Existing law provides for the creation of the Sacramento Regional Transit District, with specified powers and duties relative to the provision of public transit services. Existing law authorizes the district to engage in temporary borrowing, as specified.

This bill would authorize the district to seek and obtain a short-term revolving line of credit for operating purposes in anticipation of receipt of federal operating grants, with the extension of credit to the district evidenced by a note, in addition to and as an alternative to temporary borrowing, as specified. The bill would authorize the district to pledge anticipated federal grants and other available funds as security for repayment of the note and would prescribe other terms.

Existing law provides for the creation of the Sacramento Regional Transit District, with specified powers and duties relative to the provision of public transit services. Existing law authorizes the district to engage in temporary borrowing, as specified.

This bill would authorize the district to seek and obtain a short-term revolving line of credit for operating purposes in anticipation of receipt of federal operating grants, with the extension of credit to the district evidenced by a note, in addition to and as an alternative to temporary borrowing, as specified. The bill would authorize the district to pledge anticipated federal grants and other available funds as security for repayment of the note and would prescribe other terms.

Existing law provides for the creation of the Sacramento Regional Transit District, with specified powers and duties relative to the provision of public transit services. Existing law authorizes the district to engage in temporary borrowing, as specified.

This bill would authorize the district to seek and receive a short-term revolving line of credit for operating purposes in anticipation of receipt of federal operating grants, with the extension of credit to the district evidenced by a note, in addition to and as an alternative to temporary borrowing, as specified. The bill would authorize the district to pledge anticipated federal grants and other available funds as security for repayment of the note and would prescribe other terms.

Existing law provides for the creation of the Sacramento Regional Transit District, with specified powers and duties relative to the provision of public transit services. Existing law authorizes the district to engage in temporary borrowing, as specified.

This bill would authorize the district to seek and receive a short-term revolving line of credit for operating purposes in anticipation of receipt of operating grants, with the extension of credit to the district evidenced by a note, in addition to and as an alternative to temporary borrowing, as specified. The bill would authorize the district to pledge anticipated grants and other available funds as security for repayment of the note and would prescribe other terms.

Existing law provides for the creation of the Sacramento Regional Transit District, with specified powers and duties relative to the provision of public transit services. Existing law authorizes the district to engage in temporary borrowing, as specified.

This bill would authorize the district to seek and receive a short-term revolving line of credit for operating purposes in anticipation of receipt of operating grants, with the extension of credit to the district evidenced by a note, in addition to and as an alternative to temporary borrowing, as specified. The bill would authorize the district to pledge anticipated grants and other available funds as security for repayment of the note and would prescribe other terms.

Existing law provides for the creation of the Sacramento Regional Transit District, with specified powers and duties relative to the provision of public transit services. Existing law authorizes the district to engage in temporary borrowing, as specified.

This bill would additionally authorize the district to seek and receive a short term short-term revolving line of credit for operating purposes in anticipation of receipt of operating grants, with the extension of credit to the district evidenced by a note. note, in addition to and as an alternative to temporary borrowing, as specified. The bill would authorize the district to pledge anticipated grants and other available revenues funds as security for repayment of the note and would prescribe other terms.

Existing law provides for the creation of the Sacramento Regional Transit District, with specified powers and duties relative to the provision of public transit services. Existing law authorizes the district to engage in temporary borrowing, as specified.

This bill would additionally authorize the district to seek and receive a short term revolving line of credit for operating purposes in anticipation of receipt of operating grants, with the extension of credit to the district evidenced by a note. The bill would authorize the district to pledge anticipated grants and other available revenues as security for repayment of the note and would prescribe other terms.

CONCURRENCE IN SENATE AMENDMENTS

CSA1 Bill Id:AB 422

Author:(McCarty)

As Amended Ver:July 16, 2015

Majority vote

Original Committee Reference: TRANS.

SUMMARY: Authorizes the Sacramento Regional Transit District (RT) to obtain a short-term revolving line of credit for operating purposes.

The Senate amendments:

1. Requires RT to repay the outstanding balance immediately upon receipt of federal funds to keep RT from carrying a balance from year-to-year.

