BILL ANALYSIS                                                                                                                                                                                                    
                                                                  SB 613
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          SENATE THIRD READING
          SB 613 (Harman)
          As Amended  January 21, 2010
          Majority vote
           SENATE VOTE  :  36-0  
          
           LOCAL GOVERNMENT    9-0         APPROPRIATIONS      17-0        
           
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          |Ayes:|Smyth, Caballero,         |Ayes:|Fuentes, Conway,          |
          |     |Arambula, Bradford,       |     |Bradford,                 |
          |     |Davis, Knight, Logue,     |     |Charles Calderon, Coto,   |
          |     |Solorio, Torlakson        |     |Davis,                    |
          |     |                          |     |De Leon, Gatto, Hall,     |
          |     |                          |     |Harkey, Miller, Nielsen,  |
          |     |                          |     |Norby, Skinner, Solorio,  |
          |     |                          |     |Torlakson, Torrico        |
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           SUMMARY  :  Authorizes the Irvine Ranch Water District (IRWD) and  
          the Santa Margarita Water District (SMWD) 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  
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               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.
          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  
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            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  
            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  :  According to the Assembly Appropriations  
          Committee:
          1)No state costs.  Local costs are not reimbursable.
          2)Potential reduction in overall borrowing costs to IRWD and  
            SMWD, and potential redistribution of liability for debt  
            service payments within the districts.
           COMMENTS  :  IRWD and 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.
          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  
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          their own direct credit enhancement for their bonds.  This bill  
          would allow IRWD and SMWD to pledge their general revenues  
          towards the payment and security of their improvement districts'  
          general obligation bonds.
          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, this bill will  
          significantly lower the districts' cost of borrowing and, as a  
          result, will save money for taxpayers and ratepayers.
          Opposition arguments:  None at this time.
           Analysis Prepared by  :    Katie Kolitsos / L. GOV. / (916)  
          319-3958
                                                                FN: 0005373