BILL NUMBER: SB 28	CHAPTERED  07/24/01

	CHAPTER  97
	FILED WITH SECRETARY OF STATE  JULY 24, 2001
	APPROVED BY GOVERNOR  JULY 23, 2001
	PASSED THE ASSEMBLY  JULY 2, 2001
	PASSED THE SENATE  MAY 7, 2001
	AMENDED IN SENATE  FEBRUARY 26, 2001

INTRODUCED BY   Senator Brulte

                        DECEMBER 4, 2000

   An act to amend Sections 16722, 16731, 16733, 16753, 16754.3,
16771, and 16774 of, and to add Section 16724.7 to, the Government
Code, relating to state bonds, making an appropriation therefor, and
declaring the urgency thereof, to take effect immediately.


	LEGISLATIVE COUNSEL'S DIGEST


   SB 28, Brulte.  State general obligation bonds.
   (1) Under the State General Obligation Bond Law, the finance
committee or other body authorized to cause bonds to be issued is
required to adopt a resolution to the effect that the sale of the
bonds is necessary or desirable.  The resolution is required to
specify, among other things, that the dates of maturity of the bonds
are to be at annual or semiannual intervals, whether the bonds are
subject to redemption at the option of a state board, department, or
agency prior to maturity, that interest is payable semiannually, and
whether the bonds are to be issued in coupon form or in fully
registered form, or both.
   This bill would revise these requirements for the resolution to
specify, among other things, whether the bonds are subject to
redemption or tender, as defined, prior to maturity, and provisions
for the registration and exchange of bonds and for the use of a
depository to hold book-entry bonds after issuance.
   (2) Existing law authorizes the use of the proceeds from the sale
of state general obligation bonds for specified purposes, including
the costs of the Treasurer's office directly associated with the sale
and payment of the bonds.
   This bill would provide that certain costs incurred by the state
in connection with bonds that bear variable interest rates are to be
paid from appropriations by the Legislature if the bonds are issued
under a bond act approved prior to January 1, 2002.  If the bonds are
issued by a bond act approved thereafter, the bill would authorize
the costs to be paid from the General Obligation Bond Expense
Revolving Fund or from the proceeds from the sale of the bonds.
   (3) Existing law requires the bonds specified in the resolution to
be sold by the Treasurer either at a public sale to the bidder whose
bid will result in the lowest interest cost on account of those
bonds or by negotiated sale if the Treasurer determines it will
result in a lower interest cost.  The law requires the rate or rates
of interest of the bonds to be specified in the bid accepted by the
Treasurer, unless a variable interest rate is prescribed.
   The bill would require the rate or rates to be specified in either
the bid or the proposal for negotiated sale accepted by the
Treasurer, unless a variable interest rate is prescribed.  The bill
would provide that in specified circumstances variable rate bonds are
not backed by the full faith and credit of the state, as specified.
The bill would provide that, when the resolution prescribes that
bonds may pay a variable interest rate, the Treasurer may sell the
bonds by negotiated sale if the Treasurer determines that it is in
the best interest of the state to do so.
   (4) Existing law requires the Treasurer to require that each
bidder provide a good faith deposit based upon the principal amount
of the bonds offered for sale.
   This bill would require the deposit to be based upon the principal
amount of the bonds for which the bidder submits a bid.
   (5) Existing law establishes the Refunding Escrow Fund, a
continuously appropriated fund, into which the proceeds of each sale
of refunding bonds are set aside in a separate account within the
fund.  Moneys in each separate account are invested by the Treasurer
in accordance with the resolution of the committee providing for the
issuance of the refunding bonds.
   Existing law authorizes the state board, department, or agency
authorized to request the issuance of bonds to direct, with an
approved resolution, the Treasurer to call and redeem any outstanding
bonds that may be redeemed prior to maturity whenever the state
board, department, or agency determines that these bonds should be
redeemed and that money sufficient for that redemption will be
available in the fund or the General Fund at the time of redemption.
Existing law requires the Treasurer to take certain actions with
respect to the redemption.
   This bill would require money determined to be sufficient for the
redemption or retirement of bonds and available for that purpose to
be transferred from the General Fund to a separate account within the
Refunding Escrow Fund.  Moneys in the account would be continuously
appropriated without regard to fiscal years for that purpose.  The
bill also would require money in the account to be invested by the
Treasurer.  It would also require any funds remaining in the account
after all the bonds are redeemed to be transferred to the General
Fund.
  (6) This bill would declare that it is to take effect immediately
as an urgency statute.
   Appropriation:  yes.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:


