BILL NUMBER: AB 1741 ENROLLED
BILL TEXT
PASSED THE SENATE SEPTEMBER 16, 2008
PASSED THE ASSEMBLY SEPTEMBER 16, 2008
AMENDED IN SENATE SEPTEMBER 15, 2008
AMENDED IN SENATE AUGUST 4, 2008
INTRODUCED BY Committee on Budget
MARCH 22, 2007
An act to add Article 6.7 (commencing with Section 63048.91) to
Chapter 2 of Division 1 of Title 6.7 of the Government Code, relating
to the California State Lottery, making an appropriation therefor,
and declaring the urgency thereof, to take effect immediately.
LEGISLATIVE COUNSEL'S DIGEST
AB 1741, Committee on Budget. California State Lottery.
The California State Lottery Act of 1984, enacted by initiative,
authorizes a California State Lottery and provides for its operation
and administration by the California State Lottery Commission and the
Director of the California State Lottery, with certain limitations.
The act provides that none of its provisions may be changed except to
further its purpose by a bill passed by a 2/3 vote of each house of
the Legislature and signed by the Governor. The act establishes the
State Lottery Fund, which is continuously appropriated for the
purposes of the California State Lottery. Existing law provides that
the purpose of the act is support for the preservation of the rights,
liberties, and welfare of the people by providing additional moneys
to benefit education without the imposition of additional or
increased taxes. Existing law sets forth the duties of the
Infrastructure and Economic Development Bank and its board of
directors generally in performing various financing transactions,
including the issuance of bonds or the authorizing of the issuance of
bonds by a trust, partnership, limited partnership, association,
corporation, nonprofit corporation, or other entity, known as a
special purpose trust.
This bill would, upon a filing by the Director of Finance of a
designation of portions of the lottery revenue assets to be sold,
permit the Infrastructure and Economic Development Bank to sell on
behalf of the state those lottery revenue assets to a special purpose
trust, which would be established as a not-for-profit corporation by
the bill for the purpose of purchasing the assets. The bill would
define lottery assets for these purposes as revenues of the state
lottery that are required to be transferred into the Lottery Assets
Fund and the right to receive those revenues. The bill would permit
the bank to enter into sales agreements with the special purpose
trust, as specified. The bill would permit the Director of Finance to
determine when lottery revenue assets may be sold. The bill would
permit the special purpose trust to issue bonds on terms it shall
determine and to pledge lottery revenue assets as collateral and
security for the bonds. The bill would except this pledge from
specified provisions regarding secured interests.
The bill would allow the Director of Finance to authorize a
short-term cash flow loan, without budgetary impact, of $3,000,000
from the General Fund to the Department of Finance to provide funds
for the purpose of obtaining advice and services related to any
determinations to be made by the Director of Finance pursuant to
these provisions and any activities undertaken by the department or
the bank to achieve the purposes of these provisions. The bill would
require that the net proceeds of the sale of lottery revenue assets
be first used to repay the outstanding amount of any such General
Fund loan, and then deposited into the Debt Retirement Fund. The bill
would require, at the direction of the Department of Finance, that
moneys in the Lottery Assets Fund, or any residual interest therein,
that are not already sold be transferred into the Debt Retirement
Fund or be deemed assets to be sold. By permitting moneys in a
continuously appropriated fund to be transferred into the Debt
Retirement Fund, and by depositing moneys into a continuously
appropriated fund, the bill would make an appropriation.
The bill would require that the 5 voting members of the State
Public Works Board, or their designees, serve ex officio as the
directors of the special purpose trust, and that the Director of
Finance serve as chair of the trust, and would exempt them from
liability in this regard. The bill would pledge the state to certain
actions in connection with lottery revenue assets in order to protect
the bondholders, including the enforcement of state laws limiting
gambling and not authorizing an alternative type of lottery. The bill
would provide that the bonds issued pursuant to these provisions are
not deemed to constitute a debt of the state or a pledge of the
faith or credit of the state.
The bill would specify that the proceeds from the sale of lottery
revenue assets are not subject to certain provisions of the
California Constitution regarding limitations on disbursement of
proceeds of taxes and the use of General Fund revenues to be
appropriated for schools. The bill would permit the Director of
Finance to enter into an agreement with one or more firms or
individuals to obtain financial, operational, and valuation advice in
relation to the designation of lottery revenue assets to be sold and
would prescribe a process for this purpose. The bill would permit
the Director of Finance to enter into a legal services agreement or
agreements with counsel other than the Attorney General to provide
specialized legal advice.
