The Local Transportation Authority and Improvement Act provides for the creation in any county of a local transportation authority and authorizes the imposition of a retail transactions and use tax by ordinance, subject to approval of the ordinance by 2/3 of the voters. Existing law authorizes the ballot proposition submitted to the voters to include a provision authorizing bonds to be issued that would be payable from the proceeds of the transactions and use tax. Existing law requires the bond proceeds to be placed in the treasury of the local transportation authority and to be used for allowable transportation purposes, except that accrued interest and premiums received on the sale of the bonds are required to be placed in a fund to be used for the payment of bond debt service.

This bill would instead require the premiums received on the sale of the bonds to be placed in the treasury of the local transportation authority to be used for allowable transportation purposes.

The Local Transportation Authority and Improvement Act provides for the creation in any county of a local transportation authority and authorizes the imposition of a retail transactions and use tax by ordinance, subject to approval of the ordinance by 2/3 of the voters. Existing law authorizes the ballot proposition submitted to the voters to include a provision authorizing bonds to be issued that would be payable from the proceeds of the transactions and use tax. Existing law requires the bond proceeds to be placed in the treasury of the local transportation authority and to be used for allowable transportation purposes, except that accrued interest and premiums received on the sale of the bonds are required to be placed in a fund to be used for the payment of bond debt service.

This bill would instead require the premiums received on the sale of the bonds to be placed in the treasury of the local transportation authority to be used for allowable transportation purposes.

The Local Transportation Authority and Improvement Act provides for the creation in any county of a local transportation authority and authorizes the imposition of a retail transactions and use tax by ordinance, subject to approval of the ordinance by 2/3 of the voters. Existing law authorizes the ballot proposition submitted to the voters to include a provision authorizing bonds to be issued that would be payable from the proceeds of the transactions and use tax. Existing law requires the bond proceeds to be placed in the treasury of the local transportation authority and to be used for allowable transportation purposes, except that accrued interest and premiums received on the sale of the bonds are required to be placed in a fund to be used for the payment of bond debt service.

This bill would instead provide for accrued interest and require the premiums received on the sale of the bonds to be placed in the treasury of the local transportation authority to be used for allowable transportation purposes.

The Local Transportation Authority and Improvement Act provides for the creation in any county of a local transportation authority and authorizes the imposition of a retail transactions and use tax by ordinance, subject to approval of the ordinance by 2/3 of the voters. Existing law authorizes the ballot proposition submitted to the voters to include a provision authorizing bonds to be issued that would be payable from the proceeds of the transactions and use tax. Existing law requires the bond proceeds to be placed in the treasury of the local transportation authority and to be used for allowable transportation purposes, except that accrued interest and premiums received on the sale of the bonds are required to be placed in a fund to be used for the payment of bond debt service.

This bill would instead provide for accrued interest and premiums received on the sale of the bonds to be placed in the treasury of the local transportation authority to be used for allowable transportation purposes.

 THIRD READING  

Bill No: AB 1919

Author:

:

Vote:

SENATE TRANS. & HOUSING COMMITTEE: 9-2, 6/14/16

AYES: Beall, Cannella, Allen, Galgiani, Leyva, McGuire, Mendoza, Roth, Wieckowski

NOES: Bates, Gaines

ASSEMBLY FLOOR: 48-30, 5/12/16 - See last page for vote

SUBJECT:

SOURCE: Author

DIGEST: This bill removes a bond requirement in existing law in order to increase a local transportation authority’s flexibility in utilizing bond proceeds sold for transportation capital projects.

ANALYSIS:

Existing law:

1. Establishes the Local Transportation Authority and Improvement Act and provides for the formation, administration, powers, taxing, and bonding authority for a local transportation authority (authority).
2. Authorizes an authority to issue limited tax bonds secured by a pledge of revenues from the proceeds of retail transactions and use tax approved by the voters.
3. Requires all accrued interest and premiums received on the sale of bonds to be placed in the fund to be used for the payment of the principal of and interest on the bonds. Requires the reminder of the proceeds to be placed in the authority's treasury to be applied to secure the bonds or for the purposes for which the debt was incurred.

This bill removes, specifically for local transportation authorities, the requirement in existing law to use premiums from the sale of bonds to pay for the principal and interest of the bonds, thereby allowing those bond premiums to be used for other purposes (e.g., capital improvement projects).

