Amended in Senate August 12, 2013

Amended in Senate July 9, 2013

Amended in Senate June 19, 2013

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, 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 specified joint powers authorities, 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 terminate the authority to issue rate reduction bonds pursuant to these provisions after December 31, 2020. The bill would provide that the rate reduction bonds are secured by utility project property, as defined. The bill would authorize the authority 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 requirebegin delete an authority to obtain the approval ofend delete the California Pollution Control Financing Authoritybegin insert to review each issue of rate reduction bonds for financing costs of a utility project and to determine whether the issue is qualified for issuanceend insert, as prescribedbegin delete, before financing costs of a utility project with the rate reduction bonds. The bill would authorize the authority 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 the authority to enter into a servicing agreement with the local agency for the collection of the utility project charge.end deletebegin insert The bill would require the California Pollution Control Financing Authority to establish procedures for the expeditious review of a proposed issuance, including, but not limited to, the establishment of reasonable application fees to reimburse the California Pollution Control Financing Authority for costs incurred, as specified. The bill would require the California Pollution Control Financing Authority to submit a prescribed report of its activities for the preceding calendar year to the Legislature no later than March 31 of each yearend insertbegin insert.end insert

Vote: majority. Appropriation: no. Fiscal committee: yes. 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.

P3    1(3) In the case of an authority issuing bonds pursuant to this
2chapter in which Proposition 1A receivables, as defined in
3subdivision (g), are pledged to the payment of the bonds, an
4authority shall consist of not fewer than 250 local agencies.

5(b) “Bond purchase agreement” means a contractual agreement
6executed between the authority and the local agency whereby the
7authority agrees to purchase bonds of the local agency.

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

9(1) Bonds, including, but not limited to, assessment bonds,
10redevelopment agency bonds, government-issued mortgage bonds,
11and industrial development bonds.

12(2) Notes, including bond, revenue, tax, or grant anticipation
13notes.

14(3) Commercial paper, floating rate and variable maturity
15securities, and any other evidences of indebtedness.

16(4) Certificates of participation or lease-purchase agreements.

17(d) “Conservation or reclamation purposes” mean a utility
18project designed to reduce the amount of potable water to be
19supplied by a publicly owned utility or reduce the amount of water
20imported by the publicly owned utility, including without
21limitation, storm water capture and treatment, water recycling,
22development of local groundwater resources, groundwater
23recharging, and water reclamation.

24(e) “Cost,” as applied to a public capital improvement, a utility
25project, or portion of the improvement or utility project financed
26under this part, means all of the following:

27(1) All or any part of the cost of construction, renovation, and
28acquisition of all lands, structures, real or personal property, rights,
29rights-of-way, franchises, easements, and interests acquired or
30used for a public capital improvement or a utility project.

31(2) The cost of demolishing or removing any buildings or
32structures on land so acquired, including the cost of acquiring any
33lands to which the buildings or structures may be moved, and the
34cost of all machinery and equipment.

35(3) Finance charges.

36(4) Interest prior to, during, and for a period after, completion
37of that construction, as determined by the authority.

38(5) Provisions for working capital, reserves for principal and
39interest and for extensions, enlargements, additions, replacements,
40renovations, and improvements.

P4    1(6) The cost of architectural, engineering, financial and legal
2services, plans, specifications, estimates, and administrative
3expenses.

4(7) Other expenses necessary or incidental to determining the
5feasibility of constructing any project or incidental to the
6construction or acquisition or financing of any public capital
7improvement or utility project.

8(f) “Customer” means a person or entity receiving water through
9facilities of a publicly owned utility.

10(g) “Financing costs” mean any of the following:

11(1) Interest and redemption premiums that are payable on rate
12reduction bonds.

13(2) The cost of retiring the principal of rate reduction bonds,
14whether at maturity, including acceleration of maturity upon an
15event of default, or upon redemption, including sinking fund
16redemption.

17(3) A cost related to issuing or servicing rate reduction bonds,
18including, but not limited to, servicing fees, trustee fees, legal fees,
19administrative fees, bond counsel fees, bond placement or
20underwriting fees, remarketing fees, broker dealer fees, independent
21manager fees, payment under an interest rate swap agreement,
22financial adviser fees, accounting report fees, engineering report
23fees, and rating agency fees.

24(4) A payment or expense associated with a bond insurance
25policy, financial guaranty or a contract, agreement, or other credit
26enhancement for rate reduction bonds or a contract, agreement, or
27other financial agreement entered into in connection with rate
28reduction bonds.

29(5) The funding of one or more reserve accounts related to rate
30reduction bonds.

31(h) (1) “Financing resolution” means a resolution adopted by
32the governing body of an authority financing a utility project with
33rate reduction bonds that establishes and imposes a utility project
34charge in connection with the rate reduction bonds in accordance
35with Section 6588.7

36(2) A financing resolution may be separate from a resolution
37authorizing the issuance of the rate reduction bonds.

38(i) “Legislative body” means the governing body of a local
39agency.

P5    1(j) “Local agency” means a party to the agreement creating the
2authority, or an agency or subdivision of that party, sponsoring a
3project of public capital improvements, or any city, county, city
4and county, authority, district, or public corporation of this state.