This bill would take effect only if SCA 12 and AB 1654 of the
2007-08 Regular Session are approved by the voters at the next
statewide election and take effect pursuant to their provisions.
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. The Legislature hereby finds and declares the
following:
(a) More than 20 years having passed since the inception of the
California State Lottery, the lottery, as a state-owned asset, should
be authorized to modernize its operations in order to improve its
financial performance.
(b) It is in the public interest and a matter of urgency to
authorize, and to implement as soon as possible, the sale of the
right to receive a portion of the lottery revenue assets, and the
issuance of bonds by the purchaser of the assets, in order to ensure
that funds will be available for the stated purposes of the lottery.
SEC. 2. Article 6.7 (commencing with Section 63048.91) is added to
Chapter 2 of Division 1 of Title 6.7 of the Government Code, to
read:
Article 6.7. Lottery Revenue Assets Securitization
63048.91. The definitions contained in this section are in
addition to the definitions contained in Section 63010 and together
with the definitions contained in that section shall govern the
construction of this article, unless the context requires otherwise:
(a) "Lottery revenue assets" means the amount of the net revenues
of the California State Lottery required to be transferred to the
Lottery Assets Fund pursuant to paragraph (3) of subdivision (a) of
Section 8880.4.5 and the rights to receive those revenues.
(b) "Operating expenses" means the reasonable operating expenses
of the special purpose trust and the bank, including, but not limited
to, the costs of preparation of accounting and other reports,
maintenance of the ratings on the bonds, insurance premiums, or other
required activities of the special purpose trust, and fees and
expenses incurred for professional consultants, advisers,
fiduciaries, and legal counsel, including the fees and expenses of
the Attorney General incurred in connection with the enforcement of
the pledges and agreements of the state or the California State
Lottery Commission pursuant to Section 63048.95.
(c) "Debt Retirement Fund" means the fund created in paragraph (4)
of subdivision (a) of Section 8880.4.5.
63048.92. (a) Upon a filing with the bank by the Director of
Finance of a designation of the portions of the lottery revenue
assets or any residual interest therein to be sold, notwithstanding
any other provision of law, the bank may sell for, and on behalf of,
the state, solely as its agent, those portions of the lottery revenue
assets or any residual interest therein to a special purpose trust.
To that end, a special purpose trust is hereby established as a
not-for-profit corporation solely for the purpose of purchasing
lottery revenue assets or any residual interest therein and for the
purposes necessarily incidental thereto. The bank may enter into one
or more sales agreements with the special purpose trust on terms it
deems appropriate, which may include covenants of, and binding on,
the state or the California State Lottery Commission necessary to
establish and maintain the security of the bonds and exemption of
interest on the bonds from federal income taxation. Lottery revenue
assets, or any residual interest therein may be sold at one time or
from time to time, as determined by the Director of Finance.
(b) (1) The special purpose trust may do all of the following:
(A) Issue bonds, including, but not limited to, refunding bonds,
on the terms it shall determine.
(B) Do all things contemplated by, and authorized by, this
division with respect to the bank, and enjoy all rights, privileges,
and immunities the bank enjoys pursuant to this division, or as
authorized by Section 5140 of the Corporations Code with respect to
public benefit nonprofit corporations, or as necessary or appropriate
in connection with the issuance of bonds.
(C) Enter into agreements with any public or private entity and
pledge the lottery revenue assets, or any residual interest therein,
that it has purchased as collateral and security for its bonds.
(2) The pledge of any of the lottery revenue assets or any
residual interests therein, and of any revenues, reserves, and
earnings pledged in connection therewith shall be valid and binding
in accordance with its terms and have priority in accordance with its
terms from the time the pledge is made, and property so pledged
shall immediately be subject to the lien of the pledge without the
need for physical delivery, recordation, filing, or other further
act. This pledge shall not be subject to Division 9 (commencing with
Section 9101) of the Commercial Code or Sections 954.5 and 955.1 of
the Civil Code.
(3) The special purpose trust, and its assets and income, and
bonds issued by the special purpose trust, and their transfer and the
income therefrom, shall be exempt from all taxation by the state and
by its political subdivisions.
