Amended in Assembly April 15, 2013

Amended in Assembly March 21, 2013

California Legislature—2013–14 Regular Session

Assembly BillNo. 850


Introduced by Assembly Member Nazarian

February 21, 2013


An act to amend Sections 6585, 6588, 6590, 6591, 6592, and 6599.3 of, and to add Section 6588.7 to, the Government Code, relating to local government finance.

LEGISLATIVE COUNSEL’S DIGEST

AB 850, as amended, Nazarian. Public capital facilities: water quality.

Existing law, the Marks-Roos Local Bond Pooling Act of 1985, authorizes joint powers authorities, among other powers, to issue bonds and loan the proceeds to local agencies to finance specified types of projects and programs.

This bill would authorize a joint powers authoritybegin delete, commonly referred to as a JPAend delete, upon the application of a local agency that owns and operates a publicly owned utility, as defined, to issue rate reduction bonds to finance a utility project, as defined, under specified circumstances. The bill would provide that the rate reduction bonds are secured by utility project property, as defined. The bill would authorize thebegin delete JPAend deletebegin insert authorityend insert to impose on, and collect from, customers of the publicly owned utility a utility project charge, as a separate nonbypassable charge, to finance the rate reduction bond. The bill would authorize thebegin delete JPAend deletebegin insert authorityend insert to adjust the utility project charge to correct for any overcollection or undercollection to ensure timely payment of the financing costs of the rate reduction bonds. The bill would require thebegin delete JPAend deletebegin insert authorityend insert to enter into a servicing agreement with the local agency for the collection of the utility project charge.

Vote: majority. Appropriation: no. Fiscal committee: no. State-mandated local program: no.

The people of the State of California do enact as follows:

P2    1

SECTION 1.  

Section 6585 of the Government Code is amended
2to read:

3

6585.  

The definitions in this section shall govern the
4construction and interpretation of this article.

5(a) (1) Except as provided in paragraphs (2) and (3), “authority”
6means an entity created pursuant to Article 1 (commencing with
7Section 6500) and includes any successor to the powers and
8functions of that entity.

9(2) In the case of an authority issuing bonds pursuant to this
10chapter in which VLF receivables, as defined in subdivision (j),
11are pledged to the payment of the bonds, other than VLF
12receivables so pledged for a county of the first class, an authority
13shall consist of not fewer than 100 local agencies.

14(3) In the case of an authority issuing bonds pursuant to this
15chapter in which Proposition 1A receivables, as defined in
16subdivision (g), are pledged to the payment of the bonds, an
17authority shall consist of not fewer than 250 local agencies.

18(b) “Bond purchase agreement” means a contractual agreement
19executed between the authority and the local agency whereby the
20authority agrees to purchase bonds of the local agency.

21(c) “Bonds” means all of the following:

22(1) Bonds, including, but not limited to, assessment bonds,
23redevelopment agency bonds, government-issued mortgage bonds,
24and industrial development bonds.

25(2) Notes, including bond, revenue, tax, or grant anticipation
26notes.

27(3) Commercial paper, floating rate and variable maturity
28securities, and any other evidences of indebtedness.

29(4) Certificates of participation or lease-purchase agreements.

30(d) “Conservation or reclamation purposes” mean a utility
31project designed to reduce the amount of potable water to be
32supplied by a publicly owned utility or reduce the amount of water
33imported by the publicly owned utility, including without
P3    1limitation, storm water capture and treatment, water recycling,
2development of local groundwater resources, groundwater
3recharging, and water reclamation.

4(e) “Cost,” as applied to a public capital improvement, a utility
5project, or portion of the improvement or utility project financed
6under this part, means all of the following:

7(1) All or any part of the cost of construction, renovation, and
8acquisition of all lands, structures, real or personal property, rights,
9rights-of-way, franchises, easements, and interests acquired or
10used for a public capital improvement or a utility project.

11(2) The cost of demolishing or removing any buildings or
12structures on land so acquired, including the cost of acquiring any
13lands to which the buildings or structures may be moved, and the
14cost of all machinery and equipment.

15(3) Finance charges.

16(4) Interest prior to, during, and for a period after, completion
17of that construction, as determined by the authority.

18(5) Provisions for working capital, reserves for principal and
19interest and for extensions, enlargements, additions, replacements,
20renovations, and improvements.

21(6) The cost of architectural, engineering, financial and legal
22services, plans, specifications, estimates, and administrative
23expenses.

24(7) Other expenses necessary or incidental to determining the
25feasibility of constructing any project or incidental to the
26construction or acquisition or financing of any public capital
27improvement or utility project.

28(f) “Financing costs” mean any of the following:

29(1) Interest and redemption premiums that are payable on rate
30reduction bonds.

31(2) The cost of retiring the principal of rate reduction bonds,
32whether at maturity, including acceleration of maturity upon an
33event of default, or upon redemption, including sinking fund
34redemption.

35(3) A cost related to issuing or servicing rate reduction bonds,
36including, but not limited to, servicing fees, trustee fees, legal fees,
37administrative fees, bond counsel fees, bond placement or
38underwriting fees, remarketing fees, broker dealer fees, independent
39manager fees, payment under an interest rate swap agreement,
P4    1financial advisor fees, accounting report fees, engineering report
2fees, and rating agency fees.

3(4) A payment or expense associated with a bond insurance
4policy, financial guaranty or a contract, agreement, or other credit
5enhancement for rate reduction bonds or a contract, agreement, or
6other financial agreement entered into in connection with rate
7reduction bonds.

8(5) The funding of one or more reserve accounts related to rate
9reduction bonds.

10(g) (1) “Financing resolution” means a resolution adopted by
11the governing body of an authority financing a utility project with
12rate reduction bonds that establishes and imposes a utility project
13charge in connection with the rate reduction bonds in accordance
14with Section 6588.7

15(2) A financing resolution may be separate from a resolution
16authorizing the issuance of the rate reduction bonds.

17(h) “Legislative body” means the governing body of a local
18agency.

