Donate

Bills

AB 2107: Local government: securitized limited obligation notes.

Session Year: 2019-2020
House: Assembly
Latest Version Date: 2020-09-28

No summary is available yet.

Date	Status
Sep 28, 2020	Chaptered by Secretary of State - Chapter 213, Statutes of 2020.
Sep 28, 2020	Approved by the Governor.
Sep 4, 2020	Enrolled and presented to the Governor at 2 p.m.
Aug 28, 2020	In Assembly. Ordered to Engrossing and Enrolling.
Aug 28, 2020	Read third time. Passed. Ordered to the Assembly. (Ayes 39. Noes 0. Page 4372.).
Jul 31, 2020	Read second time. Ordered to Consent Calendar.
Jul 30, 2020	From committee: Do pass. To Consent Calendar. (Ayes 7. Noes 0.) (July 29).
Jun 23, 2020	Referred to Com. on GOV. & F.
May 27, 2020	In Senate. Read first time. To Com. on RLS. for assignment.
May 26, 2020	Read third time. Passed. Ordered to the Senate. (Ayes 75. Noes 0. Page 4602.)
May 13, 2020	Read second time. Ordered to Consent Calendar.
May 12, 2020	From committee: Do pass. To Consent Calendar. (Ayes 8. Noes 0.) (May 12).
Mar 16, 2020	In committee: Hearing postponed by committee.
Feb 20, 2020	Referred to Com. on L. GOV.
Feb 7, 2020	From printer. May be heard in committee March 8.
Feb 6, 2020	Read first time. To print.

Date	Description	Location	Votes
Aug 28, 2020	Consent Calendar AB2107 Rodriguez et al. By Hurtado	Senate Floor	39 0 1 Passed
Jul 29, 2020	Do pass and be ordered to the Consent Calendar	Senate Standing Committee on Governance and Finance	7 0 0 Passed
May 26, 2020	AB 2107 Rodriguez Consent Calendar Second Day Regular Session	Assembly Floor	75 0 4 Passed
May 12, 2020	Do pass. To Consent Calendar.	Assembly Standing Committee on Local Government	8 0 0 Passed

Key

Pro

Against

Did Not Vote

SENATE RULES COMMITTEE

Office of Senate Floor Analyses

(916) 651-1520 Fax: (916) 327-4478

AB 2107

CONSENT

Bill No: AB 2107

Author: Rodriguez (D) and Gray (D)

Introduced: 2/6/20

Vote: 21

SENATE GOVERNANCE & FIN. COMMITTEE: 7-0, 7/29/20

AYES: McGuire, Moorlach, Beall, Hertzberg, Hurtado, Nielsen, Wiener

ASSEMBLY FLOOR: 75-0, 5/26/20 (Consent) - See last page for vote

SUBJECT: Local government: securitized limited obligation notes

SOURCE: California Special Districts Association

DIGEST:

This bill extends, until December 31, 2024, the sunset date for special districts to issue securitized limited obligation notes (SLONs).

ANALYSIS:

Existing law:

Allows, until December 31, 2019, special districts to issue SLONs, a type of debt secured by a dedicated revenue source, with a 4/5 vote of their governing board to finance acquisitions or improvements of land, facilities, or equipment.
Allows any special district to borrow up to $2 million for up to 10 years at interest rates not to exceed 12% per year through SLONs.
Requires SLONs to be paid only from the pledged revenues, a district's general fund is not liable for repaying the principal and interest, and lenders cannot force a district to raise taxes to repay its SLONs.

This bill extends, until December 31, 2024, special districts’ authority to issue SLONs.

Background

In 2002, the Legislature first authorized the San Bernardino County Flood Control District to SLONs (SB 1561, Soto, Chapter 288). In the following year, the Legislature extended the authority to the Humboldt Bay Harbor, Recreation, and Conservation District (AB 878, Pavley, Chapter 389, Statutes of 2003). Rather than continuing to extend this authority one district at a time, the Legislature approved SB 1770 (Committee on Local Government, Chapter 114, Statutes of 2004) to provide all special districts with the authority to issue SLONs until December 31, 2009. SB 1124 (Committee on Local Government, Chapter 709, Statutes of 2008) extended this sunset date to 2014, and SB 1462 (Committee on Governance and Finance, Chapter 201, Statutes of 2014) subsequently extended the sunset to December 31, 2019.