(c) The net proceeds of any sale of lottery revenue assets, or any
residual interest therein, by the bank shall be first used to repay
the outstanding amount of any General Fund loan made pursuant to
Section 63048.99, and then deposited in the Debt Retirement Fund. The
use and application of the proceeds of any sale of lottery revenue
assets or bonds shall not in any way affect the legality or validity
of that sale or those bonds.
(d) From time to time, at the direction of the Director of
Finance, any moneys in the Lottery Assets Fund representing lottery
revenue assets, or any residual interest therein, not already sold
shall be transferred to the Debt Retirement Fund or shall be deemed
to be lottery revenue assets to be sold to the special purpose trust
pursuant to this article. Any moneys in the Lottery Assets Fund
deemed to be lottery revenue assets to be sold shall be retained in
the Lottery Assets Fund until sold.
(e) All moneys in, or to be transferred into, the Lottery Assets
Fund that represent lottery revenue assets sold to a special purpose
trust shall be transferred as agreed upon in the agreement of sale
between the bank and the special purpose trust.
(f) The principal office of the special purpose trust shall be
located in the County of Sacramento. The articles of incorporation of
the special purpose trust shall be prepared and filed, on behalf of
the state, with the Secretary of State by the bank. The five voting
members of the State Public Works Board shall each serve ex officio
as the directors of the special purpose trust. Any of these directors
may name a designee to act on his or her behalf as a director of the
special purpose trust. The Director of Finance or his or her
designee shall serve as chair of the special purpose trust. Directors
of the special purpose trust shall not be subject to personal
liability for carrying out the powers and duties conferred by this
article. The Legislature hereby finds and declares that the duties
and responsibilities of the directors of the special purpose trust
and the duties and responsibilities of the Director of Finance
established under this article are within the scope of the primary
duties of those persons in their official capacities. The special
purpose trust shall be treated as a separate legal entity with its
separate corporate purpose as described in this article, and the
assets, liabilities, and funds of the special purpose trust shall be
neither consolidated nor commingled with those of the bank or the
State Public Works Board.
(g) The Treasurer shall be the agent for sale for any bonds or
other evidences of indebtedness issued by the special purpose trust,
and shall exercise those duties pursuant to Sections 5702 and 5703.
63048.93. Notwithstanding any other provision of this division,
Article 3 (commencing with Section 63040), Article 4 (commencing with
Section 63042), and Article 5 (commencing with Section 63043) do not
apply to any bonds issued by the special purpose trust established
by this article. All matters authorized in this article are in
addition to powers granted to the bank in this division.
63048.94. Any sale of some or all of the lottery revenue assets,
or any residual interest therein, under this article shall be treated
as a true sale and absolute transfer of the property so transferred
to the special purpose trust and not as a pledge or grant of a
security interest by the state, the bank board, the State Public
Works Board, or the bank for any borrowing. The characterization of
the sale of any of those assets as an absolute transfer by the
participants shall not be negated or adversely affected by the fact
that only a portion of the lottery revenue assets is transferred, by
the state's acquisition of an ownership interest in any residual
interest or subordinate interest in the lottery revenue assets, by
any characterization of the special purpose trust or its bonds for
purposes of accounting, taxation, or securities regulation, or by any
other factor whatsoever.
63048.95. (a) (1) On and after the effective date of each sale of
lottery revenue assets, the state shall have no right, title, or
interest in or to the lottery revenue assets sold. The lottery
revenue assets so sold shall be property of the special purpose trust
and not of the state, the bank board, the State Public Works Board,
or the bank, and shall be owned, received, held, and disbursed by the
special purpose trust or the trustee for the financing. None of the
lottery revenue assets sold by the state pursuant to this article
shall be subject to garnishment, levy, execution, attachment, or
other process, writ, including, but not limited to, a writ of
mandate, or remedy in connection with the assertion or enforcement of
any debt, claim, settlement, or judgment against the state, the bank
board, the State Public Works Board, or the bank.
(2) The state pledges to, and agrees with, the holders of any
bonds issued by the special purpose trust that, until those bonds,
together with the interest thereon and costs and expenses in
connection with any action or proceeding on behalf of the bondholders
are fully paid and discharged or otherwise provided for pursuant to
the terms of the indenture or trust agreement pursuant to which those
bonds are issued, the state will:
(A) Enforce its rights to collect the lottery revenue assets sold
to the special purpose trust pursuant to this article.