5(k) “Mandate” means a requirement, imposed by a mandating
6entity by any means, including without limitation, a statute, rule,
7regulation, an administrative or judicial order, a building, operating,
8or licensing requirement or condition, or an agreement with, or
9license or permit from, the mandating entity, on a facility of a
10publicly owned utility or a facility operated in whole or in part for
11the benefit of a publicly owned utility, or on the operations of the
12publicly owned utility, or on the water pumped, acquired, or
13supplied by the publicly owned utility.

14(l) (1) “Mandating entity” means the United States; a state of
15the United States; an agency, department, commission, or other
16subdivision of the United States or a state of the United States; a
17court of the United States or a state of the United States; or any
18other body or organization, that has jurisdiction over the operations
19of a publicly owned utility; the facility of a publicly owned utility,
20or a facility operated in whole or in part for the benefit of a publicly
21owned utility; or the water pumped, acquired or sold by a publicly
22owned utility.

23(2) “Mandating entity” does not include a local agency that
24owns the publicly owned utility.

25(m) “Proposition 1A receivable” means the right to payment of
26moneys due or to become due to a local agency, pursuant to clause
27(iii) of subparagraph (B) of paragraph (1) of subdivision (a) of
28Section 25.5 of Article XIII of the California Constitution and
29Section 100.06 of the Revenue and Taxation Code.

30(n) “Public capital improvements” means one or more projects
31specified in Section 6546.

32(o) “Publicly owned utility” means a utility furnishing water
33service to not less than 25,000 retail customers that is owned and
34operated by a local agency or a department or other subdivision
35of a local agency and includes any successor to the powers and
36functions of the department or other subdivision.

37(p) “Rate reduction bonds” mean bonds that are issued by an
38authority, the proceeds of which are used directly or indirectly to
39pay or reimburse a local agency or its publicly owned utility for
40the payment of the costs of a utility project, and that are secured
P6    1by a pledge of, and are payable from, utility project property as
2provided in Section 6588.7.

3(q) “Revenue” means income and receipts of the authority from
4any of the following:

5(1) A bond purchase agreement.

6(2) Bonds acquired by the authority.

7(3) Loans installment sale agreements, and other
8revenue-producing agreements entered into by the authority.

9(4) Projects financed by the authority.

10(5) Grants and other sources of income.

11(6) VLF receivables purchased pursuant to Section 6588.5.

12(7) Proposition 1A receivables purchased pursuant to Section
136588.6.

14(8) Interest or other income from any investment of any money
15in any fund or account established for the payment of principal or
16interest or premiums on bonds.

17(r) “Utility project” means the acquisition, construction,
18installation, retrofitting, rebuilding, or other addition to, or
19improvement of, any equipment, device, structure, improvement,
20process, facility, technology, rights or property, located either
21within, or outside of, the State of California, and that is used, or
22to be used, in connection with the operations of a publicly owned
23utility for conservation or reclamation purposes or in response to
24a mandate.

25(s) “Utility project charge” means a charge paid or to be paid
26by customers of a publicly owned utility to pay financing costs of
27rate reduction bonds issued to finance a utility project for a publicly
28owned utility that is imposed pursuant to Section 6588.7, including
29any adjustment of the charge pursuant to Section 6588.7.

30(t) “Utility project property” means the property right created
31pursuant to Section 6588.7, including without limitation, the right,
32title, and interest of an authority for any of the following:

33(1) In and to the financing resolution and the utility charge
34established with respect to the rate reduction bonds, as adjusted
35from time to time in accordance with Section 6588.7.

36(2) To be paid the financing costs of the rate reduction bonds
37and to all revenues, collections, claims, payments, moneys, or
38proceeds for, or arising from, the utility project charge relating to
39the rate reduction bonds.

P7    1(3) In and to all rights to obtain adjustments to the utility project
2charge relating to the rate reduction bonds pursuant to Section
36588.7.

4(u) “VLF receivable” means the right to payment of moneys
5due or to become due to a local agency out of funds payable in
6connection with vehicle license fees to a local agency pursuant to
7Section 10754.11 of the Revenue and Taxation Code.

8(v) “Working capital” means money to be used by, or on behalf
9of, a local agency for any purpose for which a local agency may
10borrow money pursuant to Section 53852, or for any purpose for
11which a VLF receivable or a Proposition 1A receivable sold to an
12authority could have been used by the local agency.

13

SEC. 2.  

Section 6588.7 is added to the Government Code, to
14read:

15

6588.7.  

(a) An authority whose financing activities are limited
16to financing utility projects and projects for the use or benefit of
17public water agencies may finance utility projects as provided in
18this section, including the issuance of rate reduction bonds and the
19imposition and adjustment of utility project charges.

20(b) (1) A local agency that owns and operates a publicly owned
21 utility may apply to an authority specified in subdivision (a) to
22finance costs of a utility project for the publicly owned utility with
23the proceeds of rate reduction bonds if at the time of application,
24bonds payable from revenues of the publicly owned utility are, or
25upon issuance would be, rated investment grade by a nationally
26recognized rating agency. In its application to an authority for the
27financing, the local agency shall specify the utility project to be
28financed by the rate reduction bonds, the maximum principal
29amount, the maximum interest rate, and the maximum stated terms
30of the rate reduction bonds.