19(i) “Local agency” means a party to the agreement creating the
20authority, or an agency or subdivision of that party, sponsoring a
21project of public capital improvements, or any city, county, city
22and county, authority, district, or public corporation of this state.

23(j) “Mandate” means a requirement, imposed by a mandating
24entity by any means, including without limitation, a statute, rule,
25regulation, an administrative or judicial order, a building, operating,
26or licensing requirement or condition, or an agreement with, or
27license or permit from, the mandating entity, on a facility of a
28publicly owned utility or a facility operated in whole or in part for
29the benefit of a publicly owned utility, or on the operations of the
30publicly owned utility, or on the water pumped, acquired, or
31supplied by the publicly owned utility.

32(k) (1) “Mandating entity” means the United States; a state of
33the United States; an agency, department, commission, or other
34subdivision of the United States or a state of the United States; a
35court of the United States or a state of the United States; or any
36other body or organization, that has jurisdiction over the operations
37of a publicly owned utility; the facility of a publicly owned utility,
38or a facility operated in whole or in part for the benefit of a publicly
39owned utility; or the water pumped, acquired or sold by a publicly
40owned utility.

P5    1(2) “Mandating entity” does not include a local agency that
2owns the publicly owned utility.

3(l) “Proposition 1A receivable” means the right to payment of
4moneys due or to become due to a local agency, pursuant to clause
5(iii) of subparagraph (B) of paragraph (1) of subdivision (a) of
6Section 25.5 of Article XIII of the California Constitution and
7Section 100.06 of the Revenue and Taxation Code.

8(m) “Public capital improvements” means one or more projects
9specified in Section 6546.

10(n) “Publicly owned utility” means a utility furnishing water
11service to retail customers that is owned and operated by a local
12agency or a department or other subdivision of a local agency and
13includes any successor to the powers and functions of the
14department or other subdivision.

15(o) “Rate reduction bonds” mean bonds that are issued by an
16authority, the proceeds of which are used directly or indirectly to
17pay or reimburse a local agency or its publicly owned utility for
18the payment of the costs of a utility project, and that are secured
19by a pledge of, and are payable from, bonds as provided in Section
206588.7.

21(p) “Revenue” means income and receipts of the authority from
22any of the following:

23(1) A bond purchase agreement.

24(2) Bonds acquired by the authority.

25(3) Loans installment sale agreements, and other
26revenue-producing agreements entered into by the authority.

27(4) Projects financed by the authority.

28(5) Grants and other sources of income.

29(6) VLF receivables purchased pursuant to Section 6588.5.

30(7) Proposition 1A receivables purchased pursuant to Section
316588.6.

32(8) Interest or other income from any investment of any money
33in any fund or account established for the payment of principal or
34interest or premiums on bonds.

35(q) “Utility project” means the acquisition, construction,
36installation, retrofitting, rebuilding, or other addition to, or
37improvement of, any equipment, device, structure, improvement,
38process, facility, technology, rights or property, located either
39within, or outside of, the State of California, and that is used, or
40to be used, in connection with the operations of a publicly owned
P6    1utilitybegin delete in response to a mandate related to water quality or to a
2mandateend delete
for conservation or reclamation purposesbegin insert or in response
3to a mandate related to water qualityend insert
.

4(r) “Utility project charge” means a charge paid or to be paid
5by water distribution customers of a publicly owned utility to pay
6financing costs of rate reduction bonds issued to finance a utility
7project for a publicly owned utility that is imposed pursuant to
8Section 6588.7, including any adjustment of the charge pursuant
9to Section 6588.7.

10(s) “Utility project property” means the property right created
11pursuant to Section 6588.7, including without limitation, the right,
12title, and interest of an authority for any of the following:

13(1) In and to the financing resolution and the utility charge
14established with respect to the rate reduction bonds, as adjusted
15from time to time in accordance with Section 6588.7.

16(2) To be paid the financing costs of the rate reduction bonds
17and to all revenues, collections, claims, payments, moneys, or
18proceeds for, or arising from, the utility project charge relating to
19the rate reduction bonds.

20(3) In and to all rights to obtain adjustments to the utility project
21charge relating to the rate reduction bonds pursuant to Section
226588.7.

23(t) “VLF receivable” means the right to payment of moneys due
24or to become due to a local agency out of funds payable in
25connection with vehicle license fees to a local agency pursuant to
26Section 10754.11 of the Revenue and Taxation Code.

27(u) “Working capital” means money to be used by, or on behalf
28of, a local agency for any purpose for which a local agency may
29borrow money pursuant to Section 53852, or for any purpose for
30which a VLF receivable or a Proposition 1A receivable sold to an
31authority could have been used by the local agency.

32

SEC. 2.  

Section 6588 of the Government Code is amended to
33read:

34

6588.  

In addition to other powers specified in an agreement
35pursuant to Article 1 (commencing with Section 6500) and Article
362 (commencing with Section 6540), the authority may do any or
37all of the following:

38(a) Adopt bylaws for the regulation of its affairs and the conduct
39of its business.

40(b) Sue and be sued in its own name.

P7    1(c) Issue bonds, including, at the option of the authority, bonds
2bearing interest, to pay the cost of any public capital improvement,
3working capital, or liability or other insurance program. In addition,
4for any purpose for which an authority may execute and deliver
5or cause to be executed and delivered certificates of participation
6in a lease or installment sale agreement with any public or private
7entity, the authority, at its option, may issue or cause to be issued
8bonds, rather than certificates of participation, and enter into a
9loan agreement with the public or private entity.

10(d) Engage the services of private consultants to render
11professional and technical assistance and advice in carrying out
12the purposes of this article.

13(e) As provided by applicable law, employ and compensate
14bond counsel, financial consultants, and other advisers determined
15necessary by the authority in connection with the issuance and sale
16of any bonds.

17(f) Contract for engineering, architectural, accounting, or other
18services determined necessary by the authority for the successful
19development of a public capital improvement.

20(g) Pay the reasonable costs of consulting engineers, architects,
21accountants, and construction, land-use, recreation, and
22environmental experts employed by any sponsor or participant if
23the authority determines those services are necessary for the
24successful development of public capital improvements.