  SECTION 1.  Section 16722 of the Government Code is amended to
read:
   16722.  As used in this chapter, the following terms shall have
the following meaning unless the context otherwise requires:
   (a) "Board" means the state board, department, or agency
authorized by that act to request the committee to cause bonds to be
issued for the purpose of creating a fund that is to be expended by
the board for the purposes specified in that act.
   (b) "Bond" means a state general obligation bond issued pursuant
to an act adopting the provisions of this chapter.
   (c) "Bond act" means the act authorizing the issuance of state
general obligation bonds and adopting this chapter by reference.
   (d) "Committee" means the finance committee or other body created
by that act and authorized to cause bonds to be issued by the
adoption of a resolution or resolutions.
   (e) "Fund" means the fund created by that act, and into which the
proceeds from the sale of the bonds are paid.
   (f) "Tender" means a term of a bond that gives the holder the
right to have the bond purchased from the holder at a predetermined
price prior to maturity.
  SEC. 2.  Section 16724.7 is added to the Government Code, to read:

   16724.7.  Costs incurred by the state in connection with state
general obligation bonds bearing variable interest rates that are
different from costs determined by the Treasurer to be customary
costs for state general obligation bonds bearing interest at fixed
rates (including, but not limited to, fees and charges of
underwriters, remarketing or auction agents, tender and paying
agents, rating agencies, financial advisors, counsel, and staff costs
directly associated with the foregoing), shall be paid from annual
appropriations from the General Fund if the bonds are issued under a
bond act approved by the voters prior to January 1, 2002.  If the
bonds are issued under a bond act approved by the voters after
January 1, 2002, these costs are authorized to be paid, and may be
paid, from the General Obligation Bond Expense Revolving Fund created
by Section 16724.5 or from proceeds from the sale of any bonds
issued pursuant to this chapter.
  SEC. 3.  Section 16731 of the Government Code is amended to read:
   16731.  Whenever the committee determines that the sale of all or
any part of the bonds authorized to be issued is necessary or
desirable, it shall adopt a resolution to that effect.  The
resolution shall specify the following as to the bonds then to be
sold:
   (a) The aggregate number, aggregate par value, denominations, and
the date of the bonds to be then sold.  The denominations shall be in
the sum of one thousand dollars ($1,000) or multiples of that sum.
The date appearing on the bonds shall be deemed to be the date of
issuance for all purposes of this chapter, irrespective of the actual
date of delivery of the bonds and the payment of the purchase price
of the bonds.
   (b) The dates of maturity and the amount of the bonds maturing at
each date of maturity, which amounts need not be equal.  The last
dates of maturity shall be not more than 45 years after the date of
the bonds.
   (c) Whether or not the bonds are to be subject to redemption or
tender prior to maturity, and, if so, the provisions for the
redemption or tender, the manner of the call or notice thereof, and
the price or prices at which the bonds shall be subject to redemption
or tender.
   (d) The annual rate, or rates, of interest that the bonds to be
issued shall bear, which may be in multiples of one-eighth or
one-twentieth of 1 percent, but not in excess of 11 percent.  The
rate or rates may be determined at the time of the sale of the bonds.
  Alternatively, the resolution may specify that the bonds may pay a
