Rule Charter, and the Service Agreement to appropriate monies from the revenues of the City,
including taxes, to satisfy its budget obligations.
9
You believe that the Bonds qualify as Type I securities regardless of the applicable
“appropriations clause” in the City’s Home Rule Charter. You state that, despite the
appropriations clause, the City’s obligations under the Service Agreement are required to be
included in the City’s budget under the Pension Plan Act and the City’s Charter. Thus, you
argue that Philadelphia’s City Council is legally required to include those amounts in its budget
and to appropriate sums to pay those amounts, with no discretion to omit the obligation.
You request that the OCC conclude that the Bonds qualify as a Type I investment securities as
defined in 12 C.F.R. § 1.2(i)(4), and that they receive a 20 percent risk-weight under the
OCC’s risk based capital guidelines, on the basis that the Bonds constitute indirect general
obligations of the City.
Applicable Law
A national bank is permitted to “purchase for its own account investment securities under such
limitations and restrictions as the Comptroller of the Currency may by regulation prescribe.”
10
Section 24(Seventh) states that the limitations on bank purchases of securities do not apply to
obligations of the United States or general obligations of any State or of any political
e City.
Applicable Law
A national bank is permitted to “purchase for its own account investment securities under such
limitations and restrictions as the Comptroller of the Currency may by regulation prescribe.”
10
Section 24(Seventh) states that the limitations on bank purchases of securities do not apply to
obligations of the United States or general obligations of any State or of any political

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Id.
11
12 C.F.R. Part 1.
12
12 C.F.R. § 1.2(i)(4).
13
12 C.F.R. § 1.2(h).
14
12 C.F.R. § 1.2(b).
15
12 C.F.R. § 1.100.
16
12 C.F.R. §§ 1.2(b)(2) and 1.100(a).
17
12 C.F.R. § 1.100(b)(2). The payments must be sufficient, together with any other
18
available funds, for the timely payment of the interest on, and principal of, the obligation. Id.
12 C.F.R. § 1.100(b)(4). The payments must be sufficient, together with any other
19
available funds, for the timely payment of the interest on, and principal of, the obligation. Id.
subdivision of a State. Part 1 of OCC regulations implement the investment securities
11
provisions of section 24(Seventh). Under Part 1, “Type I” investment securities include
12
general obligations of a State or any political subdivision. A “political subdivision” includes a
13
city.
14
General obligations may be supported indirectly by political subdivisions with powers of
taxation. Where an obligor does not have powers of taxation, an obligation may be
15
supported indirectly by a political subdivision having those powers and still qualify as a general
obligation. Accordingly, a general obligation of a political subdivision includes an obligation
16
payable by an obligor that does not possess general powers of taxation, when a party
possessing general powers of taxation has unconditionally promised to provide funds to cover
all required payments on the obligation
ctly by a political subdivision having those powers and still qualify as a general
obligation. Accordingly, a general obligation of a political subdivision includes an obligation
16
payable by an obligor that does not possess general powers of taxation, when a party
possessing general powers of taxation has unconditionally promised to provide funds to cover
all required payments on the obligation. In addition, a political subdivision that possesses
17
general powers of taxation can indirectly support a general obligation by committing its full
faith and credit in support of the obligation in an agreement in which the political subdivision
unconditionally promises to make payments for services provided by the issuer of the
obligation. Finally, a political subdivision can indirectly support a general obligation where a
18
statutory provision or agreement unconditionally commits the political subdivision to provide
funds sufficient for the timely payment of interest on, and principal of, the obligation.19
A bond’s status as an indirect general obligation is not necessarily affected by the existence of
an “appropriations clause.” Appropriations clauses generally include language that states that
certain payments, that are statutory or contractual obligations to be made periodically by a State