25(h) Take title to, and sell by installment sale or otherwise, lands,
26structures, real or personal property, rights, rights-of-way,
27franchises, easements, and other interests in lands that are located
28within the state that the authority determines are necessary or
29convenient for the financing of public capital improvements, or
30any portion thereof.

31(i) Receive and accept from any source, loans, contributions,
32or grants, in either money, property, labor, or other things of value,
33for, or in aid of, the construction financing, or refinancing of public
34capital improvement, or any portion thereof or for the financing
35of working capital or insurance programs, or for the payment of
36the principal of and interest on bonds if the proceeds of those bonds
37are used for one or more of the purposes specified in this section.

38(j) Make secured or unsecured loans to any local agency in
39connection with the financing of capital improvement projects,
40working capital or insurance programs in accordance with an
P8    1agreement between the authority and the local agency. However,
2no loan shall exceed the total cost of the public capital
3improvements, working capital or insurance needs of the local
4agency as determined by the local agency and by the authority.

5(k) Make secured or unsecured loans to any local agency in
6accordance with an agreement between the authority and the local
7agency to refinance indebtedness incurred by the local agency in
8connection with public capital improvements undertaken and
9completed.

10(l) Mortgage all or any portion of its interest in public capital
11improvements and the property on which any project is located,
12whether owned or thereafter acquired, including the granting of a
13security interest in any property, tangible or intangible.

14(m) Assign or pledge all or any portion of its interests in
15mortgages, deeds of trust, indentures of mortgage or trust, or
16similar instruments, notes, and security interests in property,
17tangible or intangible, of a local agency to which the authority has
18made loans, and the revenues therefrom, including payment or
19income from any interest owned or held by the authority, for the
20benefit of the holders of bonds issued to finance public capital
21improvements. The pledge of moneys, revenues, accounts, contract
22rights, or rights to payment of any kind made by or to the authority
23pursuant to the authority granted in this part shall be valid and
24binding from the time the pledge is made for the benefit of the
25pledgees and successors thereto, against all parties irrespective of
26whether the parties have notice of the claim.

27(n) Lease the public capital improvements being financed to a
28local agency, upon terms and conditions that the authority deems
29proper; charge and collect rents therefor; terminate any lease upon
30the failure of the lessee to comply with any of the obligations of
31the lease; include in any lease provisions that the lessee shall have
32options to renew the lease for a period or periods, and at rents as
33determined by the authority; purchase or sell by an installment
34agreement or otherwise any or all of the public capital
35improvements; or, upon payment of all the indebtedness incurred
36by the authority for the financing or refinancing of the public
37capital improvements, the authority may convey any or all of the
38project to the lessee or lessees.

39(o) Charge and apportion to local agencies that benefit from its
40services the administrative costs and expenses incurred in the
P9    1exercise of the powers authorized by this article. These fees shall
2be set at a rate sufficient to recover, but not exceed, the authority’s
3costs of issuance and administration. The fee charged to each local
4obligation acquired by the pool shall not exceed that obligation’s
5proportionate share of those costs. The level of these fees shall be
6disclosed to the California Debt and Investment Advisory
7Commission pursuant to Section 6599.1.

8(p) Issue, obtain, or aid in obtaining, from any department or
9agency of the United States or of the state, or any private company,
10any insurance or guarantee to, or for, the payment or repayment
11of interest or principal, or both, or any part thereof, on any loan,
12lease, or obligation or any instrument evidencing or securing the
13same, made or entered into pursuant to this article.

14(q) Notwithstanding any other provision of this article, enter
15into any agreement, contract, or any other instrument with respect
16to any insurance or guarantee; accept payment in the manner and
17form as provided therein in the event of default by a local agency;
18and assign any insurance or guarantee that acts as security for the
19authority’s bonds.

20(r) Enter into any agreement or contract, execute any instrument,
21and perform any act or thing necessary, convenient, or desirable
22to carry out any power authorized by this article.

23(s) Invest any moneys held in reserve or sinking funds, or any
24moneys not required for immediate use or disbursement, in
25obligations that are authorized by law for the investment of trust
26funds.

27(t) At the request of affected local agencies, combine and pledge
28revenues to public capital improvements for repayment of one or
29more series of bonds issued pursuant to this article.

30(u) Delegate to any of its individual parties or other responsible
31individuals the power to act on its behalf subject to its general
32direction, guidelines, and oversight.

33(v) Purchase, with the proceeds of its bonds or its revenue, bonds
34issued by any local agency at public or negotiated sale. Bonds
35purchased pursuant to this subdivision may be held by the authority
36or sold to public or private purchasers at public or negotiated sale,
37in whole or in part, separately or together with other bonds issued
38by the authority.

39(w) Purchase, with the proceeds of its bonds or its revenue, VLF
40receivables sold to the authority pursuant to Section 6588.5. VLF
P10   1receivables so purchased may be pledged to the payment of bonds
2issued by the authority or may be resold to public or private
3purchasers at public or negotiated sale, in whole or in part,
4separately or together with other VLF receivables purchased by
5the authority.

6(x) (1) Purchase, with the proceeds of its bonds or its revenue,
7Proposition 1A receivables pursuant to Section 6588.6. Proposition
81A receivables so purchased may be pledged to the payment of
9bonds issued by the authority or may be resold to public or private
10purchasers at public or negotiated sales, in whole or in part,
11separately or together with other Proposition 1A receivables
12purchased by the authority.

13(2) (A) All entities subject to a reduction of ad valorem property
14tax revenues required under Section 100.06 of the Revenue and
15Taxation Code pursuant to the suspension set forth in Section
16100.05 of the Revenue and Taxation Code shall be afforded the
17opportunity to sell their Proposition 1A receivables to the authority.

18(B) If these entities offer Proposition 1A receivables to the
19authority for purchase and duly authorize the sale of the Proposition
201A receivable pursuant to documentation approved by the
21authority, the authority shall purchase all Proposition 1A
22receivables so offered to the extent it can sell bonds therefor. If
23the authority does not purchase all Proposition 1A receivables
24offered, it shall purchase a pro rata share of each entity’s offered
25Proposition 1A receivables.

