BILL NUMBER: SB 867 INTRODUCED BILL TEXT INTRODUCED BY Senator Padilla FEBRUARY 18, 2011 An act to add Division 4 (commencing with Section 64140) to Title 6.7 of the Government Code, and to add Sections 17053.25 and 23629 to the Revenue and Taxation Code, relating to bonds. LEGISLATIVE COUNSEL'S DIGEST SB 867, as introduced, Padilla. Build California Bonds. Existing law creates the California Transportation Financing Authority with specified powers and duties relative to the issuance of bonds to fund transportation projects to be backed, in whole or in part, by various revenue streams of transportation funds and toll revenues in order to increase the construction of new capacity or improvements for the state transportation system. This bill would, in addition, provide for the authority to issue Build California Bonds, the proceeds of which would be used for specified transportation capital improvements. Bondholders would be entitled to nonrefundable tax credits against their personal income tax or corporate tax liability. The bonds would not be a debt or liability of the state or a political subdivision of the state, except for the authority. The bill would provide for the authority to enter into financing agreements with participating local transportation authorities for the purpose of financing or refinancing transportation projects. Each series of bonds issued by the authority would be secured by a financing agreement between the authority and the local transportation authority. The bill would limit the principal amount of bonds to be issued by the authority under these provisions to $5 billion over a 5-year period commencing January 1, 2012. The bill would enact other related provisions. 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. Division 4 (commencing with Section 64140) is added to Title 6.7 of the Government Code, to read: DIVISION 4. Build California Bonds 64140. The Legislature finds and declares all of the following: (a) The Build California Bond Program (the program) will enhance California's transportation infrastructure and improve mobility, reduce congestion, enhance air quality, create jobs, and boost California's economic competitiveness. (b) It is in the public interest to authorize and implement the program as soon as possible, in order to ensure the funding of high priority public transportation projects pursuant to the program described in Section 64142. (c) California's economy is highly dependent upon the efficient movement of goods and people throughout its major metropolitan areas. By creating the program, the state recognizes that investing in transportation infrastructure can stimulate economic growth, support additional jobs, and generate fiscal benefits for the state. 64141. For purposes of this division, the following terms have the following meanings, unless the context clearly requires another meaning: (a) "Authority" means the California Transportation Financing Authority established in Division 3 (commencing with Section 64100). (b) "Build California Bonds" means bonds, as defined in subdivision (e) of Section 63010, that entitle the beneficial owners thereof to California state tax credits as provided in this division. (c) "Transportation project" means and includes all or a portion of the planning, design, development, finance, construction, reconstruction, rehabilitation, improvement, or acquisition of a highway, street, rail line, bus line, or related facilities supplemental to or improvements upon existing facilities currently owned and operated by a transportation agency, provided the project shall be a capital project and have a useful life at least as long as the term of the bonds financing it. (d) "Record date" means the close of business on the last day of each calendar year. The first record date with respect to any Build California Bond will be the close of business on the last day of the calendar year in which the Build California Bond is issued, and the last record date with respect to any Build California Bond will be the close of business on the last day of the calendar year in which the Build California Bond is redeemed or retired. 64142. (a) The authority may enter into financing agreements with participating local transportation authorities for the purpose of financing or refinancing transportation projects. Each series of bonds issued by the authority shall be secured by a financing agreement between the authority and a local transportation authority. (b) The authority may issue Build California Bonds for the purpose of financing or refinancing all or any portion of the cost, as defined in subdivision (f) of Section 63010, of a transportation project. Bond proceeds may also be used to fund necessary reserves, credit enhancement costs, and costs of issuance, provided that at least 95 percent of the proceeds of Build California Bonds must be expended for financing or refinancing capital expenditures for transportation projects. Refinancing shall be limited to providing permanent financing for interim construction financing only, and not refinancing outstanding long-term bonds previously issued to finance transportation projects. (c) The total principal amount of Build California Bonds authorized to be issued pursuant to this division in each of the five fiscal years beginning with the 2011-12 fiscal year is one billion dollars ($1,000,000,000), for a total of five billion dollars ($5,000,000,000), and any portion of the authorization not used in any fiscal year may be used in a future fiscal year, provided that the authority must determine prior to the issuance of any Build California Bonds that the aggregate amount of California state tax credits granted to all taxpayers pursuant to this division for all Build California Bonds previously issued pursuant to this division and the Build California Bonds then being issued does not exceed two hundred fifty million dollars ($250,000,000) for any fiscal year. (d) Build California Bonds may not have a final maturity in excess of 30 years from the date of issuance. Following the construction period, the principal of each series of Build California Bonds is required to be structured on an approximately level debt service basis, taking into account the annual tax credits and any supplemental interest payable by the authority. (e) The authority must obtain an investment grade credit rating from a nationally recognized rating service for each series of Build California Bonds issued pursuant to this division prior to the sale of those bonds. 