Comments

1. Purpose. The author notes, “Current language limits an issuer’s ability to structure municipal bonds to best meet investor demand, and in doing so promotes structures that lead to higher interest costs. Commonly, in California and nationally, municipal issuers can issue bonds with either a par structure, discount structure, or premium structure. All proceeds from the bond sale, including any premium generated through a premium bond structure, are eligible to be used for project costs. For authorities, current law does not allow bond premiums to be used to fund capital projects. This reduces the flexibility of issuers and eliminates the incentive or financial benefit to the transportation authority to offer a premium structure to investors.”
2. What are premium bonds? Premium bonds are bonds that trade above their par value (i.e., the face value of the bond). Generally, a bond will trade at a premium when it offers a coupon rate (i.e., the yield on the bond paid on its issue date; however, this rate changes as the value of the bond changes) that is higher than prevailing interest rates. Typically, this occurs because investors desire a higher yield and will pay more for it. For example, a Los Angeles wastewater system bond with a par value of $100 million is selling for $119 million because of favorable market conditions. Under current law, authorities are prohibited from using the additional revenue generated ($19 million in the example above) from the sale of premium bonds on transportation capital projects; rather, this specific revenue is required to be used for debt service on the actual par value of the bond.

This bill does not change any requirements tied to a local transportation authority’s responsibility to pay back bond proceeds over a required time period. Rather, this bill merely provides additional flexibility for local transportation authority by allowing the additional revenue generated in the selling of premium bonds to be used for capital projects.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

SUPPORT: (Verified 6/17/16)

Alameda County Transportation Commission

OPPOSITION: (Verified 6/17/16)

Howard Jarvis Taxpayers Association

ASSEMBLY FLOOR: 48-30, 5/12/16

AYES: Alejo, Arambula, Atkins, Bloom, Bonilla, Bonta, Brown, Calderon, Campos, Chau, Chiu, Chu, Cooley, Cooper, Dababneh, Daly, Dodd, Eggman, Frazier, Cristina Garcia, Eduardo Garcia, Gipson, Gomez, Gonzalez, Gordon, Gray, Roger Hernández, Holden, Levine, Lopez, Low, McCarty, Medina, Mullin, Nazarian, O'Donnell, Quirk, Ridley-Thomas, Rodriguez, Salas, Santiago, Mark Stone, Thurmond, Ting, Weber, Williams, Wood, Rendon

NOES: Achadjian, Travis Allen, Baker, Bigelow, Brough, Chang, Chávez, Dahle, Beth Gaines, Gallagher, Gatto, Grove, Hadley, Harper, Irwin, Jones, Kim, Lackey, Linder, Maienschein, Mathis, Mayes, Melendez, Obernolte, Olsen, Patterson, Steinorth, Wagner, Waldron, Wilk

NO VOTE RECORDED: Burke, Jones-Sawyer

Prepared by:

6/17/16 15:03:34

**** END ****

SENATE COMMITTEE ON TRANSPORTATION AND HOUSING

Senator Jim Beall, Chair

2015 - 2016 Regular

Bill No: AB 1919 Hearing Date: June 14, 2016

SUBJECT: Local transportation authorities: bonds

DIGEST: This bill removes a bond requirement in existing law in order to increase a local transportation authority’s flexibility in utilizing bond proceeds sold for transportation capital projects.

ANALYSIS:

Existing law:

1. Establishes the Local Transportation Authority and Improvement Act and provides for the formation, administration, powers, taxing, and bonding authority for a local transportation authority (authority).
2. Authorizes an authority to issue limited tax bonds secured by a pledge of revenues from the proceeds of retail transactions and use tax approved by the voters.
3. Requires all accrued interest and premiums received on the sale of bonds to be placed in the fund to be used for the payment of the principal of and interest on the bonds. Requires the reminder of the proceeds to be placed in the authority's treasury to be applied to secure the bonds or for the purposes for which the debt was incurred.

This bill removes, specifically for local transportation authorities, the requirement in existing law to use premiums from the sale of bonds to pay for the principal and interest of the bonds, thereby allowing those bond premiums to be used for other purposes (e.g., capital improvement projects).