begin delete

31(2) An authority shall obtain the approval of the California
32Pollution Control Financing Authority, as defined in Section 44504
33of the Health and Safety Code, before financing costs of a utility
34project with rate reduction bonds. The California Pollution Control
35Financing Authority shall consider a project for financing with
36rate reduction bonds upon the filing of an application by an
37authority, on the terms and conditions the California Pollution
38Control Financing Authority shall determine. The California
39Pollution Control Financing Authority shall establish procedures
40for the expeditious review of applications, including, but not
P8    1limited to, establishment of reasonable application fees to
2reimburse the California Pollution Control Financing Authority
3for costs incurred in administering applications received pursuant
4to this section. The review may be concurrent with an authority’s
5processing of an application for financing, so as to allow for the
6issuance of rate reduction bonds as quickly as feasible.
7Notwithstanding any other law, the California Pollution Control
8Financing Authority does not have the authority to alter or modify
9any term or condition related to the utility project property. The
10California Pollution Control Financing Authority shall approve a
11project for financing with rate reduction bonds if the financing

end delete

12begin insert(2)end insertbegin insertend insertbegin insertIn order to allow the state to review the issuance of rate
13reduction bonds, collect data, ensure transparency, and conduct
14an independent analysis of the effectiveness of the use of rate
15reduction bonds pursuant to this section, the California Pollution
16Control Financing Authority, as defined in Section 44504 of the
17Health and Safety Code, shall review each issue of bonds and shall
18determine whether the issue is qualified for issuance under the
19provisions of this section. The California Pollution Control
20Financing Authority shall determine that an issue of rate reduction
21bonds is qualified for issuance under this section, if the issuance end insert

22satisfies all of the following:

23(A) Thebegin delete financingend deletebegin insert issuanceend insert meets the criteria specified in
24paragraphs (1) to (3), inclusive, of subdivision (c).

25(B) The projected financing costs, as defined in subdivision (g)
26of Section 6585, fall within the normal range of financing costs
27for comparable types of debt issuance.

begin delete

28(3) If the California Pollution Control Financing Authority does
29not adopt a resolution either approving the financing or declining
30 to approve the financing within 60 days of receiving an application
31for approval of the financing of a utility project with rate reduction
32bonds, paragraph (2) shall not apply to the financing of the utility
33project with rate reduction bonds.

end delete
begin insert

34(3) The California Pollution Control Financing Authority shall
35establish procedures for the expeditious review of a proposed
36issuance pursuant to this section, including, but not limited to, the
37establishment of reasonable application fees to reimburse the
38California Pollution Control Financing Authority for costs incurred
39in administering this section.

end insert
begin insert

P9    1(4) The California Pollution Control Financing Authority shall
2provide an explanation in writing for any refusal to qualify a
3proposed issuance but may not alter or modify any term or
4condition related to the utility project property.

end insert
begin insert

5(5) The California Pollution Control Financing Authority shall
6take action on any completed application submitted to it pursuant
7to this section no later than the next meeting of the California
8Pollution Control Financing Authority that occurs after at least
960 days following receipt of the application.

end insert
begin insert

10(6) The review and qualification pursuant to this section may
11be concurrent with an authority’s processing of an application for
12financing so as to allow for the issuance of rate reduction bonds
13as quickly as feasible.

end insert
begin insert

14(7) Notwithstanding any other provision of law, the California
15Pollution Control Financing Authority may adopt regulations
16relating to this section as emergency regulations in accordance
17with Chapter 3.5 (commencing with Section 11340) of Part 1 of
18Division 3. For purposes of Chapter 3.5 (commencing with Section
1911340), including Section 11349.6, the adoption of the regulations
20shall be considered by the Office of Administrative Law to be
21necessary for the immediate preservation of the public peace,
22health and safety, and general welfare.

end insert
begin insert

23(8) Annually no later than March 31, the California Pollution
24Control Financing Authority shall submit to the Legislature a
25report of its activities pursuant to this section for the preceding
26calendar year ended December 31. The California Pollution
27Control Financing Authority shall require information from
28applicants to ensure that the necessary data is available to
29complete this report. The report may be submitted as a part of the
30report required pursuant to Section 44538 of the Health and Safety
31Code. The report shall include all of the following:

end insert
begin insert

32(A) A listing of applications received.

end insert
begin insert

33(B) A listing of proposed issuances qualified under the
34provisions of this section.

end insert
begin insert

35(C) A report of bonds sold, the interest rates on the bonds,
36whether the bond sales were pursuant to public bid or were
37negotiated, and any rating given the bonds by a nationally
38recognized securities rating organization.

end insert
begin insert

39(D) A specification of proposed issuances qualified but not yet
40issued.

end insert
begin insert

P10   1(E) A comparison of the interest rates and transactional costs
2on issuances qualified under this section with interest rates on
3comparable types of debt issuance occurring at or near the same
4time as the issuances.

end insert
begin insert

5(9) (A) The requirement for submitting a report imposed under
6paragraph (8) is inoperative on December 31, 2020.

end insert
begin insert

7(B) A report to be submitted pursuant to paragraph (8) shall
8be submitted in compliance with Section 9795.

end insert

9(c) A local agency shall not apply to an authority for financing
10of a utility project pursuant to this section unless the legislative
11body of the local agency has determined all of the following:

12(1) The project to be financed is a utility project.

13(2) The local agency is electing to finance costs of the utility
14project pursuant to this section and the financing costs associated
15with the financing are to be paid from utility project property,
16including the utility project charge for the rate reduction bonds
17issued for the utility project in accordance with this section.

18(3) Based on information available to, and projections used by,
19the legislative body, the rates of the publicly owned utility plus
20the utility project charge resulting from the financing of the utility
21project with rate reduction bonds are expected to be lower than
22the rates of the publicly owned utility if the utility project was
23financed with bonds payable from revenues of the publicly owned
24utility.