26(C) The authority may establish a deadline, no earlier than
27November 3, 2009, by which these entities shall offer their
28Proposition 1A receivables for sale to the authority and complete
29the application required by the authority.

30(3) For purposes of meeting costs incurred in performing its
31duties relative to the purchase and sale of Proposition 1A
32receivables, the authority shall be authorized to charge a fee to
33each entity from which it purchases a Proposition 1A receivable.
34The fee shall be computed based on the percentage value of the
35Proposition 1A receivable purchased from each entity, in relation
36to the value of all Proposition 1A receivables purchased by the
37authority. The amount of the fee shall be paid from the proceeds
38of the bonds and shall be included in the principal amount of the
39bonds.

P11   1(4) Terms and conditions of any and all fees and expenses
2charged by the authority, or those it contracts with, and the terms
3and conditions of sales of Proposition 1A receivables and bonds
4issued pursuant to this subdivision, including the terms of optional
5early redemption provisions, if any, shall be approved by the
6Treasurer and the Director of Finance, who shall not unreasonably
7withhold their approval. The aggregate principal amount of all
8bonds issued pursuant to this subdivision shall not exceed two
9billion two hundred fifty million dollars ($2,250,000,000), and the
10rate of interest paid on those bonds shall not exceed 8 percent per
11annum. The authority shall exercise its best efforts to obtain the
12lowest cost financing possible. Any and all premium obtained shall
13be used for either of the following:

14(A) Applied to pay the costs of issuance of the bonds.

15(B) Deposited in a trust account that is pledged to bondholders
16and used solely for the payment of interest on, or for repayment
17of, the bonds.

18(5) (A) In connection with any financing backed by Proposition
191A receivables, the Treasurer may retain financial advisors, legal
20counsel, and other consultants to assist in performing the duties
21required by this chapter and related to that financing.

22(B) Notwithstanding any other provision of law, none of the
23following shall apply to any agreements entered into by the
24Treasurer pursuant to subparagraph (A) in connection with any
25Proposition 1A financing:

26(i) Section 11040 of the Government Code.

27(ii) Section 10295 of the Public Contract Code.

28(iii) Article 3 (commencing with Section 10300) and Article 4
29(commencing with Section 10335) of, Chapter 2 of Part 2 of
30Division 2 of the Public Contract Code, except for the authority
31of the Department of Finance under Section 10336 of the Public
32Contract Code to direct a state agency to transmit to it a contract
33for review, and except for Section 10348.5 of the Public Contract
34Code.

35(C) Any costs incurred by the Treasurer in connection with any
36Proposition 1A financing shall be reimbursed out of the proceeds
37of the financing.

38(y) Finance utility projects through the issuance of rate reduction
39bonds, and to impose and adjust utility project charges in
40connection with the financing pursuant to Section 6588.7.

P12   1(z) Set any other terms and conditions on any purchase or sale
2pursuant to this section as it deems by resolution to be necessary,
3appropriate, and in the public interest, in furtherance of the
4purposes of this article.

5

SEC. 3.  

Section 6588.7 is added to the Government Code, to
6read:

7

6588.7.  

(a) A local agency that owns and operates a publicly
8owned utility may apply to an authority to finance costs of a utility
9project for the publicly owned utility with the proceeds of rate
10reduction bonds. In its application to an authority for the financing,
11the local agency shall specify the utility project to be financed by
12the rate reduction bonds, the maximum principal amount, the
13maximum interest rate, and the maximum stated terms of the rate
14reduction bonds.

15(b) A local agency shall not apply to an authority for financing
16of a utility project pursuant to this section unless the legislative
17body of the local agency has determined all of the following:

18(1) The project to be financed is a utility project.

19(2) The local agency is electing to finance costs of the utility
20project pursuant to this section and the financing costs associated
21with the financing are to be paid from utility project property,
22including the utility project charge for the rate reduction bonds
23issued for the utility project in accordance with this section.

24(3) Based on information available to, and projections used by,
25the legislative body, the financing is expected to result in lower
26rates to the customers of the local agency’s publicly owned utility
27compared with financing the utility project through bonds payable
28from revenues of the publicly owned utility.

29(c) (1) Subject to the requirements of Article XIII D of the
30California Constitution, an authority financing the costs of a utility
31 project or projects for a local agency’s publicly owned utility with
32rate reduction bonds is authorized and directed to impose and
33collect a utility project charge with respect to the rate reduction
34bonds as provided in this section. The imposition of the utility
35project charge shall be made and evidenced by the adoption of a
36financing resolution by the governing body of the authority. The
37financing resolution with respect to financing a utility project or
38project with rate reduction bonds for a publicly owned utility shall
39include all of the following:

P13   1(A) The addition of a separate charge to the bill of each customer
2of distribution service of the publicly owned utility in the class or
3classes of customers specified in the financing resolution.

4(B) A description of the financial calculation, formula, or other
5method that the authority is to use to determine the utility project
6 charge. The calculation, formula or other method shall include a
7periodic adjustment method to the then current utility project
8charge, to be applied at least annually, that shall be utilized by the
9authority to correct for any overcollection or undercollection of
10financing costs from the utility project charge or any other
11adjustment necessary to ensure timely payment of the financing
12costs of the rate reduction bonds, including, but not limited to, the
13adjustment of the utility project charge to pay any debt service
14coverage requirement for the rate reduction bonds. The financial
15calculation, formula, or other method, including the periodic
16adjustment method, established in the financing resolution pursuant
17to this section, and the allocation of utility project charges to, and
18among, water distribution customers shall be decided solely by
19the governing body of the authority and shall be final and
20conclusive. In no event shall the periodic adjustment method
21established in the financing resolution be applied less frequently
22than required by the financing resolution and the documents
23relating to the applicable rate reduction bonds. Once the financial
24calculation, formula, or other method for determining the utility
25project charge, and the periodic adjustment method, have been
26established in the financing resolution and have become final and
27conclusive as provided in this section, they shall not be changed.

