BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                      



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          |SENATE RULES COMMITTEE            |                  AB 1408|
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                                 THIRD READING


          Bill No:  AB 1408
          Author:   Assembly Banking and Finance Committee
          Amended:  5/2/11 in Assembly
          Vote:     21

           
           SENATE GOVERNANCE & FINANCE COMMITTEE  :  6-3, 6/29/11
          AYES:  Wolk, DeSaulnier, Hancock, Hernandez, Kehoe, Liu
          NOES:  Huff, Fuller, La Malfa
          
          SENATE APPROPRIATIONS COMMITTEE  :  Senate Rule 28.8
           
          ASSEMBLY FLOOR  :  58-19, 5/23/11 - See last page for vote


           SUBJECT  :    General obligation bonds

           SOURCE  :     State Treasurer Bill Lockyer


           DIGEST  :    This bill reduces minimum general obligation 
          bond denominations from $1,000 to $25.

           ANALYSIS  :    The California Constitution prohibits the 
          Legislature from creating general obligation (GO) debt of 
          over $300,000 without voter approval, except to repel 
          invasion or suppress insurrection.  When voters approve GO 
          bonds, they create a committee to determine when the bonds 
          should be sold, specify its aggregate amount, and set its 
          rates and maturities.  Current law directs the committees 
          when adopting a resolution determining that selling the 
          bonds is necessary and desirable, that bonds be sold in 
          minimum $1,000 denominations.  The denomination threshold 
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                                                               AB 1408
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          2

          applies to "zero coupon," which pay no interest, or 
          "capital appreciation" bonds, which only pay interest at 
          maturity.  The State Treasurer wants to lower the 
          denomination amount to find more investors in the state's 
          bonds.

          This bill reduces the minimum denomination for regular, 
          zero coupon, and capital appreciation bonds at $25.

           Comments
           
          According to the Treasurers' Office, the current $1,000 
          denomination conforms to its traditional bond sale 
          practices, which typically lump bonds together in $5,000 
          increments.  However, the financial industry is always 
          concocting new products for investors, and developed $25 
          par securities to help corporate and other municipal 
          issuers sell to a broader range of investors.  A broader 
          range of investors results in higher demand and reduces 
          interest rates for an issue, all else equal.   Since many 
          investors have fled the municipal market in the last six 
          months for a variety of reasons, removing the limitation 
          should save the state money by lowering interest rates, and 
          conform to more modern practices currently used by 
          competing issuers, assuming the state once again issues 
          debt.

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  Yes   
          Local:  No

           SUPPORT  :   (Verified  8/15/11)

          State Treasurer Bill Lockyer (source)

           ARGUMENTS IN SUPPORT  :    According to the author, "Due to 
          the evolving nature of the bond market and the magnitude of 
          authorized but unissued bonds remaining to be sold, 
          flexibility is needed in determining the minimum 
          denominations of bonds in order to achieve the best 
          structure and rates possible for future bond sales.  This 
          change does not create any new bond authorizations."


           ASSEMBLY FLOOR  :  58-19, 5/23/11

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                                                               AB 1408
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          AYES:  Achadjian, Alejo, Allen, Ammiano, Atkins, Beall, 
            Bill Berryhill, Block, Blumenfield, Bonilla, Bradford, 
            Brownley, Buchanan, Butler, Charles Calderon, Campos, 
            Carter, Cedillo, Chesbro, Davis, Dickinson, Eng, Feuer, 
            Fletcher, Fong, Fuentes, Furutani, Galgiani, Gatto, 
            Gordon, Hagman, Hall, Hayashi, Roger Hernández, Hill, 
            Huber, Hueso, Huffman, Lara, Bonnie Lowenthal, Mendoza, 
            Miller, Mitchell, Monning, Nestande, Olsen, Pan, Perea, 
            V. Manuel Pérez, Portantino, Skinner, Solorio, Swanson, 
            Torres, Wieckowski, Williams, Yamada, John A. Pérez
          NOES:  Conway, Donnelly, Beth Gaines, Garrick, Grove, 
            Halderman, Harkey, Jeffries, Jones, Knight, Logue, 
            Mansoor, Morrell, Nielsen, Norby, Silva, Smyth, Valadao, 
            Wagner
          NO VOTE RECORDED:  Cook, Gorell, Ma


          AGB:kc  8/15/11   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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