2. Limits RT's authority to obtain a line of credit in anticipation of receipt of federal operating grants in order to restrict RT from expanding its authority to borrow against other future operating grants.

3. Eliminates the superfluous 85% limitation and ties borrowing limit to the anticipated revenue amount for the next fiscal year instead of just "a" fiscal year to limit reaching RT's maximum indebtedness.

EXISTING LAW authorizes local agencies, including transit districts, to engage in short-term borrowing, but generally requires full repayment by the end of the fiscal year in which the note was issued, and in some cases allows repayment within 15 months of the date of issuance of the note.

AS PASSED BY THE ASSEMBLY, this bill:

1. Authorized RT to seek and obtain a short-term revolving line of credit for operating purposes in anticipation of receipt of operating grants, with the extension of credit evidenced by a note.

2. Authorized RT to pledge anticipated grants and any other funds available, including fare revenues and any other revenues, income, or receipts, as security for repayment of the note, the interest on the note, and the related obligations evidenced by the note.

3. Required the note to have a maturity date of not more than 60 months from the date of issuance.

4. Authorized RT to pledge anticipated operating grants and other available funds over a multiyear period.

5. Capped the maximum indebtedness under the note at 85% of the amount of the anticipated grants and other funds pledged to repay the note, the interest on the note, and the related obligations evidenced by the note.

FISCAL EFFECT: None

COMMENTS: Like most transit agencies in California, RT receives a significant percentage of its operating budget from the Federal Transit Administration (FTA). The FTA dollars arrive on a reimbursement basis. RT begins spending the money at the start of its fiscal year (July 1), but has to wait for congressional action on the FTA budget before it can receive the funds. In the past, this meant receiving the FTA funds within 12 months of the start of RT's fiscal year. More recently, the receipt of funds has taken as long as 18 months.

State law allows local governments to use short-term borrowing to bridge funding gaps under what is typically referred to as the temporary revenue anticipation note (TRAN) statute. Under this law, a local agency takes out a line of credit at the start of the fiscal year and must pay the note in full by the end of the same fiscal year, although in some cases the maturity date can be extended from 12 months to 15 months. RT has relied on the TRAN statute to address the cash flow issue created by the FTA funding process for the last decade, but banks are now hesitant to lend to RT under TRAN because the gap between the start of RT's fiscal year and the actual receipt of FTA funds continues to grow and there is no guarantee that the FTA dollars will come in within the necessary 12 months to 15 months to meet statutory requirements for repayment.

This bill would give RT greater flexibility to negotiate a short-term line of credit with banks that reflects the reality of its financial situation. This bill allows RT to borrow through a revolving line of credit with a maturity date of up to 60 months from the date of issuance. This longer-term credit line will enable RT to obtain the best possible interest rate and, according to RT, "will result in budgetary improvements and will save RT in costs over time."

Analysis Prepared by: Victoria Alvarez / TRANS. / (916) 319-2093 FN: 0001284

 THIRD READING  

Bill No: AB 422

Author: McCarty (D)

Amended: 7/16/15 in Senate

Vote: 21

SENATE TRANS. & HOUSING COMMITTEE: 11-0, 7/14/15

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

ASSEMBLY FLOOR: 56-19, 5/7/15 - See last page for vote

SUBJECT: Sacramento Regional Transit District: line of credit

SOURCE: Sacramento Regional Transit District

DIGEST: This bill enables Sacramento Regional Transit District (Sacramento RT) to obtain a short-term revolving line of credit for operating purposes.

ANALYSIS:

Existing law:

1. Establishes the Sacramento RT to operate a single unified public transportation system in the Sacramento region in order to meet the present and future public transportation, and mass and rapid transit, needs of the region.

2. Enables Sacramento RT to borrow funds in accordance with provisions related to securitized limited obligation notes, short-term loans, and grant anticipation notes.

This bill:

1. Enables Sacramento RT to obtain a short-term revolving line of credit, secured by a note, for operating purposes in anticipation of receipt of any future funds available to Sacramento RT.

2. Specifies that the note related to the line of credit cannot have a maturity date of more than 60 months (five years) from the date of issuance.

3. Specifies that the maximum amount of indebtedness for this line of credit cannot exceed maximum anticipated revenues from federal operating grants that Sacramento RT anticipates receiving in the next fiscal year.