28(C) A requirement that the authority enter into a servicing
29agreement for the collection of the utility project charge with the
30local agency for which the financing is undertaken or its publicly
31owned utility and the local agency or its publicly owned utility
32shall act as a servicing agent for purposes of collecting the utility
33project charge as long as the servicing agreement remains in effect.
34Moneys collected by the local agency or its publicly owned utility,
35acting as a servicing agent on behalf of the authority, as a utility
36project charge shall be held in trust for the exclusive benefit of the
37persons entitled to the financing costs to be paid, directly or
38indirectly, from the utility project charge and shall not lose their
39character as revenues of the authority by virtue of possession by
40the local agency or its publicly owned utility. The local agency or
P14   1its publicly owned utility shall provide the authority with the
2information as to estimated sales of water and any other
3information concerning the publicly owned utility required by the
4authority in connection with the initial establishment and the
5adjustment of the utility project charge.

6(2) The determination of the legislative body of the local agency
7that a project to be financed with rate reduction bonds is a utility
8project shall be final and conclusive and the rate reduction bonds
9issued to finance the utility project and the utility project charge
10imposed relating to the rate reduction bonds shall be valid and
11 enforceable in accordance with the terms of the financing resolution
12and the documents relating to the rate reduction bonds. The
13authority shall require, in its financing resolution with respect to
14a utility project charge, that as long as a customer obligated to pay
15the utility project charge obtains water distribution service from
16the applicable publicly owned utility, the customer shall pay the
17utility project charge regardless of whether or not the customer
18obtains water or water services other than water distribution service
19from a person or entity other than the publicly owned utility. The
20utility project charge shall be a nonbypassable charge to all water
21distribution customers of the publicly owned utility in the class or
22classes of customers specified in the financing resolution that are
23receiving water distribution service from the publicly owned utility
24at the time of adoption of the financing resolution and all future
25water distribution customers in that class or classes. If a customer
26of the publicly owned utility that is subject to a utility project
27charge ceases taking water or water services other than water
28distribution service from the publicly owned utility, the customer
29shall remain liable for the payment of its share of the utility project
30charge as if it had not ceased taking the water or water service
31from the publicly owned utility. The liability may be discharged
32by the continued payment of its share of the utility project charge
33as it accrues or by a one-time payment, as determined by the
34authority. All provisions of a financing resolution adopted pursuant
35to this subdivision shall be binding on the authority.

36(3) The timely and complete payment of all utility project
37charges by a person liable for the charges shall be a condition of
38receiving water service from the publicly owned utility of the local
39agency and each of the local agency and its publicly owned utility
40is authorized to use its established collection policies and all rights
P15   1and remedies provided by law to enforce payment and collection
2of the utility project charge. In no event shall a person liable for a
3utility project charge be entitled or authorized to withhold payment,
4in whole or in part, of the utility project charge for any reason.

5(4) The authority shall determine whether adjustments to the
6utility project charge relating to rate reduction bonds are required
7upon the issuance of the rate reduction bonds and at least annually,
8and at additional intervals as may be provided for in the financing
9resolution or the documents relating to the rate reduction bonds.
10Each adjustment shall be made and put into effect in accordance
11with the financial calculation, formula, or other method that the
12authority is to use to determine the utility project charge pursuant
13to the financing resolution expeditiously after the authority’s
14determination that the adjustment is required.

15(5) All revenues with respect to utility project property related
16to rate reduction bonds, including payments of the utility project
17charge, shall be applied first to the payment of the financing costs
18of the related rate reduction bonds then due, including the funding
19of reserves for the rate reduction bonds, with any excess being
20applied as determined by the authority for the benefit of the utility
21for which the rate reduction bonds were issued.

22(6) The authority shall be obligated to impose and collect the
23utility project charge relating to rate reduction bonds in amounts,
24based on estimates of water usage subject to the utility project
25charge, sufficient to pay on a timely basis the financing costs
26associated with the rate reduction bonds when due. The pledge of
27a utility project charge to secure the payment of rate reduction
28bonds shall be irrevocable, and the State of California, the
29authority, or any limited liability company acting pursuant to
30subdivision (i) shall not reduce, impair, or otherwise adjust the
31utility project charge, except that the authority shall implement
32the periodic adjustments to the utility project charge relating to
33rate reduction bonds as required by the applicable financing
34resolution and the documents relating to the rate reduction bonds.
35Revenue from a utility project charge shall be deemed special
36revenue of the authority and shall not constitute revenue of the
37local agency or its publicly owned utility for any purpose, including
38without limitation, any dedication, commitment, or pledge of
39revenue, receipts, or other income that the local agency or its
P16   1publicly owned utility has made or will make for the security of
2any of its obligations.

3(7) A utility project charge shall constitute a utility project
4property when, and to the extent that, a financing resolution
5authorizing the utility project charge has become effective in
6accordance with its terms, and the utility project property shall
7thereafter continuously exist as property for all purposes with all
8of the rights and privileges of this section for the period, and to
9the extent, provided in the financing resolution, but in any event
10until all financing costs with respect to the related rate reduction
11bonds are paid in full, including all arrearages thereon.

12(8) Utility project property shall constitute a current property
13right notwithstanding that the value of the property right will
14depend on consumers using water or, in those instances where
15consumers are customers of the publicly owned utility, the publicly
16owned utility performing certain services.

17(9) In the event a local agency for which rate reduction bonds
18have been issued and remain outstanding ceases to provide water
19distribution services, either directly or through its publicly owned
20utility, references in this section to the local agency or to its
21publicly owned utility shall be to the entity providing water
22distribution service in lieu of the local agency and the entity shall
23assume and perform all obligations of the local agency and its
24publicly owned utility required by this section and the servicing
25agreement with the local agency while the rate reduction bonds
26remain outstanding.

27(d) (1) Rate reduction bonds shall be within the parameters of
28the financing set forth by the local agency pursuant to subdivision
29(a) in connection with the rate reduction bonds and the proceeds
30of the rate reduction bonds made available to the local agency or
31its publicly owned utility shall be utilized for the utility project
32identified in the application for financing of the utility project or
33projects pursuant to subdivision (a).