SLONs can be more practical than long-term bonds that require 20 to 30 years of interest payments. Since special districts pledge a dedicated stream of revenues, such as user fees and charges, the notes may be less risky and less costly to finance compared to promissory notes.

Comments

Purpose of the bill. According to the author, “SLONs permit a public agency to issue a note to finance lower-cost acquisitions or improvements of land, facilities, or equipment. SLONs are secured by a pledge of any available revenue and approved by a four-fifths vote of the governing body. Unfortunately, on December 31, 2019, the authorization for special districts to use this financing tool expired. AB 2107 simply restores this authority for another five years.”
Once and for all. AB 2107 will be the third sunset date extension for special district authority to issue SLONs. Barring negative reports regarding SLONs, the Legislature may wish to consider removing the sunset date, or adjusting the SLON borrowing limit annually for inflation, to avoid the need for future legislation.

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

SUPPORT: (Verified 7/30/20)

California Special Districts Association (source)

Alpine Village-Sequoia Crest Community Services District

California Association of Recreation & Park Districts

California Fire Chiefs Association

California Municipal Utilities Association

Costa Mesa Sanitary District

Cucamonga Valley Water District

Fire District Association of California

Frazier Park Public Utility District

Golden Hills Community Services District

Hilmar County Water District

Keyes Community Services District

Municipal Water District of Orange County

Orange County Cemetery District

Southgate Recreation & Park District

Three Valleys Municipal Water District

Tulare Mosquito Abatement District

Volta Community Services District

Walnut Valley Water District

OPPOSITION: (Verified 7/30/20)

None received

ASSEMBLY FLOOR: 75-0, 5/26/20

AYES: Aguiar-Curry, Arambula, Bauer-Kahan, Berman, Bigelow, Bloom, Boerner Horvath, Bonta, Brough, Burke, Calderon, Carrillo, Cervantes, Chau, Chen, Chiu, Choi, Chu, Cooley, Cooper, Cunningham, Megan Dahle, Daly, Eggman, Flora, Fong, Frazier, Friedman, Gabriel, Gallagher, Cristina Garcia, Eduardo Garcia, Gipson, Gloria, Gonzalez, Gray, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager, Kiley, Lackey, Levine, Limón, Low, Mathis, Mayes, McCarty, Medina, Mullin, Muratsuchi, Nazarian, Obernolte, O'Donnell, Patterson, Petrie-Norris, Quirk-Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Salas, Santiago, Smith, Mark Stone, Ting, Voepel, Waldron, Weber, Wood, Rendon

NO VOTE RECORDED: Diep, Maienschein, Quirk, Wicks

Prepared by: Jonathan Peterson / GOV. & F. / (916) 651-4119

7/31/20 17:51:55

**** END ****

SENATE COMMITTEE ON GOVERNANCE AND FINANCE

Senator Mike McGuire, Chair

2019 - 2020 Regular

Bill No:	AB 2107	Hearing Date:	7/29/20
Author:	Rodriguez	Tax Levy:	No
Version:	2/6/20	Fiscal:	No
Consultant:	Peterson

Local government: securitized limited obligation notes

Extends, until December 31, 2024, the sunset date for special districts to issue securitized limited obligation notes.

Background

Debt limits. While the California Constitution and state statutes grant local agencies with varying degrees of discretion to control their own affairs, the Constitution limits local agencies’ ability to incur debt. Article XVI, Section 18 prohibits local agencies from incurring any debt or liabilities exceeding any year’s revenues without 2/3 voter approval. This limitation dates back to the Constitution’s ratification in 1879 and the framers intent was to prevent “municipal extravagance.” This debt limit applies to cities, including charter cities, counties, school districts, and community college districts, but does not apply to other local agencies, such as joint powers authorities or special districts, which may be subject to their own limitations in state law.