(B) Not take any action that would in any way materially diminish,
limit, or impair the rights to receive lottery revenue assets sold
to the special purpose trust pursuant to this article.
(C) Not in any way materially impair the rights and remedies of
bondholders or the security for their bonds.
(D) Enforce state laws limiting gambling, and not authorize an
alternative type of lottery that would materially impair the value of
the lottery revenue assets sold to the special purpose trust
pursuant to this article, provided that this pledge and agreement
shall not limit the state's right to negotiate, conclude, or ratify
new or amended gaming compacts with federally recognized Indian
tribes.
(3) The California State Lottery Commission shall pledge and agree
with the holders of any bonds issued by the special purpose trust
that, until those bonds, together with the interest thereon and costs
and expenses in connection with any action or proceeding on behalf
of the bondholders, are fully paid and discharged or otherwise
provided for pursuant to the terms of the indenture or trust
agreement pursuant to which those bonds are issued, the California
State Lottery Commission shall operate or cause the operation of the
California State Lottery consistent with Section 8880.25.
(4) Notwithstanding this section or any other provision of this
article, inherent police powers that cannot be contracted away are
reserved to the state.
(b) Bonds issued pursuant to this article shall not be deemed to
constitute a debt of the state or a pledge of the faith or credit of
the state, and all bonds shall contain on the face of the bond a
statement to the effect that neither the faith and credit nor the
taxing power nor any other assets or revenues of the state or of any
political subdivision of the state, other than the special purpose
trust, is or shall be pledged to the payment of the principal of or
the interest on the bonds.
(c) Whether or not the bonds are of a form and character as to be
negotiable instruments under the terms of the Uniform Commercial
Code, the bonds are hereby made negotiable instruments for all
purposes, subject only to the provisions of the bonds for
registration.
(d) The special purpose trust and the bank shall be treated as
public agencies for purposes of Chapter 9 (commencing with Section
860) of Title 10 of Part 2 of the Code of Civil Procedure, and any
action or proceeding challenging the validity of any matter
authorized by this article shall be brought in accordance with, and
within the time specified in, that chapter.
63048.96. (a) The Legislature finds and declares that, because
the proceeds from the sale of lottery revenue assets authorized by
this article are not "proceeds of taxes" as that term is used in
Article XIII B of the California Constitution, the disbursement of
these proceeds is not subject to the limitations imposed by that
article.
(b) Lottery revenue assets shall not be deemed to be "State
General Fund proceeds of taxes appropriated pursuant to Article XIII
B" within the meaning of Section 8 of Article XVI of the California
Constitution, Section 41202 of the Education Code, or any other
provision of law.
(c) Lottery revenue assets are not General Fund revenues for the
purposes of Section 8 of Article XVI of the California Constitution
or any other provision of law.
63048.97. (a) The Director of Finance is authorized to enter into
an agreement with one or more firms or individuals to obtain
financial, operational, and valuation advice in relation to the
designation of lottery revenue assets to be sold pursuant to this
article. The provisions of Section 14838 and Article 4 (commencing
with Section 10335) of Chapter 2 of Part 2 of Division 2 of the
Public Contract Code, and the regulations and directions of the
Department of General Services pertaining to state contracts, shall
not apply to any agreement entered into by the director pursuant to
this section. Notwithstanding any other provision of law, neither the
approval of the Attorney General nor of the Director of General
Services is required for the execution or implementation of any
agreement entered into by the Director of Finance pursuant to this
section. Nothing in this section shall limit the Treasurer's
authority to enter into agreements in the Treasurer's capacity as the
agent for sale under Section 63048.11.
(b) The Director of Finance, in consultation with the Treasurer,
shall choose firms or individuals to provide financial, operational,
and valuation advisory services based on demonstrated competence and
professional qualifications necessary for the satisfactory
performance of the services required, in accordance with the
following procedures:
(1) The Director of Finance and the Treasurer shall establish
criteria for selecting an adviser or advisers. The criteria may
include, but are not necessarily limited to, professional excellence,
demonstrated competence, specialized experience in performing
similar services, education and experience of key personnel to be
assigned, staff capability, ability to meet schedules, nature and
quality of similar completed work of the firm or individual,
reliability and continuity of the firm or individual, and other
considerations deemed by the Director of Finance and the Treasurer to
be relevant and necessary to the performance of advisory services.
