BILL ANALYSIS
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|SENATE RULES COMMITTEE | AB 2080|
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THIRD READING
Bill No: AB 2080
Author: Hernandez (D)
Amended: 3/18/10 in Assembly
Vote: 21
SENATE LOCAL GOVERNMENT COMMITTEE : 3-2, 6/30/10
AYES: Kehoe, DeSaulnier, Price
NOES: Cox, Aanestad
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
ASSEMBLY FLOOR : 47-27, 5/6/10 - See last page for vote
SUBJECT : Joint powers authorities: government
receivables
SOURCE : California Public Securities Association
DIGEST : This bill authorizes a joint powers authority
(JPA) to purchase a local agencys right to payment of
monies due to a local agency from direct subsidy payments,
called government receivables, related to the federal Build
America Bonds Program, and allows the JPA to pledge
government receivables to the payment of bonds issued by
the JPA, or to resell them under specified conditions.
ANALYSIS : The Joint Exercise of Powers Act allows two or
more public agencies to use their powers in common if they
sign a joint powers agreement. Sometimes an agreement
creates a new, separate government called a JPA. Public
CONTINUED
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officials have created about 700 JPAs which are
confederations of governments working together for common
purposes.
JPAs can buy certain "receivables," which are the rights to
future payments, and issue bonds secured by those payments.
The Legislature authorized local agencies to sell their
rights to nearly $1.3 billion in Vehicle License Fee (VLF)
backfill payments that the State withheld from cities and
counties in 2003 (SB 1096 [Senate Budget Committee],
Chapter 211, Statutes of 2004). For an upfront payment of
about 93 percent of the amount due, participating local
agencies sold the rights to their "VLF Gap Loan" repayments
to a JPA, which issued bonds backed by the State's pledged
repayments. Last year, when the State borrowed local
property tax revenues under the provisions of Proposition
1A, the Legislature created a similar securitization
program, allowing local agencies to receive upfront
payments from a JPA in exchange for the right to receive
the state's constitutionally-required repayments (ABx4 15,
[Assembly Budget Committee], Chapter 14, of the Fourth
Extraordinary Session 2009).
The federal Build America Bond (BAB) program authorizes
state and local government agencies to finance capital
projects by issuing taxable bonds with federal subsidies
that reimburse 35 percent of the interest payable to
investors. BABs are attractive to a broader range of
investors, including tax-exempt investors, investors in low
tax brackets, foreign investors, and others who might not
invest in tax-exempt bonds. The 35 percent subsidy, which
is meant to offset the difference between tax-exempt and
taxable bond interest rates, lowers an agency's net
borrowing costs.
This bill allows a JPA to purchase, with the proceeds of
its bonds or its revenue, government receivables from one
or more local agencies, and allows the JPA to pledge,
assign, resell or otherwise transfer or hypothecate any
government receivables for the purpose of securing bonds
issued to finance the purchase price of the government
receivables.
This bill defines a "government receivable" as any payment
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or right to payment for moneys due, or to become due, to a
local agency from the federal government in the form of
direct subsidy payments under federal law, with respect to
BABs, including any residual interests retained or received
by the local agency in connection with the sale of
governmental receivables.
Government receivables may be pledged to the payment of
bonds issued by the JPA or may be resold to public or
private purchasers at public or negotiated sale, in whole
or in part, separately or together with other government
receivables purchased by the JPA.
The bill allows local agencies to sell government
receivables to a JPA, at one time or from time to time, and
enter into one or more sales agreements with a JPA as, and
on, the terms the local agency deems appropriate. The
sales agreement may include covenants of, and binding on,
the local agency necessary to establish and maintain the
security of bonds issued by the JPA for the purpose of
purchasing the government receivables, and, if applicable,
the exclusion from gross income of interest on the bonds
for federal income tax purposes.
This bill requires that the governing documents for
transferring a government receivable by a local agency to a
JPA state that the sale must be treated as an absolute sale
and transfer of the property to the JPA and not as a pledge
or grant of a security interest by the local agency to
secure a borrowing. The characterization of the transfer
of any government receivable as an absolute sale or
transfer by the local agency cannot be negated or adversely
affected by any of the following:
The fact that only a portion of the government
receivable is transferred.