variable interest rate, as prescribed in the resolution.  However, at
the time and as the result of the issuance of any bonds bearing a
variable interest rate, the aggregate principal amount of all state
general obligation bonds bearing variable interest rates may not
exceed 20 percent of the aggregate principal amount of all state
general obligation bonds then outstanding.  For purposes of this
calculation, variable rate bonds shall not include bonds issued
pursuant to Section 16731.6 or bonds that have an effective fixed
interest rate through a hedging contract.  Notwithstanding any other
provision of this chapter, if the committee decides to issue state
general obligation bonds bearing variable interest rates, the
committee is not required to comply with Section 16732.
Notwithstanding any other provision of law, if bonds are issued
bearing a variable interest rate under a bond act approved by the
voters prior to January 1, 2002, and if the variable interest rate
bonds provide a right of tender, then any amount payable by the
state as a result of the tender with respect to principal of and
interest on the bonds prior to the regularly scheduled principal or
interest payment dates, or payable by the state pursuant to
redemption or call initiated as a means to repay the obligation of
the state resulting from the tender, is not backed by the full faith
and credit of the state and shall not be payable under the bond act.
Further, no contractual obligation of the state under a standby bond
purchase agreement or other liquidity facility entered into in
connection with variable interest rate bonds providing a right of
tender and issued under a bond act approved by the voters prior to
January 1, 2002, shall be backed by the full faith and credit of the
state and shall not be payable under the bond act.  These obligations
are subject to annual appropriation by the Legislature.
   (e) The interest payment dates.
   (f) The technical form and language of the bonds.
   (g) Whether or not the right is reserved to make delivery in the
form of temporary or interim bonds, certificates, or receipts,
exchangeable for definitive bonds when executed and available for
delivery.  If the right is reserved, the denominations and form of
the temporary securities shall be stated.
   (h) Provisions for the registration and exchange of bonds and for
the use of a depository to hold book-entry bonds after issuance.
   (i) All other terms and conditions of the bonds and of the
execution, issuance, and sale of the bonds, which shall be consistent
with all of this chapter.
  SEC. 4.  Section 16733 of the Government Code is amended to read:
   16733.  The rate of interest to be borne by the bonds need not be
uniform for all bonds of the same issue, and shall be the rate or
rates specified in the bid or proposal for negotiated sale accepted
by the Treasurer, unless a variable interest rate is prescribed for
the bonds in the resolution pursuant to subdivision (d) of Section
16731.  The first interest payment date may be any date within one
year after the date of the bonds.
  SEC. 5.  Section 16753 of the Government Code is amended to read:
   16753.  (a) Each bid shall be submitted to the Treasurer in the
form and by the means specified by the Treasurer by public
announcement.
   (b) The Treasurer shall require that each bidder provide a good
faith deposit of one-half of 1 percent of the principal amount of the
bonds for which the bidder submits a bid.  The Treasurer shall
specify the form of the deposit, which may be a cashier's check, a
surety bond, a wire transfer of funds, or a combination thereof.  The
deposit shall not bear interest.
  SEC. 6.  Section 16754.3 of the Government Code is amended to read:

