BILL ANALYSIS
SB 613
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Date of Hearing: April 7, 2010
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
Cameron Smyth, Chair
SB 613 (Harman) - As Amended: January 21, 2010
SENATE VOTE : 36-0
SUBJECT : Irvine Ranch Water District and Santa Margarita Water
District.
SUMMARY : Authorizes the Irvine Ranch Water District and the
Santa Margarita Water District to provide credit enhancement,
liquidity support, or both, by pledging and applying all or any
part of the districts' revenues to the payment or security of
the principal, redemption price, purchase price, and interest of
any general obligation bonds for improvement districts or
consolidated general obligation bonds for improvement districts
issued or carried by the districts. Specifically, this bill :
1)Authorizes the board of each district to provide, in the
document in which the pledge is provided for or created, any
covenants, promises, restrictions, and provisions that the
district may deem necessary or desirable, including, but not
limited to, covenants, promises, restrictions, and provisions
relating to:
a) The use of bond proceeds;
b) The maintenance, operation, and preservation of the
district's facilities;
c) Any rates and charges to be established and collected by
the district, including rates and charges for the services
or products furnished or provided by the district's
facilities;
d) The incurring of additional indebtedness payable from
the revenues; and,
e) The establishment, maintenance, and use of reserve
funds, sinking funds, interest and redemption funds,
maintenance and operation funds, and other special funds
for the payment or security of any or all of the principal,
redemption price, purchase price, and interest.
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2)Allows the board of each district to exercise the powers
specified in the Revenue Bond Law of 1941 to carry out the
provisions set forth in the bill.
3)Specifies that pledges authorized by this bill are governed by
specified statutes relating to pledges of collateral to secure
bonds.
4)Requires the board of each district to adopt criteria to
govern its determinations to use the general revenue pledge;
including, evaluating the use of a pledge in lieu of, or in
combination with, other available credit enhancement and
liquidity options.
5)States that the authority granted is in addition to any
authority granted by other provisions
of law relating to the payment of the districts' general
obligation bonds from the proceeds
of assessments to be levied upon and collected from lands of any
improvement district or relating to the levy and collection of
the assessments.
6)States that the provisions of this measure do not affect any
other law authorizing or providing for the issuance or
carrying of bonds by the districts.
7)Declares that the authorizations provided in this measure
shall be deemed to provide a complete and supplemental method
for exercising the powers authorized by the bill, and shall be
deemed supplemental to the powers conferred by other
applicable laws.
8)Requires each district, by January 1, 2014, to report back to
the state describing the district's use, if any, of the
authority granted in this bill.
EXISTING LAW :
1)Authorizes the formation of improvement districts, which are
geographical subdivisions through which water districts can
fund capital improvements that benefit those specific
geographic areas.
2)Authorizes with a two-thirds vote of the property owners in an
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improvement district, a water district to finance capital
projects by issuing general obligation bonds, which are
secured by property tax revenues outside of the standard 1%
rate.
FISCAL EFFECT : Unknown
COMMENTS :
1)The Irvine Ranch Water District (IRWD) and the Santa Margarita
Water District (SMWD) are special districts, formed under the
California Water District Act, which together provide water
and sewer service to approximately 480,000 residents within a
service area of over 177,000 acres in Orange County.
2)When issuing general obligation bonds for improvement
districts, IRWD and SMWD typically purchase credit
enhancement, like bond insurance or a letter of credit, to
provide additional security for the bonds. Credit enhancement
improves the bonds' credit rating and lowers the districts'
borrowing costs. Investors rely on the higher rating of a
third-party credit enhancement provider rather than the
issuer's rating, so that the investors will demand a lower
interest rate, more than paying for the cost of the credit
enhancement.
Recent turmoil in the credit markets is making it more difficult
for IRWD and SMWD to purchase affordable third-party credit
enhancement for their improvement districts' general
obligation bonds. District officials want greater flexibility
to provide their own direct credit enhancement for their
bonds. SB 613 would allow IRWD and SMWD to pledge their
general revenues towards the payment and security of their
improvement districts' general obligation bonds.
3)Support Arguments : According to IRWD, by allowing each
district to use their strong overall credit to support general
obligation bonds issued by their improvement districts,
SB 613 will significantly lower the districts' cost of borrowing
and, as a result, will save money for taxpayers and
ratepayers.
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4)Opposition Arguments : None at this time.
REGISTERED SUPPORT / OPPOSITION :
Support
Irvine Ranch Water District [SPONSOR]
CA Special Districts Association
Opposition
None on file
Analysis Prepared by : Katie Kolitsos / L. GOV. / (916)
319-3958