34(2) An authority shall authorize the issuance of rate reduction
35bonds by a resolution of its governing body. Rate reduction bonds
36shall be nonrecourse to the credit or any assets of the local agency
37and the publicly owned utility for which the utility project is
38financed and shall be payable from, and secured by a pledge of,
39the utility project property relating to the rate reduction bonds and
P17   1any additional security or credit enhancement specified in the
2documents relating to the rate reduction bonds.

3(3) An authority issuing rate reduction bonds shall pledge the
4utility project property relating to the rate reduction bonds as
5security for the payment of the rate reduction bonds, which pledge
6shall be made pursuant to, and with the effect set forth in Section
75451 of the Government Code. All rights of an authority with
8respect to utility project property pledged as security for the
9 payment of rate reduction bonds shall be for the benefit of, and
10enforceable by, the beneficiaries of the pledge to the extent
11provided in the documents relating to the rate reduction bonds.

12(4) To the extent that any interest in utility project property is
13pledged as security for the payment of rate reduction bonds, the
14applicable local agency or its publicly owned utility shall contract
15with the authority, which contract shall be part of the utility project
16property, that the local agency or its publicly owned utility will
17continue to operate its publicly owned utility system that includes
18the financed utility project to provide service to its customers, will,
19as servicer, collect amounts in respect of the utility project charge
20for the benefit and account of the authority and the beneficiaries
21of the pledge of the utility project charge and will account for and
22remit these amounts to, or for the account of, the authority.

23(5) Notwithstanding any other law, any requirement under this
24section, a financing resolution, any other resolution of the authority,
25or the provisions of the documents relating to rate reduction bonds
26to the effect that the authority shall take action with respect to the
27utility project property relating to the rate reduction bonds shall
28be binding upon the authority, as its governing body may be
29constituted from time to time, and the authority shall have no power
30or right to rescind, alter, or amend any resolution or document
31containing the requirement.

32(6) Notwithstanding any law, except as otherwise provided in
33this section with respect to adjustments to a utility project charge,
34the recovery of the financing costs for the rate reduction bonds
35from the utility project charge shall be irrevocable and the authority
36shall not have the power either by rescinding, altering, or amending
37the applicable financing resolution or otherwise, to revalue or
38revise for ratemaking purposes the financing costs of rate reduction
39bonds, determine that the financing costs for the related rate
40reduction bonds or the utility project charge is unjust or
P18   1unreasonable, or in any way reduce or impair the value of utility
2project property that includes the utility project charge, either
3directly or indirectly; nor shall the amount of revenues arising with
4respect to the financing costs for the related rate reduction bonds
5or the utility project charge be subject to reduction, impairment,
6postponement, or termination for any reason until all financing
7costs to be paid from the utility project charge are fully met and
8discharged. Except as otherwise provided in this section with
9respect to adjustments to a utility project charge, the State of
10California does hereby pledge and agree with the owners of rate
11reduction bonds that the State of California shall neither limit nor
12alter the financing costs or the utility project property, including
13the utility project charge, relating to the rate reduction bonds, or
14any rights in, to or under, the utility project property until all
15financing costs with respect to the rate reduction bonds are fully
16met and discharged. This section does not preclude limitation or
17alteration if and when adequate provision shall be made by law
18for the protection of the owners. The authority is authorized to
19include this pledge and undertaking by the State of California in
20the governing documents for rate reduction bonds. Notwithstanding
21any other provision of this section, the authority shall make the
22adjustments to the utility project charge relating to rate reduction
23bonds provided by this section and the documents related to those
24rate reduction bonds as may be necessary to ensure timely payment
25of all financing costs with respect to the rate reduction bonds. The
26adjustments shall not impose the utility project charge upon classes
27of customers which were not subject to the utility project charge
28pursuant to the financing resolution imposing the utility project
29charge.

30(e) (1) Financing costs in connection with rate reduction bonds
31do not constitute a debt or liability of the State of California or of
32any political subdivision thereof, other than the special obligation
33of the authority, and do not constitute a pledge of the full faith and
34credit of the State of California or any of its political subdivisions,
35including the authority, but are payable solely from the funds
36provided therefor under this section and in the documents relating
37to the rate reduction bonds. This subdivision shall in no way
38preclude guarantees or credit enhancements in connection with
39rate reduction bonds. All the rate reduction bonds shall contain on
40the face thereof a statement to the following effect:

P19   1Neither the full faith and credit nor the taxing power of the State
2of California or any political subdivision thereof is pledged to the
3payment of the principal of, or interest on, this bond.

4(2) The issuance of rate reduction bonds shall not directly,
5indirectly, or contingently obligate the State of California or any
6political subdivision thereof to levy or to pledge any form of
7taxation to pay the rate reduction bonds or to make any
8appropriation for their payment.

9(f) (1) Utility project property shall constitute property for all
10purposes, including for contracts securing rate reduction bonds,
11whether or not the revenues and proceeds arising with respect
12thereto have accrued.

13(2) Subject to the terms of the pledge document with respect to
14a pledge of utility project property, the validity and relative priority
15of a pledge created or authorized under this section is not defeated
16or adversely affected by the commingling of revenues arising with
17respect to the utility project property with other funds of the local
18agency or the publicly owned utility collecting a utility project
19charge on behalf of an authority.

20(g) (1) There shall exist a statutory lien on the utility project
21property relating to rate reduction bonds. Upon the effective date
22of the financing resolution relating to rate reduction bonds, there
23shall exist a first priority statutory lien on all utility project
24property, then existing or, thereafter arising, to secure the payment
25of the rate reduction bonds. This lien shall arise pursuant to law
26by operation of this section automatically without any action on
27the part of the authority, the local agency or its publicly owned
28utility, or any other person. This lien shall secure the payment of
29all financing costs, then existing or subsequently arising, to the
30holders of the rate reduction bonds, the trustee or representative
31for the holders of the rate reduction bonds, and any other entity
32specified in the financing resolution or the documents relating to
33the rate reduction bonds. This lien shall attach to the utility project
34property regardless of who shall own, or shall subsequently be
35determined to own, the utility project property including any local
36agency or its publicly owned utility, the authority, or any other
37person. This lien shall be valid and enforceable against the owner
38of the utility project property and all third parties upon the
39effectiveness of the financing resolution without any further public
40notice.