   16754.3.  (a) The bonds specified in the resolution shall be sold
by the Treasurer, at the time fixed by the Treasurer, and upon the
notice that the Treasurer may deem advisable, or at the time to which
the sale shall have been so continued, either at public sale to the
bidder whose bid will result in the lowest interest cost on account
of those bonds or by negotiated sale if the Treasurer determines it
will result in a lower interest cost.  With respect to bonds sold by
the Treasurer by negotiated sales, the Treasurer shall make a finding
on the public record as to why a public sale was not used.  The
Treasurer may sell the bonds at a price below the par value thereof,
but the discount on bonds so sold shall not exceed 3 percent of the
par value.  The interest, if any, accrued to the date of delivery of,
and payment for, the bonds shall be added to the sale price of the
bonds in any case.
   (b) The method of determining the lowest interest cost bid shall
be prescribed in the bond resolution and shall be limited to either
the net interest cost method or the true interest cost method.  The
net interest cost of each bid shall be determined by ascertaining the
total amount of interest that the state would be required to pay
under that bid, from the date of the bonds to the respective maturity
dates of the bonds then offered for sale, at the interest rate or
rates specified in the bid, less the total amount of the premium, if
any, or plus the total amount of the discount, if any, offered by the
bid.  The bid under which the amount so ascertained is the least
shall be deemed to be the bid resulting in the lowest net interest
cost.  Under the true interest cost method, the bonds shall be
awarded to the bidder submitting the lowest interest rate bid
determined by the nominal interest rate that, when compounded
semiannually and used to discount the debt service payments on the
bonds to the date of the bonds, results in an amount equal to the
price bid for the bonds, excluding interest accrued to the date of
delivery.  Under either method the sale shall be for cash, payable
upon the delivery of the bonds in definitive form, or if the right to
deliver temporary securities has been reserved, then upon the
delivery of the temporary securities.
   (c) Notwithstanding subdivision (a) or (b), if the resolution
prescribes that the bonds may pay a variable interest rate, as
specified in subdivision (d) of Section 16731, the Treasurer may sell
the bonds by negotiated sales if the Treasurer determines that it is
in the best interest of the state to do so.
   (d) This section shall apply to any bonds authorized at any
statewide election held at any time after the effective date of this
section.  Section 16754 shall apply only to bonds authorized at
elections held before the effective date of this section.
  SEC. 7.  Section 16771 of the Government Code is amended to read:
   16771.  Upon the payment of any such bond or coupon, the State
Treasurer, or the state fiscal agent, or other duly authorized agent,
shall cancel the same in a manner to indicate  the payment.  The
State Treasurer, or state fiscal agents, or other duly authorized
agents, shall also on the respective dates of maturity of any such
bonds that have been executed but remain unsold, cancel the same in a
manner to indicate cancellation and on the respective due dates of
all coupons attached to any such bond remaining unsold, shall detach
all coupons the due date of which has been reached, and cancel them
in the same manner as provided for the cancellation of bonds
remaining unsold.
  SEC. 8.  Section 16774 of the Government Code is amended to read:
   16774.  (a) If the committee determines that any bonds then
outstanding, including bonds that by their terms are subject to
redemption prior to maturity, should be redeemed or retired prior to
maturity, and that money sufficient for that redemption or retirement
will be available in the fund or the General Fund at the time
proposed for the redemption or retirement, it may, by resolution,
direct the Treasurer to call and redeem or retire any of these bonds,
at a time specified in the resolution, and the Treasurer shall
thereupon either give notice of the proposed redemption and redeem
the bonds in accordance with the provisions for redemption provided
for in the resolution adopted under Section 16731 pursuant to which
the bonds were issued or arrange for the purchase and retirement of
the bonds.
   (b) Money sufficient for the redemption or retirement shall be
determined to be available in the General Fund if the Treasurer
certifies that either the issuance of refunding bonds under Article 6
(commencing with Section 16780) or the deferral of the planned
payment of principal on outstanding bonds has reduced the principal
payments required to be made from the General Fund on outstanding
bonds during the current fiscal year by an amount equal to, or in
excess of, the money required for the redemption or retirement.
   (c) Money so determined to be sufficient for the redemption or
retirement of bonds and available for that purpose shall be
transferred from the General Fund to a separate account within the
Refunding Escrow Fund created by Section 16784.  Notwithstanding
Section 13340, money in that account is continuously appropriated
without regard to fiscal years for the purposes of this section.
Funds in that account shall be held in trust for the benefit of the
holders of the bonds which are to be redeemed or retired and used
only for the payment of the principal of, and interest and any
redemption premium on, or the purchase price of, the bonds which are
to be redeemed or retired.  Money in the account shall be invested by
the Treasurer and any income from that investment shall be credited
to the account.  Any funds remaining in the account after all of the
bonds are redeemed or retired shall be transferred to the General
Fund.
  SEC. 9.  This act is an urgency statute necessary for the immediate
preservation of the public peace, health, or safety within the
meaning of Article IV of the Constitution and shall go into immediate
effect.  The facts constituting the necessity are:
   In order to facilitate the sale of variable rate bonds to capture
significant savings in interest payments, it is necessary that this
act take effect immediately.