One of the most common reasons local agencies incur debt is to raise sufficient capital for a project or cost that the local agency does not have sufficient cash on hand to immediately finance, such as a construction project, and promise to pay off the principal and interest on that debt over time. General obligation bonds, in the local government context, refer to bonds payable from ad valorem property tax revenue. These require two-thirds voter approval. Proposition 39 (2000) amended the Constitution to decrease the 2/3 approval to 55% percent for school districts, community college districts, or county offices of education, to issue general obligation bonds for the construction or rehabilitation of school facilities. Revenue bonds, such as bonds supported by revenues from a water, sewer, or electricity system, do not always require voter approval.

Promissory notes. Because the constitutional debt limit does not mention special districts, the Legislature has allowed some districts to borrow money without voter approval by issuing "promissory notes." Like general obligation bonds and revenue bonds, the district promises to pay back these loans over time with interest. Unlike these other tools, districts' promissory notes are not backed by any guaranteed source of revenue. This lack of security makes them a relatively risky investment, driving up the cost. However, because they do not require voter approval, they remain attractive financing tools. Districts use promissory notes to finance projects that are too small for general obligation bonds. Other promissory notes pay for districts' office buildings and service facilities that do not generate revenues. State law limits most districts' promissory notes based on the types of revenue received, paid back over periods not exceeding 10 years. For example, community service districts, which often provide specified services to unincorporated areas as an alternative to incorporation, may, with a 4/5 vote of its board, issue promissory notes up to 5% of their preceding year’s revenues, which it must repay within five years.

Securitized limited obligation notes. Current law allows special districts to issue securitized limited obligation notes (SLONs), a type of debt secured by a dedicated revenue source, with a 4/5 vote of their governing board to finance acquisitions or improvements of land, facilities, or equipment. Since special districts pledge a dedicated stream of revenues, such as user fees and charges, the notes may be less risky and less costly to finance compared to promissory notes. Any special district can borrow up to $2 million for up to 10 years at interest rates not to exceed 12% per year. SLONs can be more practical than long-term bonds that require 20 to 30 years of interest payments. The notes must be paid only from the pledged revenues, a district's general fund is not liable for repaying the principal and interest, and lenders cannot force a district to raise taxes to repay its SLONs.

In 2002, the Legislature first authorized the San Bernardino County Flood Control District to SLONs (SB 1561, Soto). In the following year, the Legislature extended the authority to the Humboldt Bay Harbor, Recreation, and Conservation District (AB 878, Pavley, 2003). Rather than continuing to extend this authority one district at a time, the Legislature approved SB 1770 (Committee on Local Government, 2004) to provide all special districts with the authority to issue SLONs until December 31, 2009. SB 1124 (Committee on Local Government, 2008) extended this sunset date to 2014, and SB 1462 (Committee on Governance and Finance, 2014) subsequently extended the sunset to December 31, 2019. Special districts have used SLONs to finance various projects and improvements:

The Resort Improvement District No. 1 and the Shelter Cove Sewer and Other Facilities Maintenance District No. 1 in unincorporated Humboldt County financed a new water tank.
The Arcade Creek Recreation and Park District in Sacramento financed various park facility improvements.
The Keyes Community Services District in unincorporated Stanislaus County financed initial costs for a water filtration project.

Without further legislative action, special districts no longer have the authority to issue SLONs.

To restore this financing tool available to special districts, the California Special Districts Association wants legislators to extend the SLON sunset date.

Proposed Law

Assembly Bill 2107 extends, until December 31, 2024, special districts’ authority to issue securitized limited obligation notes (SLONs).

State Revenue Impact

No estimate.

Comments

1. Purpose of the bill. According to the author, “SLONs permit a public agency to issue a note to finance lower-cost acquisitions or improvements of land, facilities, or equipment. SLONs are secured by a pledge of any available revenue and approved by a four-fifths vote of the governing body. Unfortunately, on December 31, 2019, the authorization for special districts to use this financing tool expired. AB 2107 simply restores this authority for another five years.”

2. Once and for all. AB 2107 will be the third sunset date extension for special district authority to issue SLONs. Barring negative reports regarding SLONs, the Committee may wish to consider removing the sunset date, or adjusting the SLON borrowing limit annually for inflation, to avoid the need for future legislation.