COMMENTS:

1. Purpose. The author notes, “Current language limits an issuer’s ability to structure municipal bonds to best meet investor demand, and in doing so promotes structures that lead to higher interest costs. Commonly, in California and nationally, municipal issuers can issue bonds with either a par structure, discount structure, or premium structure. All proceeds from the bond sale, including any premium generated through a premium bond structure, are eligible to be used for project costs. For authorities, current law does not allow bond premiums to be used to fund capital projects. This reduces the flexibility of issuers and eliminates the incentive or financial benefit to the transportation authority to offer a premium structure to investors.”
2. What are premium bonds? Premium bonds are bonds that trade above their par value (i.e., the face value of the bond). Generally, a bond will trade at a premium when it offers a coupon rate (i.e., the yield on the bond paid on its issue date; however, this rate changes as the value of the bond changes) that is higher than prevailing interest rates. Typically, this occurs because investors desire a higher yield and will pay more for it. For example, a Los Angeles wastewater system bond with a par value of $100 million is selling for $119 million because of favorable market conditions. Under current law, authorities are prohibited from using the additional revenue generated ($19 million in the example above) from the sale of premium bonds on transportation capital projects; rather, this specific revenue is required to be used for debt service on the actual par value of the bond.

This bill does not change any requirements tied to a local transportation authority’s responsibility to pay back bond proceeds over a required time period. Rather, this bill merely provides additional flexibility for local transportation authority by allowing the additional revenue generated in the selling of premium bonds to be used for capital projects.

Assembly Votes:

Floor: 48-30

Local Gov: 6-2

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

POSITIONS: (Communicated to the committee before noon on Wednesday,

June 8, 2016.)

SUPPORT:

Alameda County Transportation Commission

OPPOSITION:

None received

-- END --

ASSEMBLY THIRD READING

ATR Bill Id:AB 1919

Author:(Quirk)

As Amended Ver:April 4, 2016

Majority vote

SUMMARY: Removes, for local transportation authorities, the requirement in existing law to use premiums from the sale of bonds to be used to pay for the principal and interest of the bonds, thereby allowing those bond premiums to be used for other purposes.

EXISTING LAW:

1. Establishes the Local Transportation Authority and Improvement Act and provides for the formation, administration, powers, taxing, and bonding authority for a local transportation authority (authority).
2. Authorizes an authority to issue limited tax bonds secured by a pledge of revenues from the proceeds of a retail transactions and use tax approved by the voters.
3. Requires all accrued interest and premiums received on the sale of bonds to be placed in the fund to be used for the payment of the principal of and interest on the bonds. Requires the remainder of the proceeds to be placed in the authority's treasury to be applied to secure the bonds or for the purposes for which the debt was incurred.
4. Requires, when the purposes have been accomplished, any money remaining to be either:
   1. Transferred to the fund to be used for payments for the principal and interest on the bonds; or,
   2. Placed in a fund for the purchase of the outstanding bonds in the open market at prices in the manner determined by the authority.

FISCAL EFFECT: None

COMMENTS:

1. Background and Bill Summary. Existing law provides transportation authorities the ability to issue bonds in order to finance capital needs. When an investor purchases a bond they are in turn lending money to the local transportation authority that issued the bond. In return for buying the bond, the local transportation agency must pay the investor debt service, the principal amount of bond and interest, which is the cost of borrowing the money. Bond proceeds are used by local transportation authorities to fund capital projects, the costs of bond issuance and debt service. Local transportation authorities are required to use all interest and premiums (the amount by which the price of a bonds exceeds its principal amount) received from the sale of bonds on the debt service of the bond.

This bill removes, for local transportation authorities, the requirement in existing law to use premiums from the sale of bonds to be used to pay for the principal and interest of the bonds, thereby allowing those bond premiums to be used for other purposes. This bill is sponsored by the Alameda County Transportation Commission.

1. Author's Statement. According to the author, "Current language limits an issuer's ability to structure municipal bonds to best meet investor demand and in doing so promotes structures that lead to higher interest costs. Commonly in California and nationally, municipal issuers can issue bonds with either a par structure, discount structure or premium structure. All proceeds from the bond sale, including any premium generated through a premium bond structure, are eligible to be used for project costs.

"Current law does not allow bond premium to be used to fund capital projects. This reduces the flexibility of issuers and eliminates the incentive or financial benefit to the transportation authority to offer a premium structure to investors. This restriction is inconsistent with current practice in the municipal bond market and promotes bond structures that have higher costs which, in turn, reduce the amount of money available for transportation projects.

"A transportation authority organized under the Local Transportation Authority and Improvement Act should be able to issue bonds consistent with investor demand in order to minimize borrowing costs and use more taxpayer dollars for projects. This should include the ability to issue premium bonds to fund eligible project costs if and when this structure results in the lowest borrowing cost. The goal for the proposed changes is to remove the restrictive language that currently requires bond premium from the sale of bonds to be used only for the payment of principal and interest on the bonds."

