BILL NUMBER: AB 1408	INTRODUCED
	BILL TEXT


INTRODUCED BY   Committee on Banking and Finance (Assembly Members
Eng (Chair), Achadjian (Vice Chair), Fletcher, Gatto, Roger
Hernández, Lara, Perea, and Torres)

                        MARCH 9, 2011

   An act to amend Section 16731 of the Government Code, relating to
general obligation bonds.


	LEGISLATIVE COUNSEL'S DIGEST


   AB 1408, as introduced, Committee on Banking and Finance. General
obligation bonds.
   The State General Obligation Bond Law generally provides for a
procedure that may be adopted by other acts, with any necessary
modifications, to authorize the issuance and sale of state general
obligation bonds and to provide for the repayment of those bonds.
Existing law requires, with regard to a resolution determining that
the sale of all or part of the bonds is necessary or desirable, a
specification that the denomination of the bonds to be sold shall be
$1,000 or multiples of that sum.
   This bill would instead require a specification that the
denomination of the bonds to be sold shall be $25 or multiples of
that sum.
   Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

  SECTION 1.  Section 16731 of the Government Code is amended to
read:
   16731.  Whenever the committee determines that the sale of all or
any part of the bonds authorized to be issued is necessary or
desirable, it shall adopt a resolution to that effect. The resolution
shall specify all of the following as to the bonds then to be sold:
   (a) The aggregate number, aggregate par value, denominations, and
the date of the bonds to be then sold. The denominations shall be in
the sum of  one thousand dollars ($1,000)  
twenty-five dollars ($25)  or multiples of that sum. The date
appearing on the bonds shall be deemed to be the date of issuance for
all purposes of this chapter, irrespective of the actual date of
delivery of the bonds and the payment of the purchase price of the
bonds.
   (b) The dates of maturity and the amount of the bonds maturing at
each date of maturity, which amounts need not be equal. The last
dates of maturity shall be not more than 45 years after the date of
the bonds.
   (c) Whether or not the bonds are to be subject to redemption or
tender prior to maturity, and, if so, the provisions for the
redemption or tender, the manner of the call or notice thereof, and
the price or prices at which the bonds shall be subject to redemption
or tender.
   (d) (1) (A) The annual rate, or rates, of interest that the bonds
to be issued shall bear, which shall be in the increments determined
by the Treasurer, but not in excess of 11 percent. The rate or rates
may be determined at the time of the sale of the bonds.
   (B) As an alternative to subparagraph (A), the resolution may
specify that the bonds may pay a variable interest rate or rates, as
prescribed in the resolution, but not in excess of 11 percent per
annum, and in accordance with the requirements of this subparagraph.
   (i) At the time and as the result of the issuance of any bonds
bearing a variable interest rate, the aggregate principal amount of
all state general obligation bonds bearing variable interest rates
may not exceed 20 percent of the aggregate principal amount of all
state general obligation bonds then outstanding.
   (ii) For purposes of the calculation made pursuant to clause (i),
variable rate bonds shall not include commercial paper notes issued
pursuant to Section 16731.6 or bonds that have an effective fixed
interest rate through a hedging contract, as specified in
subparagraph (C), but shall include bonds that have an effective
variable interest rate through a hedging contract.
   (iii) Notwithstanding any other provision of this chapter, if the
committee decides to issue state general obligation bonds bearing
variable interest rates, the committee is not required to comply with
Section 16732.
   (iv) Notwithstanding any other provision of law, if bonds are
issued bearing a variable interest rate under a bond act approved by
the voters on or after January 1, 2002, and if the variable interest
rate bonds provide a right of tender, then any amount payable by the
state as a result of the tender with respect to principal of and
interest on the bonds prior to the regularly scheduled principal or
interest payment dates, or payable by the state pursuant to
redemption or call initiated as a means to repay the obligation of
the state resulting from the tender, is backed by the full faith and
credit of the state and shall be payable under the bond act.
   (v) A contractual obligation of the state to repay advances and
pay interest thereon under a credit enhancement or liquidity
agreement entered into in connection with variable interest rate
bonds providing a right of tender and issued under a bond act
approved by the voters on or after January 1, 2002, shall be backed
by the full faith and credit of the state and shall be payable under
the bond act, except to the extent bond interest paid with an advance
and interest on the advance would exceed the maximum interest rate
specified in this subdivision.
   (C) For the purposes of clause (ii) of subparagraph (B), bonds
that have an "effective fixed interest rate through a hedging
contract" means bonds for which the Treasurer determines the hedging
contract meets either of the following conditions:
   (i) Significantly reduces variable rate risk by providing changes
in fair values or cashflows that substantially offset the changes in
fair value or cashflows of the bonds.
   (ii) Qualifies for integration with the bonds in calculating the
yield on the bonds under the rules prescribed in Section 148 of the
United States Internal Revenue Code (26 U.S.C. Sec. 148).
   (D) The Treasurer's determination specified in subparagraph (C)
shall be made at the time the hedging contract is entered into and
shall apply through the maturity of the bonds, unless the hedging
contract is terminated prior to maturity.
   (2) (A) (i) Notwithstanding any other provision of law, for bonds
approved by the voters after January 1, 2006, payment of any amounts
owed by the state to a counterparty, after any offset for payments
owed to the state on any hedging contract described in Section 5922
in connection with those bonds, shall be deemed to be included within
the appropriation for interest on the bonds contained in the
applicable bond act.
   (ii) The total payments of stated interest on the bonds together
with payments owed by the state after any offset for payments owed to
the state on a hedging contract shall not exceed the maximum
interest rate set forth in this subdivision.
   (iii) To the extent payments of interest on a bond, together with
payments on a hedging contract, would, in any fiscal year, exceed the
maximum interest rate specified in this subdivision, the excess
amounts may be paid in subsequent fiscal years, if the aggregate
amount of interest and that excess amount paid in any year does not
exceed the maximum interest rate specified in this subdivision.
   (B) The Treasurer may not enter into any hedging contract
described by subparagraph (A) unless the committee has approved
policies developed by the Treasurer relating to the entering into and
managing of those hedging contracts that shall include both of the
following:
   (i) A requirement that any hedging contract or program of
contracts is designed to reduce the amount or duration of payment,
currency, rate, spread, or similar risk or result in a lower cost of
borrowing when used in combination with the issuance or carrying of
bonds.
   (ii) A description of the criteria to be used to evaluate the
potential risks and benefits to the state of entering into a
particular hedging contract or program of contracts and to evaluate
the performance of outstanding hedging contracts in comparison to the
objectives for which the hedging contract was executed.
   (C) The policies approved pursuant to subparagraph (B) are exempt
from the requirements of Chapter 3.5 (commencing with Section 11340)
of Part 1 of Division 3.
   (e) The interest payment dates.
   (f) The technical form and language of the bonds.
   (g) Whether or not the right is reserved to make delivery in the
form of temporary or interim bonds, certificates, or receipts,
exchangeable for definitive bonds when executed and available for
delivery. If the right is reserved, the denominations and form of the
temporary securities shall be stated.
   (h) Provisions for the registration and exchange of bonds and for
the use of a depository to hold book-entry bonds after issuance.
   (i) All other terms and conditions of the bonds and of the
execution, issuance, and sale of the bonds, which shall be consistent
with all of this chapter.