25(d) (1) Subject to the requirements of Article XIII D of the
26California Constitution, an authority financing the costs of a utility
27project or projects for a local agency’s publicly owned utility with
28rate reduction bonds is authorized and directed to impose and
29collect a utility project charge with respect to the rate reduction
30bonds as provided in this section. The imposition of the utility
31project charge shall be made and evidenced by the adoption of a
32financing resolution by the governing body of the authority. The
33financing resolution with respect to financing a utility project or
34project with rate reduction bonds for a publicly owned utility shall
35include all of the following:

36(A) The addition of a separate charge to the bill of each customer
37of the publicly owned utility in the class or classes of customers
38specified in the financing resolution.

39(B) A description of the financial calculation, formula, or other
40method that the authority is to use to determine the utility project
P11   1charge. The calculation, formula or other method shall include a
2periodic adjustment method to the then current utility project
3charge, to be applied at least annually, that shall be utilized by the
4authority to correct for any overcollection or undercollection of
5financing costs from the utility project charge or any other
6adjustment necessary to ensure timely payment of the financing
7costs of the rate reduction bonds, including, but not limited to, the
8adjustment of the utility project charge to pay any debt service
9coverage requirement for the rate reduction bonds. The financial
10calculation, formula, or other method, including the periodic
11adjustment method, established in the financing resolution pursuant
12to this section, and the allocation of utility project charges to, and
13among, customers of the publicly owned utility shall be decided
14solely by the governing body of the authority and shall be final
15and conclusive. In no event shall the periodic adjustment method
16 established in the financing resolution be applied less frequently
17than required by the financing resolution and the documents
18relating to the applicable rate reduction bonds. Once the financial
19calculation, formula, or other method for determining the utility
20project charge, and the periodic adjustment method, have been
21established in the financing resolution and have become final and
22conclusive as provided in this section, they shall not be changed.

23(C) Notwithstanding any other provision of this section, in no
24event shall a utility project charge exceed the maximum rate
25permitted under Article XIII D of the California Constitution.

26(D) A requirement that the authority enter into a servicing
27agreement for the collection of the utility project charge with the
28local agency for which the financing is undertaken or its publicly
29owned utility and the local agency or its publicly owned utility
30shall act as a servicing agent for purposes of collecting the utility
31project charge as long as the servicing agreement remains in effect.
32Moneys collected by the local agency or its publicly owned utility,
33acting as a servicing agent on behalf of the authority, as a utility
34project charge shall be held in trust for the exclusive benefit of the
35persons entitled to the financing costs to be paid, directly or
36indirectly, from the utility project charge and shall not lose their
37character as revenues of the authority by virtue of possession by
38the local agency or its publicly owned utility. The local agency or
39its publicly owned utility shall provide the authority with the
40information as to estimated sales of water and any other
P12   1information concerning the publicly owned utility required by the
2authority in connection with the initial establishment and the
3adjustment of the utility project charge.

4(2) The determination of the legislative body of the local agency
5that a project to be financed with rate reduction bonds is a utility
6project shall be final and conclusive and the rate reduction bonds
7issued to finance the utility project and the utility project charge
8imposed relating to the rate reduction bonds shall be valid and
9enforceable in accordance with the terms of the financing resolution
10and the documents relating to the rate reduction bonds. The
11authority shall require, in its financing resolution with respect to
12a utility project charge, that as long as a customer in the class or
13classes of customers specified in the financing resolution receive
14water through the facilities of the publicly owned utility, the
15customer shall pay the utility project charge regardless of whether
16or not the customer has an agreement to purchase water from a
17person or entity other than the publicly owned utility. The utility
18project charge shall be a nonbypassable charge to all customers
19of the publicly owned utility in the class or classes of customers
20specified in the financing resolution at the time of adoption of the
21financing resolution and all future customers in that class or classes.
22If a customer of the publicly owned utility that is subject to a utility
23project charge enters into an agreement to purchase water from a
24person or entity other than the publicly owned utility, the customer
25shall remain liable for the payment of its share of the utility project
26charge as if it had not entered into the agreement. The liability
27may be discharged by the continued payment of its share of the
28utility project charge as it accrues or by a one-time payment, as
29determined by the authority. All provisions of a financing
30resolution adopted pursuant to this subdivision shall be binding
31on the authority.

32(3) The timely and complete payment of all utility project
33charges by a person liable for the charges shall be a condition of
34receiving water service from the publicly owned utility of the local
35agency and each of the local agencies and their publicly owned
36utilities is authorized to use its established collection policies and
37all rights and remedies provided by law to enforce payment and
38collection of the utility project charge. In no event shall a person
39liable for a utility project charge be entitled or authorized to
P13   1withhold payment, in whole or in part, of the utility project charge
2for any reason.

3(4) The authority shall determine whether adjustments to the
4utility project charge relating to rate reduction bonds are required
5upon the issuance of the rate reduction bonds and at least annually,
6and at additional intervals as may be provided for in the financing
7resolution or the documents relating to the rate reduction bonds.
8Each adjustment shall be made and put into effect in accordance
9with the financial calculation, formula, or other method that the
10authority is to use to determine the utility project charge pursuant
11to the financing resolution expeditiously after the authority’s
12determination that the adjustment is required.