64143. The amount of the state tax credit associated with any issuance of Build California Bonds shall not exceed the greater of (1) 5 percent of the face amount of bonds outstanding, or (2) the yield required to market the bonds to investors at a price of par. 64144. (a) The beneficial owners of Build California Bonds on record dates shall be entitled to annual California state tax credits in amounts determined by the authority on or prior to the date of issuance of the Build California Bonds, claimable semiannually on any interest payment date on the bonds. The amount of the tax credit in any calendar year with respect to any Build California Bond shall be an amount that is equal to the principal amount of the bond times the percentage rate set forth in Section 64143. In the event that the bond is not outstanding for the entire year preceding the record date, the amount of the credit allocated to the beneficial owner of the bond will be prorated based upon the number of days the bond was outstanding. (b) Any holder of a Build California Bond may claim a tax credit, which at all times shall be a nonrefundable tax credit, at the time the holder files its personal income or corporate tax return with the state. The state is at no time obligated to make any cash payment under this division with respect to a tax credit. 64145. (a) For each calendar year beginning on or after January 1, 2012, the beneficial owner of a Build California Bond shall be allowed as a credit against the amount of the beneficial owner's "net tax," as defined in Section 17039 of the Revenue and Taxation Code, and the beneficial owner's "tax," as defined in Section 23036 of the Revenue and Taxation Code, for that calendar year, an amount equal to the annual tax credit for that calendar year established by the authority pursuant to subdivision (d) with respect to the Build California Bond. (b) In the case where the credit allowed by this section exceeds the "net tax," as defined in Section 17039 of the Revenue and Taxation Code, or the "tax," as defined in Section 23036 of the Revenue and Taxation Code, the excess may be carried over by the beneficial owner to reduce the beneficial owner's "net tax" or the "tax," respectively, for the next 10 taxable years, or until the credit has been exhausted, whichever occurs first. (c) There may be a separation, including at issuance, of the ownership of a Build California Bond and any entitlement to the credit under this section with respect to that bond. In case of that separation, the credit under this section shall be allowed to the person that on the credit allowance date holds the instrument evidencing the entitlement and not to the holder of the bond. (d) The authority or the indenture trustee for the Build California Bonds shall do all of the following: (1) Certify the amount of each annual tax credit as specified in subdivision (a). (2) Issue documentation evidencing the tax credit to the registered owners of the Build California Bonds on each record date and request from those registered owners the names of the beneficial owners of the Build California Bonds on the record date, the taxpayer identification number of each beneficial owner, and the amount of tax credit to which each beneficial owner is entitled, and provide an annual listing to the Franchise Tax Board, preferably in electronic form, and in a manner agreed upon by the Franchise Tax Board, of the responses of the registered owners. (3) Request each registered owner of each Build California Bond to provide the beneficial owner or owners of that Build California Bond with a copy of the information reported to the Franchise Tax Board for that beneficial owner or owners. (e) To be eligible for the credit under this section the taxpayer shall do all of the following: (1) Retain for the taxpayer's records a copy of the information provided to the taxpayer pursuant to paragraph (3) of subdivision (d). (2) Provide a copy of the information provided to the taxpayer pursuant to paragraph (3) of subdivision (d) to the Franchise Tax Board upon request. If the taxpayer fails to comply with the requirements of this subdivision, no credit shall be allowed to that taxpayer under this section for any taxable year unless the taxpayer subsequently complies. (3) Provide the registered owner of the Build California Bond with the taxpayer's taxpayer identification number. 64146. Build California Bonds issued under this division are not a debt or liability of the state or of any political subdivision thereof, except as to the authority pursuant to a financing agreement, as described in Section 64142. 64147. Notwithstanding any other law, the scheduled dates for the payment of principal of Build California Bonds issued pursuant to this division shall not be subject to acceleration for any reason. SEC. 2. Section 17053.25 is added to the Revenue and Taxation Code, to read: 17053.25. There shall be allowed as a credit against the amount of "net tax" (as defined in Section 17039) the credit provided for in Sections 64144 and 64145 of the Government Code. The credit shall be nonrefundable but any unused portion in any year may be carried over to future years as provided in subdivision (b) of Section 64145 of the Government Code. SEC. 3. Section 23629 is added to the Revenue and Taxation Code, to read: 23629. There shall be allowed as a credit against the "tax" (as defined in Section 23036) the credit provided for in Sections 64144 and 64145 of the Government Code. The credit shall be nonrefundable but any unused portion in any year may be carried over to future years as provided in subdivision (b) of Section 64145 of the Government Code.