Assembly Actions

Assembly Local Government Committee: 8-0

Assembly Floor: 75-0

Support and Opposition

(7/24/20)

Support: California Special Districts Association (sponsor); Alpine Village-Sequoia Crest Community Services District; California Association of Recreation & Park Districts; California Municipal Utilities Association; California Fire Chiefs Association; Costa Mesa Sanitary District; Cucamonga Valley Water District; Fire District Association of California; Frazier Park Public Utility District; Golden Hills Community Services District; Hilmar County Water District; Keyes Community Services District; Municipal Water District of Orange County; Orange County Cemetery District; Southgate Recreation & Park District; Three Valleys Municipal Water District; Tulare Mosquito Abatement District; Volta Community Services District; Walnut Valley Water District.

Opposition: Unknown.

-- END --

Date of Hearing: May 12, 2020

ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT

Cecilia Aguiar-Curry, Chair

ABPCA Bill Id:AB 2107 (

Author:Rodriguez and Gray) – As Introduced Ver:February 6, 2020

SUBJECT: Local government: securitized limited obligation notes.

SUMMARY: Extends the sunset date for special districts’ authority to issue securitized limited obligation notes (SLONs) until December 31, 2024.

EXISTING LAW:

Authorizes, until December 31, 2019, a special district to issue SLONs for the acquisition or improvement of land, facilities, or equipment.
Requires a special district to adopt a resolution, containing specified information, with a four-fifths vote of the governing body prior to issuing SLONs.
Specifies that SLONs shall bear interest at a rate not exceeding the rate permitted by law.
Provides that SLONs may not mature later than 10 years after the date of the issuance of the notes.
Limits the total amount of SLONs outstanding at any one time within a special district to $2,000,000.
Requires every agreement to recite in substance that the principal of, and interest on, the SLONs are payable solely from the revenue pledged to the payment of the principal and interest and that the special district is not obligated to pay the principal or interest except from the pledged revenue.

FISCAL EFFECT: None

COMMENTS:

Bill Summary and Author’s Statement. This bill extends the sunset date for special districts’ authority to issue SLONs until December 31, 2024. The California Special Districts Association is the sponsor of this bill.

According to the author, “SLONs permit a public agency to issue a note to finance lower-cost acquisitions or improvements of land, facilities, or equipment. SLONs are secured by a pledge of any available revenue and approved by a four-fifths vote of the governing body. Unfortunately, on December 31, 2019, the authorization for special districts to use this financing tool expired. AB 2107 simply restores this authority for another five years.”

SLONs. SLONs are like promissory notes in that they don’t require voter approval. Unlike riskier promissory notes, SLONs are more secure because the special district pledges a dedicated stream of revenues. SLONs are often more practical than long-term bonds that require 20 to 30 years of interest payments.
Previous Legislation. SB 1561 (Soto), Chapter 288, Statutes of 2002, authorized the San Bernardino County Flood Control District to use SLONs.

AB 878 (Pavley), Chapter 389, Statutes of 2003, authorized the Humboldt Bay Harbor, Recreation and Conservation District to issue SLONs as well.

SB 1770 (Committee on Local Government), Chapter 114, Statutes of 2004, allowed all special districts, until December 31, 2009, to issue SLONs.

SB 1124 (Committee on Local Government), Chapter 709, Statutes of 2008, extended the authority for special districts to issue SLONs from December 31, 2009, to December 31, 2014.

SB 1462 (Committee on Local Government), Chapter 201, Statutes of 2014, extended the authority for special districts to issue SLONs from December 31, 2014, to December 31, 2019.

Policy Consideration. AB 2107 will be the third sunset date extension for special district authority to issue SLONs. Barring negative reports regarding SLONs, the Committee may wish to consider if the sunset date should simply be removed in order to avoid the need for future legislation.
Arguments in Support. The California Special Districts Association argues that, “For many special districts, especially for smaller districts with limited resources, SLONs may be the only pragmatic and cost-effective medium-term financing method available to fund a variety of modest projects (less than $2 million), with a four-fifths vote of the district board.”
Arguments in Opposition. None on file.

REGISTERED SUPPORT / OPPOSITION:

Support

California Special Districts Association [SPONSOR]