13(5) All revenues with respect to utility project property related
14to rate reduction bonds, including payments of the utility project
15charge, shall be applied first to the payment of the financing costs
16of the related rate reduction bonds then due, including the funding
17of reserves for the rate reduction bonds, with any excess being
18applied as determined by the authority for the benefit of the utility
19for which the rate reduction bonds were issued.

20(6) The authority shall be obligated to impose and collect the
21utility project charge relating to rate reduction bonds in amounts,
22based on estimates of water usage subject to the utility project
23charge, sufficient to pay on a timely basis the financing costs
24associated with the rate reduction bonds when due. The pledge of
25a utility project charge to secure the payment of rate reduction
26bonds shall be irrevocable, and the State of California, the
27authority, or any limited liability company acting pursuant to
28subdivision (i) shall not reduce, impair, or otherwise adjust the
29utility project charge, except that the authority shall implement
30the periodic adjustments to the utility project charge relating to
31rate reduction bonds as required by the applicable financing
32resolution and the documents relating to the rate reduction bonds.
33Revenue from a utility project charge shall be deemed special
34revenue of the authority and shall not constitute revenue of the
35local agency or its publicly owned utility for any purpose, including
36without limitation, any dedication, commitment, or pledge of
37revenue, receipts, or other income that the local agency or its
38publicly owned utility has made or will make for the security of
39any of its obligations.

P14   1(7) A utility project charge shall constitute a utility project
2property when, and to the extent that, a financing resolution
3authorizing the utility project charge has become effective in
4accordance with its terms, and the utility project property shall
5thereafter continuously exist as property for all purposes with all
6of the rights and privileges of this section for the period, and to
7the extent, provided in the financing resolution, but in any event
8until all financing costs with respect to the related rate reduction
9bonds are paid in full, including all arrearages thereon.

10(8) Utility project property shall constitute a current property
11right notwithstanding that the value of the property right will
12depend on consumers using water or, in those instances where
13consumers are customers of the publicly owned utility, the publicly
14owned utility performing certain services.

15(9) In the event a local agency for which rate reduction bonds
16have been issued and remain outstanding ceases to operate a water
17utility, either directly or through its publicly owned utility,
18references in this section to the local agency or to its publicly
19owned utility shall be to the entity providing water utility services
20in lieu of the local agency and the entity shall assume and perform
21all obligations of the local agency and its publicly owned utility
22required by this section and the servicing agreement with the local
23agency while the rate reduction bonds remain outstanding.

24(e) (1) Rate reduction bonds shall be within the parameters of
25the financing set forth by the local agency pursuant to subdivision
26(b) in connection with the rate reduction bonds and the proceeds
27of the rate reduction bonds made available to the local agency or
28its publicly owned utility shall be utilized for the utility project
29identified in the application for financing of the utility project or
30projects pursuant to subdivision (b).

31(2) An authority shall authorize the issuance of rate reduction
32bonds by a resolution of its governing body. An authority issuing
33rate reduction bonds shall include in its preliminary notice and
34final report for the rate reduction bonds submitted to the California
35Debt and Investment Advisory Commission pursuant to Section
368855 a statement that the rate reduction bonds are being issued
37pursuant to this section. An authority issuing rate reduction bonds
38shall include in its final report for the rate reduction bonds
39submitted to the California Debt and Investment Advisory
40Commission pursuant to Section 8855 the savings realized by
P15   1issuing the rate reduction bonds rather than bonds payable from
2the revenues of the publicly owned utility for whose benefit the
3rate reduction bonds were issued. Rate reduction bonds shall be
4nonrecourse to the credit or any assets of the local agency and the
5publicly owned utility for which the utility project is financed and
6shall be payable from, and secured by a pledge of, the utility project
7property relating to the rate reduction bonds and any additional
8security or credit enhancement specified in the documents relating
9to the rate reduction bonds.

10(3) An authority issuing rate reduction bonds shall pledge the
11utility project property relating to the rate reduction bonds as
12security for the payment of the rate reduction bonds, which pledge
13shall be made pursuant to, and with the effect set forth in Section
145451 of the Government Code. All rights of an authority with
15respect to utility project property pledged as security for the
16payment of rate reduction bonds shall be for the benefit of, and
17enforceable by, the beneficiaries of the pledge to the extent
18provided in the documents relating to the rate reduction bonds.

19(4) To the extent that any interest in utility project property is
20pledged as security for the payment of rate reduction bonds, the
21applicable local agency or its publicly owned utility shall contract
22with the authority, which contract shall be part of the utility project
23property, that the local agency or its publicly owned utility will
24continue to operate its publicly owned utility system that includes
25the financed utility project to provide service to its customers, will,
26as servicer, collect amounts in respect of the utility project charge
27for the benefit and account of the authority and the beneficiaries
28of the pledge of the utility project charge and will account for and
29remit these amounts to, or for the account of, the authority.

30(5) Notwithstanding any other law, any requirement under this
31section, a financing resolution, any other resolution of the authority,
32or the provisions of the documents relating to rate reduction bonds
33to the effect that the authority shall take action with respect to the
34utility project property relating to the rate reduction bonds shall
35be binding upon the authority, as its governing body may be
36constituted from time to time, and the authority shall have no power
37or right to rescind, alter, or amend any resolution or document
38containing the requirement.

