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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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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