BILL ANALYSIS
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|SENATE RULES COMMITTEE | SB 53|
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THIRD READING
Bill No: SB 53
Author: DeSaulnier (D)
Amended: As introduced
Vote: 27 - Urgency
SENATE JUDICIARY COMMITTEE : 5-0, 3/24/09
AYES: Corbett, Harman, Florez, Leno, Walters
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
SUBJECT : Tobacco settlement monies: Master Settlement
Agreement
SOURCE : Attorney Generals Office
DIGEST : This bill authorizes the Attorney General to
negotiate amendments to the Master Settlement Agreement
that would not materially adversely alter, limit or impair
the rights to receive tobacco assets or in any way
materially impair the rights and remedies of bondholders or
the security for their bonds.
ANALYSIS : Existing law authorizes the California
Infrastructure and Economic Development Bank to sell for,
and on behalf of, the state all or any portion of the
tobacco assets to a special purpose trust (not-for-profit
corporation) that in turn is authorized to issue bonds and
enter into agreements with public and private entities.
The five voting members of the State Public Works Board
serve ex officio as the directors of the special purpose
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trust. Except as specified, the net proceeds of the sale
of any tobacco assets by the bank shall be deposited in the
General Fund. (Government Code Section 63049.1.)
Existing law requires, on or before the effective date of
the sale, the state (through the Attorney General [AG]),
upon the direction of the bank, to notify the California
escrow agent under the Master Settlement Agreement (MSA)
and the California escrow agreement that the sold tobacco
assets have been sold to the special purpose trust and to
irrevocably instruct the California escrow agent that, as
of the applicable effective date, the tobacco assets sold
are to be paid directly to the trustee for the applicable
bonds of the special purpose trust. (Government Code
Section 63049.4.)
Existing law provides that the state pledges and agrees
with the holders of any bonds issued by the special purpose
trust that it will not amend the MSA, the Memorandum of
Understanding (MOU), or the escrow agreement, or take any
action, in any way that would alter, limit, or impair the
rights to receive tobacco assets sold to the special
purpose trust, nor in any way impair the rights and
remedies of bondholders or the security for those bonds
until those bonds are fully paid and discharged. (Id.)
Existing law provides that the state pledges that the sale
of tobacco assets shall not alter, limit, or impair the
rights of participating jurisdiction s (57 counties and
several cities). (Government Code Section 63049.5.)
Existing law defines various relevant terms, including
"Master Settlement Agreement," "memorandum of
understanding," and "tobacco assets."
This bill authorizes the AG to negotiate amendments to the
MSA, the MOU, and the California escrow agreement, provided
that those amendments do not materially adversely alter,
limit, or impair the rights to receive tobacco assets sold
to the special purpose trust, nor in any way materially
impair the rights and remedies of bondholders or the
security of their bond until those bonds, together with the
interest on the bonds and costs and expenses in connection
with any action or proceeding on behalf of the bondholders,
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are fully paid and discharged.
This bill provides that the state pledge that the sale of
tobacco assets will not materially adversely alter, limit,
or impair the rights of the participating jurisdictions.
Background
In November 1998, the attorneys general of 46 states
(including California), the District of Columbia, and
certain territories ("Settling States") entered into the
MSA, a structured settlement agreement with various tobacco
manufacturers for the payment of monies ("tobacco assets")
to the Settling States. In August 1998, California entered
into a MOU with various local governments of the state
("participating jurisdictions") to coordinate pending cases
and to allocate certain portions of the recovery under the
MSA. The San Diego County Superior court approved the MSA
and MOU in December 1998 ("consent decree and final
judgment").
The MSA requires the participating manufacturers to pay the
Settling States amounts in the billions of dollars every
year in perpetuity. California's allocable share of annual
payments is fixed by the MSA at 12.76%. The state splits
its MSA payments on a 50-50 basis with the participating
jurisdictions pursuant to the MOU.
SB 1831 (Peace), Chapter 414, Statutes of 2002, Tobacco
Settlement State Securitization, authorizes the state to
sell its right to receive future payments under the MSA, in
order to provide General Fund revenue to the state. The
authorizing legislation, Government Code Section 63049 et
seq., provides that the state will sell its right to
receive future MSA payments, the tobacco assets, to a
special purpose trust, also established by SB 1831. The
special purpose trust is authorized to issue bonds,
pledging the tobacco assets as security. Beginning in
2003, the Golden State Tobacco Securitization Corporation
has issued and reissued tobacco settlement bonds at several
times. The AG states that more than $5 billion has been
raised for the state. The authorizing legislation
prohibits the state from amending the MSA or MOU in any way
that would impact MSA payments. Any MSA amendment that
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would change how participating manufacturers' payments are
calculated or the amount of such payments to the Settling
States cannot become effective unless all MSA Settling
States agree to the amendment. This bill is intended to
give the AG the flexibility to agree to amendments to the
MSA or MOU is such amendments do not materially adversely
affect the right to receive tobacco assets or materially
impair bondholders' rights and remedies.
Prior Legislation
SB 1831 (Peace), chapter 414, Statutes of 2002. (See
Background Section for details.)
AB 1752 (Assembly Budget Committee), Chapter 225, Statutes
of 2003, provided that the General Fund may be a guarantor
for the sale of tobacco securitization bonds; increased the
potential sale of tobacco securitization bonds to $5
billion, and placed a $150 million cap on appeal bonds for
appealing of court judgments against tobacco companies who
are parties to the MSA.
Reasons Asserted for Urgency Clause . This bill is an
urgency statute. The reasons given for the urgency are:
1.All 46 Settling States, including California, must agree
to any amendment to the MSA.
2.One amendment is ready for approval, but it cannot go
into effect until California agrees.
3.Other amendments are in negotiations, and if resolved,
would require California's approval.
4.The AG needs the flexibility to agree to MSA amendments
in a timely manner provided they inure to the benefit of
Settling States and do not materially adversely affect
tobacco payments or impair bondholder rights and
remedies.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
SUPPORT : (Verified 4/13/09)
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Attorney General's Office (source)
American Federation of State, County and Municipal
Employees, AFL-CIO
State of Washington
ARGUMENTS IN SUPPORT : The author's office and the
sponsor, the AG, write:
"The principal problem presented by the authorizing
legislation (SB 1831) is that the state has promised not to
agree to any amendment to the MSA, the MOU or the Escrow
Agreement, even if - it could be argued - the proposed
amendment would likely increase tobacco company payments to
the state or reduce the risk that the payments will be
adversely affected by one of the many potential
"adjustments" to the payments that are laid out in the MSA.
Among states that have securitized all or part of their
future MSA payments, only California is required to promise
the bondholders that the state will not agree to amend the
MSA in any way that would alter the rights to receive MSA
payments pledged as security for the bonds. Any MSA
amendment that would change how participating
manufacturers' payments are calculated or the amount of
such payments to the states cannot become effective unless
all MSA Settling States agree to the amendment.
"California's legal inability to agree to amendments to the
MSA hampers or could even thwart efforts by the Settling
States as a whole to increase MSA revenues through
admitting additional tobacco companies to the MSA and to
lower the risk of negative Non-Participating Manufacturer
(NPM) Adjustments to payments in future years by
restructuring the adjustment. Without California as a
signatory and its corresponding 12.76% allocable share of
MSA payments, most such salutary amendments would fail for
lack of 'critical mass.'"
RJG:cm 4/14/09 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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