39(6) Notwithstanding any law, except as otherwise provided in
40this section with respect to adjustments to a utility project charge,
P16   1the recovery of the financing costs for the rate reduction bonds
2from the utility project charge shall be irrevocable and the authority
3shall not have the power either by rescinding, altering, or amending
4the applicable financing resolution or otherwise, to revalue or
5revise for ratemaking purposes the financing costs of rate reduction
6bonds, determine that the financing costs for the related rate
7reduction bonds or the utility project charge is unjust or
8unreasonable, or in any way reduce or impair the value of utility
9project property that includes the utility project charge, either
10directly or indirectly; nor shall the amount of revenues arising with
11respect to the financing costs for the related rate reduction bonds
12or the utility project charge be subject to reduction, impairment,
13postponement, or termination for any reason until all financing
14costs to be paid from the utility project charge are fully met and
15discharged. Except as otherwise provided in this section with
16respect to adjustments to a utility project charge, the State of
17California does hereby pledge and agree with the owners of rate
18reduction bonds that the State of California shall neither limit nor
19alter the financing costs or the utility project property, including
20the utility project charge, relating to the rate reduction bonds, or
21any rights in, to or under, the utility project property until all
22financing costs with respect to the rate reduction bonds are fully
23met and discharged. This section does not preclude limitation or
24alteration if and when adequate provision shall be made by law
25for the protection of the owners. The authority is authorized to
26include this pledge and undertaking by the State of California in
27the governing documents for rate reduction bonds. Notwithstanding
28any other provision of this section, the authority shall make the
29adjustments to the utility project charge relating to rate reduction
30bonds provided by this section and the documents related to those
31rate reduction bonds as may be necessary to ensure timely payment
32of all financing costs with respect to the rate reduction bonds. The
33adjustments shall not impose the utility project charge upon classes
34of customers which were not subject to the utility project charge
35pursuant to the financing resolution imposing the utility project
36charge.

37(f) (1) Financing costs in connection with rate reduction bonds
38do not constitute a debt or liability of the State of California or of
39any political subdivision thereof, other than the special obligation
40of the authority, and do not constitute a pledge of the full faith and
P17   1credit of the State of California or any of its political subdivisions,
2including the authority, but are payable solely from the funds
3provided therefor under this section and in the documents relating
4to the rate reduction bonds. This subdivision shall in no way
5preclude guarantees or credit enhancements in connection with
6rate reduction bonds. All the rate reduction bonds shall contain on
7the face thereof a statement to the following effect:

8Neither the full faith and credit nor the taxing power of the State
9of California or any political subdivision thereof is pledged to the
10payment of the principal of, or interest on, this bond.

11(2) The issuance of rate reduction bonds shall not directly,
12indirectly, or contingently obligate the State of California or any
13political subdivision thereof to levy or to pledge any form of
14taxation to pay the rate reduction bonds or to make any
15appropriation for their payment.

16(g) (1) Utility project property shall constitute property for all
17purposes, including for contracts securing rate reduction bonds,
18whether or not the revenues and proceeds arising with respect
19thereto have accrued.

20(2) Subject to the terms of the pledge document with respect to
21a pledge of utility project property, the validity and relative priority
22of a pledge created or authorized under this section is not defeated
23or adversely affected by the commingling of revenues arising with
24respect to the utility project property with other funds of the local
25agency or the publicly owned utility collecting a utility project
26charge on behalf of an authority.

27(h) (1) There shall exist a statutory lien on the utility project
28property relating to rate reduction bonds. Upon the effective date
29of the financing resolution relating to rate reduction bonds, there
30shall exist a first priority statutory lien on all utility project
31property, then existing or, thereafter arising, to secure the payment
32of the rate reduction bonds. This lien shall arise pursuant to law
33by operation of this section automatically without any action on
34the part of the authority, the local agency or its publicly owned
35utility, or any other person. This lien shall secure the payment of
36all financing costs, then existing or subsequently arising, to the
37holders of the rate reduction bonds, the trustee or representative
38for the holders of the rate reduction bonds, and any other entity
39specified in the financing resolution or the documents relating to
40the rate reduction bonds. This lien shall attach to the utility project
P18   1property regardless of who shall own, or shall subsequently be
2determined to own, the utility project property including any local
3agency or its publicly owned utility, the authority, or any other
4person. This lien shall be valid and enforceable against the owner
5of the utility project property and all third parties upon the
6effectiveness of the financing resolution without any further public
7notice.

8(2) The statutory lien on utility project property created by this
9section is a continuously perfected lien on all revenues and
10proceeds arising with respect thereto, whether or not the revenues
11or proceeds have accrued. Utility project property shall constitute
12property for all purposes, including for contracts securing rate
13reduction bonds, whether or not the revenues or proceeds arising
14with respect thereto have accrued.

15(3) In addition, the authority may require, in a financing
16resolution creating utility project property, that, in the event of
17default by the local agency or its publicly owned utility, in payment
18of revenues arising with respect to the utility project property, the
19authority, upon the application by the beneficiaries of the statutory
20lien, and without limiting any other remedies available to the
21beneficiaries by reason of the default, shall order the sequestration
22and payment to the beneficiaries of revenues arising with respect
23to the utility project property.

24(i) Notwithstanding any other law, an authority that has financed
25a utility project through the issuance of rate reduction bonds is not
26authorized, and no governmental officer or organization shall be
27 empowered to authorize the authority, to become a debtor in a case
28under the United States Bankruptcy Code (11 U.S.C. Sec. 1 et
29seq.) or to become the subject of any similar case or proceeding
30under any other law, whether federal or State of California, as long
31as any payment obligation from utility project property remains
32with respect to the rate reduction bonds.