P20   1(2) The statutory lien on utility project property created by this
2section is a continuously perfected lien on all revenues and
3proceeds arising with respect thereto, whether or not the revenues
4or proceeds have accrued. Utility project property shall constitute
5property for all purposes, including for contracts securing rate
6reduction bonds, whether or not the revenues or proceeds arising
7with respect thereto have accrued.

8(3) In addition, the authority may require, in a financing
9resolution creating utility project property, that, in the event of
10default by the local agency or its publicly owned utility, in payment
11of revenues arising with respect to the utility project property, the
12authority, upon the application by the beneficiaries of the statutory
13lien, and without limiting any other remedies available to the
14beneficiaries by reason of the default, shall order the sequestration
15and payment to the beneficiaries of revenues arising with respect
16to the utility project property.

17(h) Notwithstanding any other law, an authority that has financed
18a utility project through the issuance of rate reduction bonds is not
19authorized, and no governmental officer or organization shall be
20empowered to authorize the authority, to become a debtor in a case
21under the United States Bankruptcy Code (11 U.S.C. Sec. 1 et
22seq.) or to become the subject of any similar case or proceeding
23under any other law, whether federal or State of California, as long
24as any payment obligation from utility project property remains
25with respect to the rate reduction bonds.

26(i) An authority may elect to effect a financing of a utility project
27pursuant to this section through a single member limited liability
28company formed by the authority by authorizing the company to
29adopt the financing resolution and the authority’s issuing rate
30reduction bonds payable from, and secured by a pledge of, amounts
31paid by the company to the authority from the applicable utility
32project property pursuant to an agreement. The provisions of
33subdivisions (f) and (g) shall apply to and be the exclusive method
34of perfecting a pledge of utility project property by the company
35securing the payment of financing costs under any agreement of
36the company in connection with the issuance of rate reduction
37bonds. Reference to the authority in this section and in all related
38defined terms shall mean or include the company as necessary to
39implement this subdivision.

P21   1

SEC. 4.  

Section 6590 of the Government Code is amended to
2read:

3

6590.  

The authority may, from time to time, issue its bonds in
4the principal amount as the authority determines necessary to
5provide sufficient funds for its purposes, which may include, but
6shall not be limited to, providing funds for bond purchase
7agreements, payment of the purchase price of VLF receivables,
8payment of the purchase price of Proposition 1A receivables,
9financing utility projects, payment of interest on bonds of the
10authority, establishment of reserves to secure the bonds, and other
11expenditures of the authority incident to issuance of the bonds.
12The authority may also issue bonds for the purpose of making
13loans to local agencies, to the extent those local agencies are
14authorized by law to borrow moneys, or to purchase VLF
15receivables from local agencies as provided in Section 6588.5, or
16to purchase Proposition 1A receivables as provided in Section
176588.6, and the loan or sale proceeds shall be used by the local
18agencies to pay for public capital improvements, working capital,
19or insurance programs. The aggregate principal amount of all bonds
20issued pursuant to this section that are backed by Proposition 1A
21receivables shall not exceed two billion two hundred fifty million
22dollars ($2,250,000,000), and that issuance shall be approved by
23the Department of Finance and the Treasurer.

24In the case of any authority in existence on January 1, 1988, no
25loans shall be made to local agencies for working capital or
26insurance, unless that purpose is first approved by resolution of
27the governing body of the authority by unanimous vote of all
28members of the governing body.

29

SEC. 5.  

Section 6591 of the Government Code is amended to
30read:

31

6591.  

(a) The authority is authorized from time to time to issue
32bonds to provide funds to achieve its purposes.

33(b) Bonds may be authorized to finance any of the following:

34(1) A single public capital improvement, utility projects, working
35capital, purchase of VLF receivables, purchase of Proposition 1A
36receivables, or insurance program for a single local agency.

37(2) A series of public capital improvements, utility projects,
38 working capital, purchases of VLF receivables, purchase of
39Proposition 1A receivables, or insurance program for a single local
40agency.

P22   1(3) A single public capital improvement, utility projects, working
2capital, purchases of Proposition 1A receivables, or purchases of
3 VLF receivables or insurance program for two or more local
4agencies.

5(4) A series of public capital improvements, utility projects,
6working capital, purchases of VLF receivables or purchases of
7Proposition 1A receivables or insurance programs for two or more
8local agencies.

9(c) Bonds issued for the purpose of financing working capital
10shall be used to make loans to local agencies for any of the
11purposes for which a local agency may borrow money pursuant
12to Section 53852. The loans shall be repaid in accordance with the
13terms of Section 53854.

14(d) Except as otherwise expressly provided by the authority,
15every issue of its bonds shall be general obligations of the authority
16payable from any revenues or moneys of the authority available
17therefor and not otherwise pledged. These revenues or moneys
18may include the proceeds of additional bonds, subject only to any
19agreements with the holders of particular bonds pledging any
20particular revenues or moneys. Notwithstanding that the bonds
21may be payable from a special fund, these bonds shall be deemed
22to be negotiable instruments for all purposes, subject only to the
23bond registration provisions.

24(e) (1) The bonds may be issued as serial bonds or as term
25bonds, or the authority may issue bonds of both types. The bonds
26shall be authorized by resolution of the authority and shall, as
27provided by the resolution or indenture pursuant to which the bonds
28are issued, meet all of the following conditions:

29(A) Bear the date of issuance.

30(B) Bear the time of maturity, not exceeding 50 years from their
31date of issuance.

32(C) Bear the rate of interest, either fixed or variable, and, if
33variable, not in excess of the maximum rate of interest specified
34therein.

35(D) Be payable as to principal and interest at the time or times
36provided.

37(E) Be in the denominations and in the form provided.

38(F) Carry the registration privileges provided.

39(G) Be executed in the manner provided.