(2) The Director of Finance shall send a notice of request for
qualifications to firms and individuals in the Treasurer's
underwriter and financial adviser pools, and shall advertise the
contract for these advisor services in the California State Contracts
Register pursuant to Sections 14827.1 and 14827.2. The notice shall
include a description of the advisory services required, the
selection criteria based on which the contract award will be made,
submission requirements and deadlines, and a Department of Finance
contact name and telephone number for more information.
(3) After the final response date stated in the notice of request
for qualifications, the Director of Finance and the Treasurer shall
review the responses submitted, and shall evaluate the statements
using the criteria contained in the notice. The Director of Finance
and the Treasurer shall rank, in order of preference based on the
criteria contained in the notice, the firm, firms, individual, or
individuals determined to be qualified to perform the required
services.
(4) The Director of Finance and the Treasurer, or their designees,
may interview any of the qualified firms or individuals regarding
the experience and qualifications of that firm or individual, as well
as anticipated concepts and the benefits of alternative methods of
furnishing the required services. Following the interviews, if any,
the Director of Finance and the Treasurer shall adjust the ranking of
the qualified individuals or firms to reflect those firms or
individuals deemed to be the most highly qualified to perform the
required services.
(5) The Director of Finance, in consultation with the Treasurer,
shall enter into negotiations with the firm or individual most highly
ranked pursuant to paragraph (4). In addition, if the Director of
Finance, in consultation with the Treasurer, determines to contract
with more than one firm or individual, the Director of Finance, in
consultation with the Treasurer, shall enter into negotiations with
other ranked firms or individuals, in order of ranking. Upon the
conclusion of successful negotiations, the Director of Finance may
enter into a contract or contracts. To the extent a negotiation with
a firm or individual is, in the sole opinion of the Director of
Finance, unsuccessful, the Director of Finance shall terminate that
negotiation.
(6) If, after pursuing the negotiation process set forth in
paragraph (5), the Director of Finance, in his or her sole
discretion, concludes that the negotiations were unsuccessful, the
Director of Finance shall terminate the negotiations and begin new
negotiations, in consultation with the Treasurer, with the other
firms or individuals ranked pursuant to paragraph (1), in order of
their ranking. The Director of Finance shall either contract with or
terminate negotiations with each next most highly ranked firm or
individual.
(c) If, after pursuing the negotiation process set forth in this
section, the Director of Finance has been unable to negotiate the
number of satisfactory contracts deemed by the Director of Finance,
in consultation with the Treasurer, to be advisable, the Director of
Finance may reinstitute the selection process, commencing with the
issuance of a new notice of request for qualifications.
63048.98. The Director of Finance is also authorized to enter
into a legal services agreement or agreements with counsel other than
the Attorney General to provide specialized legal advice to the
Department of Finance or the bank related to the designation of
lottery revenue assets to be sold pursuant to this article. Section
11040 of this code and Section 6072 of the Business and Professions
Code shall not apply to the legal services agreement entered into by
the director pursuant to this section. Notwithstanding any other
provision of law, regulation, or procedure to the contrary, neither
the approval of the Attorney General nor of the Director of General
Services is required for the execution or implementation of any
agreement entered into by the Director of Finance pursuant to this
section.
63048.99. The Director of Finance may authorize a short-term cash
flow loan, without budgetary impact, of three million dollars
($3,000,000) from the General Fund to the Department of Finance to
provide funds for the purpose of obtaining advice and services
related to any determinations to be made by the Director of Finance
pursuant to this article and any activities undertaken by the
Department of Finance or the bank to achieve the purposes of this
article. This loan shall be repaid from the net proceeds of the first
sale of the lottery revenue assets.
63048.991. This article and all powers granted hereby shall be
liberally construed to effectuate its intent and their purposes.
SEC. 3. This act shall become operative only if SCA 12 and AB 1654
of the 2007-08 Regular Session are approved by the voters at the
next statewide election and take effect pursuant to their provisions.
SEC. 4. 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 ensure that provisions providing for the
securitization of lottery revenue are in place following the next
statewide election, it is necessary that this act take effect
immediately.