BILL ANALYSIS
AB 15 X4
Page 1
(Without Reference to File)
CONCURRENCE IN SENATE AMENDMENTS
AB 15 X4 (Gaines, Caballero, Conway, Garrick and Torres)
As Amended July 23, 2009
2/3 vote. Urgency
-----------------------------------------------------------------
|ASSEMBLY: | |(July 9, 2009) |SENATE: | |(July 24, |
| | | | | |2009) |
-----------------------------------------------------------------
(vote not relevant) (vote not
available)
Original Committee Reference: RLS.
SUMMARY : Implements the Proposition 1A suspension provisions of
the July 2009-10 Budget Agreement. The suspension itself occurs
in SB14 X4/AB 14 X4.
The Senate amendments delete the Assembly version of this bill,
and instead:
1)Direct county auditors to reduce 2009-10 property tax
allocations to cities, counties, cities and counties, and
special districts (local agencies) by an amount equal to 8% of
the total property tax revenues received by cities, counties
and special districts in 2008-09 (excluding debt levies). The
base for this calculation includes all revenue allocated from
the 1-percent tax rate to each local agency, including Vehicle
License Fee replacement property tax allocations and the
"Triple-Flip" quarter-cent local sales tax replacement
allocations. However, the Triple-Flip allocations for 2009-10
will not be reduced because of a constitutional prohibition,
with the difference being made up by from the other property
tax allocations. Under the provisions of Proposition 1A
(approved by the voters in the November 2004 General Election
and set out in Article 25.5 of the California Constitution),
the state must repay local agencies for the reductions (plus
interest) by the end of the third fiscal year following the
year of the reduction-in this case, by June 30, 2013.
2)Require that the property tax revenues not allocated to local
agencies instead shall be allocated to a Supplemental Revenue
Augmentation Fund (SRAF) in each county to be used by the
AB 15 X4
Page 2
County Offices of Education during 2009-10, as directed by the
Department of Finance, to reimburse the state for a portion of
the cost of Medi-Cal and other state services provided within
each county and for additional property tax allocations to
K-12 school districts in each county in an amount that will
reduce state General Fund Proposition 98 obligations to the
maintenance of effort level required by the federal American
Recovery and Reinvestment Act. The auditors are to make the
allocations to SRAF in two equal installments by January 15,
2010 and May 1, 2010.
3)Include an extreme hardship provision that allows local
agencies in or in danger of bankruptcy or unable to provide
core services to apply to the Department of Finance for a
reduction or elimination of their property tax suspension. The
department may grant hardship suspension reductions or
eliminations totaling up to 10% of the total suspension amount
in any county. Any hardship amounts will be reallocated to
all of the other local agencies in the county, so the total
suspension amount remains unchanged. However, hardship
reallocations should not be necessary, assuming that the
securitization described below takes place since there would
not be any (or only a brief temporary) loss of revenue to the
participating local agencies in that case.
4) Allow the City of Long Beach to borrow the amount of interest
earned on its tideland trust subsidence fund from the prior
three years and for counties to borrow from their
redevelopment agency to cover the suspension amounts if they
choose to do so.
5)Provide for a state-financed securitization of the Proposition
1A suspension reduction amounts. Under these provisions, local
agencies that choose to participate will sell their
Proposition 1A receivables (the state's repayment obligation
to them) to a joint powers authority that would then sell
bonds to investors backed by the receivables. The bond
proceeds will be used to pay for the purchase of the
receivables from the local agencies-making them whole as soon
as the securitization occurs. Moreover, the state will pay all
of the costs of the securitization, including payment of an
interest rate of up to 8% for an issuance amount of up to
$2.25 billion (the principal amount cap includes the potential
cost of credit enhancements and bond issuance in addition to
the $1.935 billion suspension amount). The bonds must include
call provisions for 2010-11 and 2011-12. The bill requires
AB 15 X4
Page 3
the authority to exercise all reasonable efforts to obtain the
lowest cost financing possible, and it makes the terms of the
securitization subject to approval by the Treasurer and the
Director of Finance, but the bill also prohibits them from
unreasonably withholding their approval.
6)Include an alternative to participation in the joint
securitization for local agencies that choose to take their
property tax reduction in 2009-10 and then be repaid by the
state directly. At an interest rate that will be set by the
Department of Finance, subject to a cap of 6%. This option is
intended to provide an incentive for local agencies that have
adequate resources of their own or that have better credit
than the state to finance their suspension amount on their
own, rather than as part of the joint securitization, which
essentially will be a state credit and probably will be
expensive given the state's poor credit rating. As an
incentive, the state will offer an interest rate that will be
set by the Department of Finance above the Pooled Money
Investment Account Rate, subject to a cap of 6%.
7) Include a GF appropriation to pay for all of the costs of
bond redemption (principal and interest) and to repay any
local agencies that did not participate in the securitization
by June 30, 2013 at the latest. Money from the GF to make the
Proposition 1A repayments or pay off the securitization
borrowing.
8)Provide that the state payment obligations under this bill
shall take priority over all other obligations of the state,
except for payments to schools and debt service on general
obligation bonds during 2012-13. Furthermore, the bill
authorizes bondholders or local agencies to bring a mandamus
action to compel payment if any of these obligations remain
unpaid after June 30, 2013.
9)Urgency clause and findings that it addresses the fiscal
emergency declared by the Governor in calling the 4th
Extraordinary Session.
AS PASSED BY THE ASSEMBLY , this bill was a vehicle for the
budget trailer bill.
FISCAL EFFECT :
AB 15 X4
Page 4
1)GF savings of $1.935 billion in 2009-10 due to the use of
local property tax revenues to pay or reimburse state GF
costs.
2)GF cost of up to $2.9 billion in 2012-13 to pay off
securitization bonds and to repay directly any local agencies
that did not participate in the securitization. The actual
cost may be less to the extent that credit enhancement costs
and interest costs are less than the maximum amounts allowed
in this bill, and to the extent that local agencies forgo
participation in the securitization and, instead, choose the
option of direct state repayment at the incentive interest
rate established by the Director of Finance.
COMMENTS :
1)If the securitization requires the maximum 8%t interest rate
and the maximum amount for credit enhancement fees, then the
equivalent annual interest rate that the state would pay on
the Proposition 1A receivables bonds would be around 16%.
2)Assuming that the securitization is accomplished on a
reasonably expeditious timeline, there would be essentially no
impact on local agencies-they will be reimbursed for their
property tax losses from the bond proceeds. Instead, the
Proposition 1A suspension mechanism essentially will be
equivalent to a state note sale with a term of almost four
years. Normally, the state could not issue non-voter-approved
debt for that long a time period (other than lease revenue
debt associated with specific assets). However, Proposition
1A establishes a constitutional payment obligation on the
state that provides the basis for this borrowing.
3)In addition to the $1.9 billion Proposition 1A suspension
amount that will be deposited into the county SRAFs, the SRAFs
also will receive $1.7 million in 2009-10 and $350 million in
2010-11 of property tax revenues reallocated from schools that
receive funding from redevelopment transfers required by the
budget.
Analysis Prepared by : Daniel Rabovsky / BUDGET / (916)
319-2099
FN: 0002087
AB 15 X4
Page 5