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OCC Interpretive Letter No. 791 (July 10, 1997) reprinted in [1997 Transfer Binder]
20
Fed. Banking L. Rep. (CCH) ¶ 81-218; OCC Interpretive Letter No. 675 (March 14, 1995)
reprinted in [1994-1995 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 83,623.
Id.
21
12 C.F.R. Part 3, Appendix A.
22
Id., at section 3(a)(2)(ix).
23
Id.
24
Id., at 3(a)(3)(i).
25
12 C.F.R. § 1.2(b)(2).
26
or political subdivision, require appropriation by a body such as a legislature or city council
Fed. Banking L. Rep. (CCH) ¶ 81-218; OCC Interpretive Letter No. 675 (March 14, 1995)
reprinted in [1994-1995 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 83,623.
Id.
21
12 C.F.R. Part 3, Appendix A.
22
Id., at section 3(a)(2)(ix).
23
Id.
24
Id., at 3(a)(3)(i).
25
12 C.F.R. § 1.2(b)(2).
26
or political subdivision, require appropriation by a body such as a legislature or city council.
20
A security that otherwise qualifies as an indirect general obligation may be considered
supported by the full faith and credit of a State or political subdivision if the bank determines,
on the basis of past actions by the legislative body or city council in similar situations involving
similar types of projects, that it is reasonably probable that the obligor will obtain all necessary
appropriations.
21
OCC risk-based capital regulations contain four risk weights for national bank assets and off-
balance sheet items, ranging from zero to 100 percent. The 20 percent risk-weight category
22
includes “claims representing general obligations of any public-sector entity in an OECD
country [which includes the U.S.] and that portion of any claims guaranteed by any such public
sector entity.” In the U.S., these obligations must meet the requirements of 12 C.F.R. §
23
[1.2(b)]. In contrast, revenue obligations of a public-sector entity in an OECD country that
24
are repayable “solely from revenues generated by the project financed through the issuance of
the obligations” receive a 50 percent risk weight.
25
Discussion
We conclude that the Bonds qualify as Type I investment securities and should be subject to a
20-percent risk weight under Part 3. The City, with general powers of taxation, indirectly
supports the obligation at issue by committing to provide funds that cover all the required
payments on the Bonds, as Part 1 requires
he issuance of
the obligations” receive a 50 percent risk weight.
25
Discussion
We conclude that the Bonds qualify as Type I investment securities and should be subject to a
20-percent risk weight under Part 3. The City, with general powers of taxation, indirectly
supports the obligation at issue by committing to provide funds that cover all the required
payments on the Bonds, as Part 1 requires. The unconditional nature of the City’s Home Rule
26
Charter, the Pension Plan Act and the terms of the Service Agreement, commit the City to
appropriate sufficient revenues to cover service on the Bonds. The obligation must be included
in the City’s annual budget and be paid from, if necessary, taxes imposed by the City pursuant
to its taxing power. The Authority, an entity without taxing powers, will service the Bonds
with the funds appropriated by the City.

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The existence of the “appropriations clause” in the City’s Home Rule Charter does not bar the
conclusion that the Bonds are Type I investment securities. The City’s Home Rule Charter
provides that multiple year service contracts entered into by the City are valid and binding on
the City even though appropriations must be made for the ensuing years for which the contract
is in operation. The City’s Home Rule Charter requires the City Council to make
appropriations from year to year to pay amounts coming due under the Service Agreement.
You represent that those Home Rule Charter provisions apply not only to the Service
Agreement, but to other agreements between the City and the Authority, the City and
Pennsylvania Convention Center Authority, and the City and the Philadelphia Municipal
Authority. You state that historically, amounts due under those agreements are appropriated
and paid when due and always included in the City’s operating budgets
at those Home Rule Charter provisions apply not only to the Service
Agreement, but to other agreements between the City and the Authority, the City and
Pennsylvania Convention Center Authority, and the City and the Philadelphia Municipal
Authority. You state that historically, amounts due under those agreements are appropriated
and paid when due and always included in the City’s operating budgets. Indeed, if the City
fails to make adequate annual appropriations under the Service Agreement and include the
obligations in its annual budget, the obligation can also be enforced by the institution of legal
proceedings by the Commission or by the Authority. Thus, national banks have a reasonable
basis for concluding that the City will meet its obligations on the Bonds.
The Bonds meet the requirements of 12 C.F.R. § 1.2(b)(2) for a general obligation of a
political subdivision, and therefore qualify for a 20 percent risk weight under the OCC’s risk-
based capital regulations. The Bonds are obligations of a public sector entity in the U.S. since
the Authority constitutes an entity established by the City and the Bonds ultimately are
supported by payment from the City’s general revenues.
Conclusion
For the foregoing reasons, and based on your representations, national banks may purchase the
Bonds as Type I investment securities and treat them as having a 20 percent risk-weight under
Part 3. The OCC does not endorse specific investments and this letter should not be used in a
manner that suggests otherwise. If you have any questions, please contact me at (202) 874-
5210.
Sincerely,
/s/
Tena M. Alexander
Senior Attorney
Securities and Corporate Practices Division

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Source: Frix Law Library, https://www.frixlaw.com/law-library/statutes/OCC_INT0858. Check the current official text before relying on it. Not legal advice.