4. Requires Sacramento RT to repay the outstanding balance immediately upon receipt of federal funds, and prohibits these federal operating grant revenues from being used for any other purpose until the indebtedness is fully paid.

Comments

Purpose. Like many transit agencies in California, Sacramento RT receives a significant percentage of its operating budget from the Federal Transit Administration (FTA). The FTA dollars arrive on a reimbursement basis. Sacramento RT begins spending the money at the start of its fiscal year (July 1), but has to wait for congressional action on the FTA budget before it can receive the funds. In the past, this meant receiving the FTA funds within 12 months of the start of Sacramento RT’s fiscal year. More recently, the receipt of funds has taken as long as 18 months.

State law allows local governments to use short-term borrowing to bridge funding gaps under what is typically referred to as the temporary revenue anticipation note (TRAN) statute. Under this law, a local agency takes out a line of credit at the start of the fiscal year and must pay the note in full by the end of the same fiscal year, although in some cases the maturity date can be extended from 12 to 15 months. Sacramento RT has relied on the TRAN statute to address the cash-flow issue created by the FTA funding process for the last decade. According to Sacramento RT, however, banks are now hesitant to lend to Sacramento RT under TRAN because the gap between the start of Sacramento RT’s fiscal year and the actual receipt of FTA funds continues to grow, and there is no guarantee that the FTA dollars will come in within the necessary 12 to 15 months to meet statutory requirements for repayment.

The author states that this bill gives Sacramento RT greater flexibility to negotiate a short-term line of credit with banks that reflects the reality of its financial situation. This bill allows Sacramento RT to borrow through a revolving line of credit with a maturity date of up to 60 months from the date of issuance. This longer term credit line will enable Sacramento RT to obtain the best possible interest rate and, according to Sacramento RT, “will result in budgetary improvements and will save the district money over time.” Sacramento RT claims this problem is unique to them and does not expect other transit operators to need similar authority.

Concerns addressed in policy committee. Typically, it can be a sign of financial trouble when an entity begins to borrow against future revenues to pay for today’s operating costs. In some ways, this practice is akin to someone utilizing payday loan establishments — one begins paying interest in order to spend expected income before it’s received, diminishing the value of that income and slowly sinking into increasing levels of debt. Sacramento RT contends that this is not the case with its current situation, and it appears that Sacramento RT currently intends to responsibly use the authority this bill grants to resolve a timing issue related to federal operating grants. The prior version of this bill, however, created the opportunity for abuse of this short-term borrowing strategy and for setting an unintended precedent. To address this concern, this bill was amended in the Senate Transportation and Housing Committee to require repayment immediately upon receipt of federal funds and to limit the line of credit to anticipated federal operating grants.

Prior Legislation

AB 1143 (Dickinson, Chapter 537, Statutes of 2011) expanded, among other things, Sacramento RT’s ability to engage in short-term borrowing.

FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local: No

SUPPORT: (Verified 8/11/15)

Sacramento Regional Transit District (source)

California Bankers Association

City of Sacramento

OPPOSITION: (Verified 8/11/15)

None received

ASSEMBLY FLOOR: 56-19, 5/7/15

AYES: Achadjian, Alejo, Bloom, Bonilla, Bonta, Brown, Burke, Calderon, Chau, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gray, Holden, Irwin, Jones-Sawyer, Levine, Linder, Lopez, Low, Maienschein, Mathis, McCarty, Medina, Mullin, Nazarian, O'Donnell, Olsen, Perea, Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago, Mark Stone, Thurmond, Ting, Weber, Williams, Wood, Atkins

NOES: Travis Allen, Baker, Bigelow, Brough, Chang, Chávez, Beth Gaines, Grove, Hadley, Harper, Jones, Kim, Lackey, Mayes, Melendez, Obernolte, Patterson, Wagner, Wilk

NO VOTE RECORDED: Campos, Gordon, Roger Hernández, Steinorth, Waldron

Prepared by: Erin Riches / T. & H. / (916) 651-4121

8/17/15 10:38:05

**** END ****

SENATE COMMITTEE ON TRANSPORTATION AND HOUSING

Senator Jim Beall, Chair

2015 - 2016 Regular

Bill No: AB 422 Hearing Date: 7/14/2015

SUBJECT: Sacramento Regional Transit District: line of credit

DIGEST: This bill enables Sacramento Regional Transit District (Sacramento RT) to obtain a short-term revolving line of credit for operating purposes.