By the local agency's acquisition of an ownership
interest in any residual interest or subordinate
interest in the government receivable.
By any characterization of the authority or its
bonds for purposes of accounting, taxation, or
securities regulation.
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By any other factor.
The bill provides that on and after the effective date of
each transfer of a government receivable that the governing
documents state is a sale, the local agency has no right,
title, or interest in or to the government receivable
transferred, and the government receivable is the property
of the JPA and not of the local agency, and must be owned,
received, held and disbursed only by the JPA or a trustee
or agency appointed by the JPA.
This bill states that any sale of a government receivable
is automatically perfected without the need for physical
delivery, recordation, filing, or further act, and that
specified state statutes do not apply to the sale.
This bill prohibits the government receivables sold by the
local agency from being subject to garnishment, levy,
execution, attachment, or other process, writ, including a
writ of mandate, or remedy in connection with the assertion
or enforcement of any debt, claim, settlement, or judgment
against the local agency.
The bill requires the local agency selling a government
receivable to notify the payor, on or before the effective
date of any sale, that the government receivable has been
sold to the JPA and irrevocably instruct the payor that
payments are to be made directly to the JPA or any trustee
or agent appointed by the JPA.
This bill requires any government receivable sold by a
local agency but received by that local agency to be held
in trust solely for the benefit of the JPA to which the
government receivable was sold and transferred to the JPA,
or any trustee or agency appointed by the JPA, as soon as
possible.
The bill authorizes the JPA to issue bonds for the purpose
of making loans to local agencies, to the extent those
local agencies are authorized by law to borrow moneys, or
to purchase government receivables from local agencies as
provided under this bill, and provides that the loan or
sale proceeds shall be used by the local agencies to pay
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for public capital improvements, working capital, or
insurance programs.
This bill allows a JPA to issue bonds to finance the
purchase of government receivables in specified conditions.
This bill specifies that a resolution authorizing bonds or
any issue of bonds may contain provisions pledging the
revenues from any government receivables to secure the
payment of the bonds.
The bill authorizes a JPA to bring a validating action,
pursuant to specified statutes, to determine the validity
of any bonds issued to finance the purchase of government
receivables.
This bill defines key terms and makes additional technical
and clarifying amendments.
Comments
California state and local government entities have issued
90 BABs, totaling nearly $22 billion. This bull augments
this popular financing tool by giving local governments the
option of obtaining additional capital to invest in public
works projects by securitizing their federal subsidy
payments. When Congress established the BAB program, as
part of the American Recovery and Reinvestment Act (ARRA),
it wanted to stimulate economic activity by providing state
and local governments with a more attractive way to finance
capital projects. By potentially making hundreds of
millions of dollars in additional capital immediately
available to local governments, this bill advances the
fundamental purpose of the BAB program and gives California
local governments another tool to use in confronting severe
capital shortages.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
SUPPORT : (Verified 8/2/10)
California Public Securities Association (source)
California Association of County Treasurers and Tax
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Collectors
League of California Cities.
ASSEMBLY FLOOR :
AYES: Ammiano, Arambula, Beall, Blumenfield, Bradford,
Brownley, Buchanan, Caballero, Charles Calderon, Carter,
Chesbro, Coto, Davis, De La Torre, De Leon, Eng, Evans,
Feuer, Fong, Fuentes, Furutani, Galgiani, Hall, Hayashi,
Hernandez, Hill, Huber, Huffman, Jones, Lieu, Bonnie
Lowenthal, Ma, Monning, Nava, V. Manuel Perez,
Portantino, Ruskin, Salas, Saldana, Skinner, Solorio,
Swanson, Torlakson, Torres, Torrico, Yamada, John A.
Perez
NOES: Adams, Anderson, Bill Berryhill, Tom Berryhill,
Blakeslee, Conway, Cook, DeVore, Fletcher, Fuller,
Gaines, Garrick, Hagman, Harkey, Jeffries, Knight, Logue,
Miller, Nestande, Niello, Nielsen, Norby, Silva, Smyth,
Audra Strickland, Tran, Villines
NO VOTE RECORDED: Bass, Block, Emmerson, Gilmore, Mendoza,
Vacancy
AGB:do 8/2/10 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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