33(j) An authority may elect to effect a financing of a utility project
34pursuant to this section through a single member limited liability
35company formed by the authority by authorizing the company to
36adopt the financing resolution and the authority’s issuing rate
37reduction bonds payable from, and secured by a pledge of, amounts
38paid by the company to the authority from the applicable utility
39project property pursuant to an agreement. The provisions of
40subdivisions (g) and (h) shall apply to and be the exclusive method
P19   1of perfecting a pledge of utility project property by the company
2securing the payment of financing costs under any agreement of
3the company in connection with the issuance of rate reduction
4bonds. Reference to the authority in this section and in all related
5defined terms shall mean or include the company as necessary to
6implement this subdivision.

7(k) After December 31, 2020, the authority to issue rate
8reduction bonds under this section terminates.

9

SEC. 3.  

Section 6590 of the Government Code is amended to
10read:

11

6590.  

The authority may, from time to time, issue its bonds in
12the principal amount as the authority determines necessary to
13provide sufficient funds for its purposes, which may include, but
14shall not be limited to, providing funds for bond purchase
15agreements, payment of the purchase price of VLF receivables,
16payment of the purchase price of Proposition 1A receivables,
17financing utility projects, payment of interest on bonds of the
18authority, establishment of reserves to secure the bonds, and other
19expenditures of the authority incident to issuance of the bonds.
20The authority may also issue bonds for the purpose of making
21loans to local agencies, to the extent those local agencies are
22authorized by law to borrow moneys, or to purchase VLF
23receivables from local agencies as provided in Section 6588.5, or
24to purchase Proposition 1A receivables as provided in Section
256588.6, and the loan or sale proceeds shall be used by the local
26agencies to pay for public capital improvements, working capital,
27or insurance programs. The aggregate principal amount of all bonds
28issued pursuant to this section that are backed by Proposition 1A
29receivables shall not exceed two billion two hundred fifty million
30dollars ($2,250,000,000), and that issuance shall be approved by
31the Department of Finance and the Treasurer.

32In the case of any authority in existence on January 1, 1988, no
33loans shall be made to local agencies for working capital or
34insurance, unless that purpose is first approved by resolution of
35the governing body of the authority by unanimous vote of all
36members of the governing body.

37

SEC. 4.  

Section 6591 of the Government Code is amended to
38read:

39

6591.  

(a) The authority is authorized from time to time to issue
40bonds to provide funds to achieve its purposes.

P20   1(b) Bonds may be authorized to finance any of the following:

2(1) A single public capital improvement, utility projects, working
3capital, purchase of VLF receivables, purchase of Proposition 1A
4receivables, or insurance program for a single local agency.

5(2) A series of public capital improvements, utility projects,
6working capital, purchases of VLF receivables, purchase of
7Proposition 1A receivables, or insurance program for a single local
8agency.

9(3) A single public capital improvement, utility projects, working
10capital, purchases of Proposition 1A receivables, or purchases of
11VLF receivables or insurance program for two or more local
12agencies.

13(4) A series of public capital improvements, utility projects,
14working capital, purchases of VLF receivables or purchases of
15Proposition 1A receivables or insurance programs for two or more
16local agencies.

17(c) Bonds issued for the purpose of financing working capital
18shall be used to make loans to local agencies for any of the
19purposes for which a local agency may borrow money pursuant
20to Section 53852. The loans shall be repaid in accordance with the
21terms of Section 53854.

22(d) Except as otherwise expressly provided by the authority,
23every issue of its bonds shall be general obligations of the authority
24payable from any revenues or moneys of the authority available
25therefor and not otherwise pledged. These revenues or moneys
26may include the proceeds of additional bonds, subject only to any
27agreements with the holders of particular bonds pledging any
28particular revenues or moneys. Notwithstanding that the bonds
29may be payable from a special fund, these bonds shall be deemed
30to be negotiable instruments for all purposes, subject only to the
31bond registration provisions.

32(e) (1) The bonds may be issued as serial bonds or as term
33bonds, or the authority may issue bonds of both types. The bonds
34shall be authorized by resolution of the authority and shall, as
35provided by the resolution or indenture pursuant to which the bonds
36are issued, meet all of the following conditions:

37(A) Bear the date of issuance.

38(B) Bear the time of maturity, not exceeding 50 years from their
39date of issuance.

P21   1(C) Bear the rate of interest, either fixed or variable, and, if
2variable, not in excess of the maximum rate of interest specified
3therein.

4(D) Be payable as to principal and interest at the time or times
5provided.

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

7(F) Carry the registration privileges provided.

8(G) Be executed in the manner provided.

9(H) Be payable in lawful money of the United States at the place
10or places provided within or without the state.

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

12(2) Notwithstanding paragraph (1), the bonds backed by
13Proposition 1A receivables shall have a maturity date no later than
14August 1, 2013.

15(3) For bonds backed by Proposition 1A receivables, both of
16the following shall apply:

17(A) The option to call shall be exercised upon receipt by the
18authority of a timely written notification from the Director of
19Finance, but no earlier than 30 days after delivery by the director
20of a written notice of the intent to do so to the Joint Legislative
21Budget Committee.