ANALYSIS:

Existing law:

1. Establishes the Sacramento RT to operate a single unified public transportation system in the Sacramento region in order to meet the present and future public transportation, and mass and rapid transit, needs of the region.

2. Enables Sacramento RT to borrow funds in accordance with provisions related to securitized limited obligation notes, short-term loans, and grant anticipation notes.

This bill:

1. Enables Sacramento RT to obtain a short-term revolving line of credit, secured by a note, for operating purposes in anticipation of receipt of any future funds available to Sacramento RT.

2. Specifies that the note related to the line of credit cannot have a maturity date of more than 60 months (5 years) from the date of issuance.

3. Specifies that the maximum amount of indebtedness for this line of credit cannot exceed either:

• The most anticipated revenues from federal operating grants in a single fiscal year.

• Eighty-five percent of funds that are pledged to repay the principal and interest of the note in a single fiscal year.

COMMENTS:

1. Purpose. Like many transit agencies in California, Sacramento RT receives a significant percentage of its operating budget from the Federal Transit Administration (FTA). The FTA dollars arrive on a reimbursement basis. Sacramento RT begins spending the money at the start of its fiscal year (July 1), but has to wait for congressional action on the FTA budget before it can receive the funds. In the past, this meant receiving the FTA funds within 12 months of the start of Sacramento RT’s fiscal year. More recently, the receipt of funds has taken as long as 18 months.

State law allows local governments to use short-term borrowing to bridge funding gaps under what is typically referred to as the temporary revenue anticipation note (TRAN) statute. Under this law, a local agency takes out a line of credit at the start of the fiscal year and must pay the note in full by the end of the same fiscal year, although in some cases the maturity date can be extended from 12 to 15 months. Sacramento RT has relied on the TRAN statute to address the cash-flow issue created by the FTA funding process for the last decade. According to Sacramento RT, however, banks are now hesitant to lend to Sacramento RT under TRAN because the gap between the start of Sacramento RT’s fiscal year and the actual receipt of FTA funds continues to grow, and there is no guarantee that the FTA dollars will come in within the necessary 12 to 15 months to meet statutory requirements for repayment.

The author contends that this bill would give Sacramento RT greater flexibility to negotiate a short-term line of credit with banks that reflects the reality of its financial situation. The bill allows Sacramento RT to borrow through a revolving line of credit with a maturity date of up to 60 months from the date of issuance. This longer term credit line will enable Sacramento RT to obtain the best possible interest rate and, according to Sacramento RT, “will result in budgetary improvements and will save the district money over time.” Sacramento RT claims this problem is unique to them and does not expect other transit operators to need similar authority.

2. Concerns. Typically, it can be a sign of financial trouble when an entity begins to borrow against future revenues to pay for today’s operating costs. In some ways, this practice is akin to someone utilizing payday loan establishments — one begins paying interest in order to spend expected income before it’s received, diminishing the value of that income and slowly sinking into increasing levels of debt. Sacramento RT contends that this is not the case with its current situation, and it appears that Sacramento RT currently intends to responsibly use the authority this bill grants to resolve a timing issue related to federal operating grants. This bill, however, creates the opportunity for abuse of this short-term borrowing strategy, and enacting this language as-is could set an unintended precedent.

To allay this concern, the committee may wish to amend the bill in the following ways:

• Require repayment immediately upon receipt of federal funds. This bill allows for a 60-month (5-year) line of credit, which Sacramento RT contends will reduce the overall borrowing costs because they won’t have to pay loan origination costs each year and can amortize those costs over the 5 years. This also seems to allow, however, Sacramento RT to take up to five years to pay off any extension of credit. According to Sacramento RT, that is not the intention of the bill. To keep it from carrying a balance from year-to-year, the committee may wish to amend the bill to require Sacramento RT to repay the outstanding balance immediately upon receipt of federal funds.