P23   1(H) Be payable in lawful money of the United States at the place
2or places provided within or without the state.

3(I) Be subject to the terms of redemption provided.

4(2) Notwithstanding paragraph (1), the bonds backed by
5Proposition 1A receivables shall have a maturity date no later than
6August 1, 2013.

7(3) For bonds backed by Proposition 1A receivables, both of
8the following shall apply:

9(A) The option to call shall be exercised upon receipt by the
10authority of a timely written notification from the Director of
11Finance, but no earlier than 30 days after delivery by the director
12of a written notice of the intent to do so to the Joint Legislative
13Budget Committee.

14(B) The bonds may bear interest payable on periodic interest
15payment dates or may accrue interest to their maturity date or any
16combination thereof, subject to the approval of the Department of
17Finance and the State Treasurer pursuant to subdivision (x) of
18Section 6588.

19(f) The bonds shall be sold by the authority at the time and in
20the manner set out in the authority’s resolution. The sale may be
21a public or private sale, and for price or prices, and on terms and
22conditions as the authority determines proper, after giving due
23consideration to the recommendations of any local agency to be
24assisted from the proceeds of the bonds. Pending preparation of
25the definitive bonds, the authority may issue interim receipts,
26certificates, or temporary bonds which shall be exchanged for
27definitive bonds. For bonds backed by Proposition 1A receivables,
28the authority shall use its best efforts to obtain the lowest overall
29cost of the bonds, and shall certify that it so used its best efforts.
30The authority shall, in consultation with the Treasurer and
31Department of Finance, structure the sale of the bonds backed by
32Proposition 1A receivables and shall include those terms and
33conditions approved by the Treasurer and the Department of
34Finance.

35(g) In the case of bonds issued by an authority, on or after
36January 1, 1995, for the purpose of purchasing bonds of a local
37agency, all of the bonds of the local agency shall be purchased by
38the authority from the proceeds of the authority bonds within 90
39days of the date of issuance of the authority bonds. Nothing in this
P24   1subdivision shall be construed to preclude an authority from issuing
2parity bonds at any time.

3

SEC. 6.  

Section 6592 of the Government Code is amended to
4read:

5

6592.  

Any resolution authorizing any bonds or any issue of
6bonds may contain the following provisions, which shall be a part
7of the contract with the holders of the bonds to be authorized:

8(a) Provisions pledging the full faith and credit of the authority,
9or pledging all or any part of the revenues of any public capital
10improvements, or any revenue-producing contract or contracts
11made by the authority with any local agency, any VLF receivables
12purchased pursuant to Section 6588.5, any utility project property,
13any Proposition 1A receivables purchased pursuant to Section
146588.6, or any other moneys of the authority, to secure the payment
15of the bonds, and of any special account, subject to those
16agreements with bondholders as may then exist.

17(b) Provisions setting out the rentals, fees, purchase payments,
18loan repayments, and other charges, and the amounts to be raised
19in each year thereby, and the use and disposition of the revenues.

20(c) Provisions setting aside reserves or sinking funds, and the
21regulation and disposition thereof.

22(d) Limitations on the right of the authority or its agent to restrict
23and regulate the use of the public capital improvements to be
24financed out of the proceeds of the bonds or any particular issue
25of bonds.

26(e) Limitations on the purpose to which the proceeds of sale of
27any issue of bonds may be applied, and pledging the proceeds to
28secure the payment of the bonds or any issue of the bonds.

29(f) Limitations on the issuance of additional bonds, the terms
30upon which additional bonds may be issued and secured, and the
31refunding of outstanding bonds.

32(g) The procedure, if any, by which the terms of any contract
33with bondholders may be amended or abrogated, the amount of
34bonds and the holders thereof that are required to give consent
35thereto, and the manner in which the consent may be given.

36(h) Limitations on expenditures for operating, administrative,
37or other expenses of the authority.

38(i) Definitions of acts or omissions to act which constitute a
39default in the duties of the authority to holders of its obligations,
P25   1and providing the rights and remedies of the holders in the event
2of a default.

3(j) The mortgaging of any public capital improvements and the
4site thereof for the purpose of securing the bondholders.

5(k) The mortgaging of land, improvements, or other assets
6owned by a local agency for the purpose of securing the
7bondholders.

8(l) Procedures for the selection of public capital improvements
9to be financed with the proceeds of the bonds authorized by the
10resolution, if the bonds are to be sold in advance of designating
11the public capital improvements and the local agency to receive
12the financing.

13

SEC. 7.  

Section 6599.3 of the Government Code is amended
14to read:

15

6599.3.  

Notwithstanding any other provision of law, an action
16may be brought under Chapter 9 (commencing with Section 860)
17of Title 10 of Part 2 of the Code of Civil Procedure, to determine
18the validity of any bonds issued under this article to finance the
19purchase of bonds for local agencies, the financing of public capital
20improvements or utility projects, or the purchase of VLF
21receivables pursuant to Section 6588.5 or Proposition 1A
22receivables pursuant to Section 6588.6 and any contracts of sale
23of VLF receivables or Proposition 1A receivables or utility project
24property entered into by any local agency, and any related
25documents. If an action is commenced, the action shall be brought
26in the jurisdiction in which the authority maintains its principal
27office and is not required to be brought in the jurisdiction or
28jurisdictions of any of the local agencies. However, publication of
29summons, as provided in Section 861 of the Code of Civil
30Procedure, shall be made in the county in which the authority
31maintains its principal office and in each county in which any local
32agency that has sold bonds to the authority, for which a public
33capital improvement is being financed or that has entered into a
34sales agreement for a VLF receivable or a Proposition 1A
35receivable where the authority is located.

36

SEC. 8.  

This act and all grants of power and authority in this
37act shall be liberally construed to effectuate their purposes, and
38all incidental powers necessary to carry into effect the provisions
39of this act are expressly granted to, and conferred upon, public
40entities.

P26   1

SEC. 9.  

The provisions of this act are severable. If any
2provision of this act or its application is held invalid, that invalidity
3shall not affect other provisions or applications that can be given
4effect without the invalid provision or application.



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