1. Arguments in Support. The Alameda County Transportation Commission argues that removing the current restriction on the use of premiums will lower the cost of the bond transaction, lower the amount of debt the transportation authority must carry, and thus increase the amount of local sales tax dollars available for project delivery.
2. Arguments in Opposition. The Howard Jarvis Taxpayers Association argues "…we are concerned that diverting accrued interest payments for these purposes represents poor fiscal planning and establishes a bad precedent by shifting more of the long-term costs of these bonds onto taxpayers."

Analysis Prepared by: Misa Lennox / L. GOV. / (916) 319-3958 FN: 0002905

Date of Hearing: May 4, 2016

ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT

Susan Talamantes Eggman, Chair

ABPCA Bill Id:AB 1919 (

Author:Quirk) – As Amended Ver:April 4, 2016

SUBJECT: Local transportation authorities: bonds.

SUMMARY: Removes, for local transportation authorities, the requirement in existing law to use premiums from the sale of bonds to be used to pay for the principal and interest of the bonds, thereby allowing those bond premiums to be used for other purposes.

EXISTING LAW:

1. Establishes the Local Transportation Authority and Improvement Act and provides for the formation, administration, powers, taxing, and bonding authority for a local transportation authority (authority).
2. Authorizes an authority to issue limited tax bonds secured by a pledge of revenues from the proceeds of a retail transactions and use tax approved by the voters.
3. Requires all accrued interest and premiums received on the sale of bonds to be placed in the fund to be used for the payment of the principal of and interest on the bonds. Requires the reminder of the proceeds to be placed in the authority's treasury to be applied to secure the bonds or for the purposes for which the debt was incurred.
4. Requires, when the purposes have been accomplished, any money remaining to be either:
   1. Transferred to the fund to be used for payments for the principal and interest on the bonds or,
   2. Placed in a fund for the purchase of the outstanding bonds in the open market at prices in the manner determined by the authority.

FISCAL EFFECT: None

COMMENTS:

1. Background and Bill Summary. Existing law provides transportation authorities the ability to issue bonds in order to finance capital needs. When an investor purchases a bond they are in turn lending money to the local transportation authority that issued the bond. In return for buying the bond, the local transportation agency must pay the investor debt service, the principal amount of bond and interest, which is the cost of borrowing the money. Bond proceeds are used by local transportation authorities to fund capital projects, the costs of bond issuance and debt service. Local transportation authorities are required to use all interest and premiums (the amount by which the price of a bonds exceeds its principal amount) received from the sale of bonds on the debt service of the bond.

This bill removes, for local transportation authorities, the requirement in existing law to use premiums from the sale of bonds to be used to pay for the principal and interest of the bonds, thereby allowing those bond premiums to be used for other purposes. This bill is sponsored by the Alameda County Transportation Commission.

1. Author's Statement. According to the author, "Current language limits an issuer’s ability to structure municipal bonds to best meet investor demand and in doing so promotes structures that lead to higher interest costs. Commonly in California and nationally, municipal issuers can issue bonds with either a par structure, discount structure or premium structure. All proceeds from the bond sale, including any premium generated through a premium bond structure, are eligible to be used for project costs.

"Current law, does not allow bond premium to be used to fund capital projects. This reduces the flexibility of issuers and eliminates the incentive or financial benefit to the transportation authority to offer a premium structure to investors. This restriction is inconsistent with current practice in the municipal bond market and promotes bond structures that have higher costs which, in turn, reduce the amount of money available for transportation projects.

"A transportation authority organized under the Local Transportation Authority and Improvement Act should be able to issue bonds consistent with investor demand in order to minimize borrowing costs and use more taxpayer dollars for projects. This should include the ability to issue premium bonds to fund eligible project costs if and when this structure results in the lowest borrowing cost. The goal for the proposed changes is to remove the restrictive language that currently requires bond premium from the sale of bonds to be used only for the payment of principal and interest on the bonds."

1. Arguments in Support. The Alameda County Transportation Commission argues that removing the current restriction on the use of premiums will lower the cost of the bond transaction, lower the amount of debt the transportation authority must carry, and thus increase the amount of local sales tax dollars available for project delivery.
2. Arguments in Opposition. None on file.

REGISTERED SUPPORT / OPPOSITION:

Support

Alameda County Transportation Commission

Opposition

None on file

Analysis Prepared by: Misa Lennox / L. GOV. / (916) 319-3958