• Limit to anticipated federal operating grants. This bill allows Sacramento RT to obtain a line of credit in anticipation of receipt of any operating grants. Sacramento RT states that they only intend to use this authority to bridge the gap between expenditure of funds and receipt of federal operating grants. The committee may wish to amend the bill to limit the line of credit to be in anticipation of receipt of federal operating grants in order to restrict Sacramento RT from expanding this authority to borrow against other future operating grants.

3. Maximum indebtedness. There are two issues that should be resolved in relation to the maximum amount Sacramento RT can borrow under this authority. As stated earlier, this bill limits the line of credit’s maximum amount of indebtedness to either the most anticipated revenues from federal operating grants in a single fiscal year, or 85% of funds that are pledged to repay the principal and interest of the note in a single fiscal year. First, Sacramento RT points out that the 85% limit is superfluous because banks will not loan money without a much larger pledge of funds, and therefore could be amended out of the bill. Second, because the bill ties the borrowing limit to the most anticipated revenues in a single year, there is the possibility for Sacramento RT to borrow more than it expects to receive in the next year. The committee may wish to amend this section of the bill to 1) eliminate the superfluous 85% limitation and 2) tie the borrowing limit to the anticipated revenue amount for the next fiscal year instead of just “a” fiscal year.

Related Legislation:

AB 1143 (Dickinson, Chapter 537, Statutes of 2011) — among other things, expanded Sacramento RT’s ability to engage in short-term borrowing.

Assembly Votes:

Floor: 56-19

L Gov: 7-0

Trans: 13-3

FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local: No

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

July 8, 2015.)

SUPPORT:

Sacramento Regional Transit District (sponsor)

California Bankers Association

City of Sacramento

OPPOSITION:

None received

-- END --

ASSEMBLY THIRD READING

ATR Bill Id:AB 422

Author:(McCarty)

As Amended Ver:April 20, 2015

Majority vote

SUMMARY: Authorizes the Sacramento Regional Transit District (RT) to obtain a short-term revolving line of credit for operating purposes. Specifically, this bill:

1. Authorizes RT to seek and obtain a short-term revolving line of credit for operating purposes in anticipation of receipt of operating grants, with the extension of credit evidenced by a note.

2. Authorizes RT to pledge anticipated grants and any other funds available, including fare revenues and any other revenues, income, or receipts, as security for repayment of the note, the interest on the note, and the related obligations evidenced by the note.

3. Requires the note to have a maturity date of not more than 60 months from the date of issuance.

4. Authorizes RT to pledge anticipated operating grants and other available funds over a multiyear period.

5. Caps the maximum indebtedness under the note at 85% of the amount of the anticipated grants and other funds pledged to repay the note, the interest on the note, and the related obligations evidenced by the note.

EXISTING LAW authorizes local agencies, including transit districts, to engage in short-term borrowing, but generally requires full repayment by the end of the fiscal year in which the note was issued, and in some cases allows repayment within 15 months of the date of issuance of the note.

FISCAL EFFECT: None

COMMENTS: Like most transit agencies in California, RT receives a significant percentage of its operating budget from the Federal Transit Administration (FTA). The FTA dollars arrive on a reimbursement basis. RT begins spending the money at the start of its fiscal year (July 1), but has to wait for congressional action on the FTA budget before it can receive the funds. In the past, this meant receiving the FTA funds within 12 months of the start of RT's fiscal year. More recently, the receipt of funds has taken as long as 18 months.

State law allows local governments to use short-term borrowing to bridge funding gaps under what is typically referred to as the temporary revenue anticipation note (TRAN) statute. Under this law, a local agency takes out a line of credit at the start of the fiscal year and must pay the note in full by the end of the same fiscal year, although in some cases the maturity date can be extended from 12 to 15 months. RT has relied on the TRAN statute to address the cash flow issue created by the FTA funding process for the last decade, but banks are now hesitant to lend to RT under TRAN because the gap between the start of RT's fiscal year and the actual receipt of FTA funds continues to grow and there is no guarantee that the FTA dollars will come in within the necessary 12 to 15 months to meet statutory requirements for repayment.