22(B) The bonds may bear interest payable on periodic interest
23payment dates or may accrue interest to their maturity date or any
24combination thereof, subject to the approval of the Department of
25Finance and the State Treasurer pursuant to subdivision (x) of
26Section 6588.

27(f) The bonds shall be sold by the authority at the time and in
28the manner set out in the authority’s resolution. The sale may be
29a public or private sale, and for price or prices, and on terms and
30conditions as the authority determines proper, after giving due
31consideration to the recommendations of any local agency to be
32assisted from the proceeds of the bonds. Pending preparation of
33the definitive bonds, the authority may issue interim receipts,
34certificates, or temporary bonds which shall be exchanged for
35definitive bonds. For bonds backed by Proposition 1A receivables,
36the authority shall use its best efforts to obtain the lowest overall
37cost of the bonds, and shall certify that it so used its best efforts.
38The authority shall, in consultation with the Treasurer and
39Department of Finance, structure the sale of the bonds backed by
40Proposition 1A receivables and shall include those terms and
P22   1conditions approved by the Treasurer and the Department of
2Finance.

3(g) In the case of bonds issued by an authority, on or after
4January 1, 1995, for the purpose of purchasing bonds of a local
5agency, all of the bonds of the local agency shall be purchased by
6the authority from the proceeds of the authority bonds within 90
7days of the date of issuance of the authority bonds. Nothing in this
8subdivision shall be construed to preclude an authority from issuing
9parity bonds at any time.

10

SEC. 5.  

Section 6592 of the Government Code is amended to
11read:

12

6592.  

Any resolution authorizing any bonds or any issue of
13bonds may contain the following provisions, which shall be a part
14of the contract with the holders of the bonds to be authorized:

15(a) Provisions pledging the full faith and credit of the authority,
16or pledging all or any part of the revenues of any public capital
17improvements, or any revenue-producing contract or contracts
18made by the authority with any local agency, any VLF receivables
19purchased pursuant to Section 6588.5, any utility project property,
20any Proposition 1A receivables purchased pursuant to Section
216588.6, or any other moneys of the authority, to secure the payment
22of the bonds, and of any special account, subject to those
23agreements with bondholders as may then exist.

24(b) Provisions setting out the rentals, fees, purchase payments,
25loan repayments, and other charges, and the amounts to be raised
26in each year thereby, and the use and disposition of the revenues.

27(c) Provisions setting aside reserves or sinking funds, and the
28regulation and disposition thereof.

29(d) Limitations on the right of the authority or its agent to restrict
30and regulate the use of the public capital improvements to be
31financed out of the proceeds of the bonds or any particular issue
32of bonds.

33(e) Limitations on the purpose to which the proceeds of sale of
34any issue of bonds may be applied, and pledging the proceeds to
35secure the payment of the bonds or any issue of the bonds.

36(f) Limitations on the issuance of additional bonds, the terms
37upon which additional bonds may be issued and secured, and the
38refunding of outstanding bonds.

39(g) The procedure, if any, by which the terms of any contract
40with bondholders may be amended or abrogated, the amount of
P23   1bonds and the holders thereof that are required to give consent
2thereto, and the manner in which the consent may be given.

3(h) Limitations on expenditures for operating, administrative,
4or other expenses of the authority.

5(i) Definitions of acts or omissions to act which constitute a
6default in the duties of the authority to holders of its obligations,
7and providing the rights and remedies of the holders in the event
8of a default.

9(j) The mortgaging of any public capital improvements and the
10site thereof for the purpose of securing the bondholders.

11(k) The mortgaging of land, improvements, or other assets
12owned by a local agency for the purpose of securing the
13bondholders.

14(l) Procedures for the selection of public capital improvements
15to be financed with the proceeds of the bonds authorized by the
16resolution, if the bonds are to be sold in advance of designating
17the public capital improvements and the local agency to receive
18the financing.

19

SEC. 6.  

Section 6599.3 of the Government Code is amended
20to read:

21

6599.3.  

Notwithstanding any other provision of law, an action
22may be brought under Chapter 9 (commencing with Section 860)
23of Title 10 of Part 2 of the Code of Civil Procedure, to determine
24the validity of any bonds issued under this article to finance the
25purchase of bonds for local agencies, the financing of public capital
26improvements or utility projects, or the purchase of VLF
27receivables pursuant to Section 6588.5 or Proposition 1A
28receivables pursuant to Section 6588.6 and any contracts of sale
29of VLF receivables or Proposition 1A receivables or utility project
30property entered into by any local agency, and any related
31documents. If an action is commenced, the action shall be brought
32in the jurisdiction in which the authority maintains its principal
33office and is not required to be brought in the jurisdiction or
34 jurisdictions of any of the local agencies. However, publication of
35summons, as provided in Section 861 of the Code of Civil
36Procedure, shall be made in the county in which the authority
37maintains its principal office and in each county in which any local
38agency that has sold bonds to the authority, for which a public
39capital improvement is being financed or that has entered into a
P24   1sales agreement for a VLF receivable or a Proposition 1A
2receivable where the authority is located.

3

SEC. 7.  

This act and all grants of power and authority in this
4act shall be liberally construed to effectuate their purposes, and
5all incidental powers necessary to carry into effect the provisions
6of this act are expressly granted to, and conferred upon, public
7entities.

8

SEC. 8.  

The provisions of this act are severable. If any
9provision of this act or its application is held invalid, that invalidity
10shall not affect other provisions or applications that can be given
11effect without the invalid provision or application.



O

    94