This bill would give RT greater flexibility to negotiate a short-term line of credit with banks that reflects the reality of its financial situation. This bill allows RT to borrow through a revolving line of credit with a maturity date of up to 60 months from the date of issuance. This longer-term credit line will enable RT to obtain the best possible interest rate and, according to RT, "will result in budgetary improvements and will save RT in costs over time."

Analysis Prepared by: Anya Lawler / TRANS. / (916) 319-2093 FN: 0000190

Date of Hearing: April 15, 2015

ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT

Brian Maienschein, Chair

ABPCA Bill Id:AB 422

Author:(McCarty) – As Amended Ver:April 7, 2015

SUBJECT: Sacramento Regional Transit District: line of credit.

SUMMARY: Authorizes the Sacramento Regional Transit District (RT) to obtain a short-term revolving line of credit for operating purposes. Specifically, this bill:

1. Authorizes RT, in addition to its current borrowing authority, to seek and obtain a short-term revolving line of credit for operating purposes in anticipation of receipt of operating grants, with the extension of credit evidenced by a note.

2. Authorizes RT to pledge anticipated grants and any other funds available, including, but not limited to, fare revenues, as specified, and any other revenues, income, or receipts, as security for repayment of the note, the interest on the note, and the related obligations evidenced by the note.

3. Requires the note to have a maturity date of not more than 60 months from the date of issuance.

4. Authorizes RT to pledge anticipated operating grants and other available funds over a multiyear period.

5. Prohibits the maximum indebtedness under the note from exceeding the following:

1. The maximum amount in federal operating grant revenues that RT anticipates receiving in a single fiscal year; and,

2. 85% of the amount of the anticipated grants and other funds that RT anticipates receiving in a single fiscal year that are pledged to repay the note, the interest on the note, and the related obligations evidenced by the note.

EXISTING LAW:

1. Establishes the Sacramento Regional Transit District Act (Act) which governs the powers and functions of RT, establishes RT's territory, board of directors, and planning duties, and authorizes RT to issue general obligation bonds and revenue bonds, as specified.

2. Allows RT to borrow money in accordance with provisions related to securitized limited obligation notes, short term loans, and grant anticipation notes.

FISCAL EFFECT: None

COMMENTS:

1. Background. The Legislature authorized the creation of the Sacramento Regional Transit District in 1971 to operate a comprehensive public transportation system for the Sacramento region. AB 1143 (Dickinson), Chapter 537, Statues of 2011, made several changes to RT's enabling Act to grant them additional flexibility in financing costs. AB 1143 authorized RT to issue revenue bonds with a two-thirds vote of the governing board instead of requiring a vote of the electorate, and allowed RT more flexibility in borrowing funds, including the use of securitized limited obligation notes, short term loans, and grant anticipation notes. These additional funding tools were added to statute after RT's creation.

The Legislature has granted several transit districts the ability to issue tax and revenue anticipation notes (TRANs), bond anticipation notes (BANs), and grant anticipation notes (GANs) to provide funds for short periods. Under these laws, a local agency issues short-term notes in anticipation of collecting some form of revenue, including tax or bond proceeds or federal grant funding. TRANs and GANs are commonly used as a cash management tool allowing a public agency that receives revenue, like federal grants, on an uneven basis throughout the year to access funds for needed expenditures in anticipation of revenue.

Under current law, a local agency takes out a line of credit at the start of the fiscal year and must pay the note in full by the end of the same fiscal year, although in some cases the maturity date can be extended from 12 to 15 months. RT has relied on this type of short-term borrowing to address the cash flow issue created by delays in federal funding and grants, but banks are now hesitant to lend to RT because of potential gaps between the start of RT's fiscal year and the actual receipt of federal funds to meet statutory requirements for repayment. The predictability of revenues and accuracy of projections have large implications on the security and credit rating for this type of short-term debt.

2. Bill Summary. This bill expands RT's ability to do short-term borrowing to cover operational costs. This bill allows RT to borrow through a revolving line of credit with a maturity date of up to 60 months from the date of issuance, and establishes a borrowing amount that is consistent with limitations in current law for other types of short-term notes. A revolving line of credit would allow RT to utilize funds for operating purposes on an as- needed basis, but will still limit the amount of borrowing based on the amount of anticipated revenue they will receive in a single fiscal year.

This bill is sponsored by RT.

3. Author's Statement. According to the author, "[This bill] seeks to authorize a new method for how RT borrows money from financial institutions. By granting RT the ability to borrow through a short term revolving line of credit for operation purposes, it would allow RT to bridge gaps in their budget while anticipating on receipts of operation grants."

4. Committee Amendment. The Committee may wish to ask the author to accept an amendment that will require RT to authorize the issuance of a note by a resolution adopted by the governing board. This amendment is consistent with provisions in existing law which requires RT's governing board to adopt a resolution to issue TRANs and other types of short-term notes.

5. Arguments in Support. Supporters argue that this bill will ensure that federal grant funds are most efficiently utilized and will result in budgetary improvements that will save RT costs over time.

6. Arguments in Opposition. None on file.

7. Double-Referral. This bill was heard by the Transportation Committee on March 23, 2015, and passed with a 13-3 vote.

REGISTERED SUPPORT / OPPOSITION:

Support

Sacramento Regional Transit District [SPONSOR]

California Bankers Association

Opposition

None on file

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

Date of Hearing: March 23, 2015

ASSEMBLY COMMITTEE ON TRANSPORTATION

Jim Frazier, Chair

ABPCA Bill Id:AB 422

Author:(McCarty) – As Amended Ver:March 17, 2015

SUBJECT: Sacramento Regional Transit District: line of credit

SUMMARY: Authorizes the Sacramento Regional Transit District (RT) to obtain a short-term revolving line of credit for operating purposes. Specifically, this bill:

1. Authorizes RT to seek and obtain a short-term revolving line of credit for operating purposes in anticipation of receipt of operating grants, with the extension of credit evidenced by a note.

2. Authorizes RT to pledge anticipated grants and any other funds available, including fare revenues and any other revenues, income, or receipts, as security for repayment of the note, the interest on the note, and the related obligations evidenced by the note.

3. Requires the note to have a maturity date of not more than 60 months from the date of issuance.

4. Authorizes RT to pledge anticipated operating grants and other available funds over a multiyear period.

5. Caps the maximum indebtedness under the note at 85% of the amount of the anticipated grants and other funds pledged to repay the note, the interest on the note, and the related obligations evidenced by the note.

EXISTING LAW: Authorizes local agencies, including transit districts, to engage in short-term borrowing, but generally requires full repayment by the end of the fiscal year in which the note was issued, and in some cases allows repayment within 15 months of the date of issuance of the note.

FISCAL EFFECT: Unknown.

COMMENTS: Like most transit agencies in California, RT receives a significant percentage of its operating budget from the Federal Transit Administration (FTA). The FTA dollars arrive on a reimbursement basis. RT begins spending the money at the start of its fiscal year (July 1), but has to wait for congressional action on the FTA budget before it can receive the funds. In the past, this meant receiving the FTA funds within 12 months of the start of RT's fiscal year. More recently, the receipt of funds has taken as long as 18 months.

State law allows local governments to use short-term borrowing to bridge funding gaps under what is typically referred to as the temporary revenue anticipation note (TRAN) statute. Under this law, a local agency takes out a line of credit at the start of the fiscal year and must pay the note in full by the end of the same fiscal year, although in some cases the maturity date can be extended from 12 to 15 months. RT has relied on the TRAN statute to address the cash flow issue created by the FTA funding process for the last decade, but banks are now hesitant to lend to RT under TRAN because the gap between the start of RT's fiscal year and the actual receipt of FTA funds continues to grow and there is no guarantee that the FTA dollars will come in within the necessary 12 to 15 months to meet statutory requirements for repayment.

This bill would give RT greater flexibility to negotiate a short-term line of credit with banks that reflects the reality of its financial situation. The bill allows RT to borrow through a revolving line of credit with a maturity date of up to 60 months from the date of issuance. This longer-term credit line will enable RT to obtain the best possible interest rate and, according to RT, "will result in budgetary improvements and will save RT in costs over time."

REGISTERED SUPPORT / OPPOSITION:

Support

Sacramento Regional Transit District (Sponsor)

Opposition

None on file

Analysis Prepared by: Anya Lawler / TRANS. / (916) 319-2093