BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 850|
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THIRD READING
Bill No: AB 850
Author: Nazarian (D)
Amended: 8/12/13 in Senate
Vote: 21
SENATE GOVERNANCE & FINANCE COMMITTEE : 7-0, 7/03/13
AYES: Wolk, Knight, Beall, DeSaulnier, Emmerson, Hernandez, Liu
SENATE APPROPRIATIONS COMMITTEE : 5-0, 8/12/13
AYES: De León, Gaines, Hill, Lara, Steinberg
NO VOTE RECORDED: Walters, Padilla
ASSEMBLY FLOOR : 72-0, 5/9/13 - See last page for vote
SUBJECT : Public capital facilities: water quality
SOURCE : Los Angeles Department of Water and Power
DIGEST : This bill authorizes joint powers authorities (JPAs)
to issue rate reduction bonds to finance publicly owned utility
(POU) projects until December 31, 2020. The bonds would be
secured by utility project property and repaid through a
separate utility project charge imposed on the POU customers'
bills. This bill also requires the California Pollution Control
Financing Authority (CPCFA) to review each issue of rate
reduction bonds proposed by JPAs, as specified.
ANALYSIS : The Marks-Roos Local Bond Pooling Act allows public
agencies to use JPAs to finance infrastructure. These JPAs
issue Marks-Roos Act bonds and loan the capital to local
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agencies for public works, working capital, and insurance
programs (SB 17, Marks, 1985).
This bill allows a JPA that limits its financing activities to
financing utility projects and projects for the use or benefit
of public water agencies to finance specified utility projects
by issuing rate reduction bonds and imposing utility project
charges. Specifically, this bill:
1. Details how local agencies must apply to JPAs to finance
utility projects.
2. Specifies how JPAs must impose utility project charges.
3. Specifies how JPAs must issue rate reduction bonds.
4. Creates a statutory lien on property related to rate
reduction bonds.
5. Shields JPAs that issue rate reduction bonds from bankruptcy
cases.
6. Allows JPAs to finance utility projects through limited
liability companies.
7. Defines terms used in this bill.
8. Makes other declarations and conforming changes to state
law.
I. Financing local agencies' utility projects . This bill
allows a local agency that owns and operates a utility that
provides retail water service to apply to a JPA to finance
costs of a utility project with the proceeds of rate
reduction bonds. This bill defines a "utility project" as
acquiring, constructing, installing, retrofitting,
rebuilding, adding to, or improving, any equipment, device,
structure, improvement, process, facility, technology,
rights or property, located either within, or outside of,
the State of California, that is used in connection with the
a utility's operations for conservation or reclamation
purposes or in response to a requirement imposed by a
federal or state entity.
This bill allows a local agency to apply for financing only
if, at the time of application, the utility's revenue bonds
are, or upon issuance would be, rated investment grade by a
nationally recognized rating agency.
This bill requires that a local agency's application to a
JPA for financing must specify the utility project to be
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financed by the rate reduction bonds, the maximum principal
amount, the maximum interest rate, and the maximum stated
terms of the rate reduction bonds.
The CPCFA shall approve a project for financing with rate
reduction bonds if the financing satisfies specified
criteria.
This bill requires the CPCFA to review each issue of bonds
and determine that it qualifies for issuance if it satisfies
specified criteria. CPCFA must provide a written
explanation for any refusal to qualify a proposed issuance.
This bill requires the CPCFA to act on an application by the
next meeting that occurs after at least 60 days following
receipt of the application.
This bill requires the CPCFA to adopt emergency regulations
and establish procedures for the expeditious review of
proposed issuances of rate reduction bonds, including the
establishment of reasonable application fees to reimburse
CPCFA for administrative costs.
This bill requires the CPCFA to submit a report to the
Legislature by March 31 of each year that includes a listing
of applications received and qualified issuances, a detailed
accounting of bonds sold, and a comparison of interest rates
and transactional costs on qualified issuances with interest
rates on comparable debt issuances.
This bill prohibits a local agency from applying to a JPA to
finance a utility project unless the agency's legislative
body has determined that:
The project to be financed is a utility project.
The local agency is electing to finance costs of the
utility project pursuant to this bill's provisions and
the financing costs associated with the financing are to
be paid from utility project property, including the
utility project charge for the rate reduction bonds
issued for the utility project in accordance with this
bill's provisions.
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The financing is expected, based on available
information and projections, to result in lower total
charges to the customers of the local agency's POU
compared with financing the utility project through bonds
payable from the POU's revenues.
The JPA to issue rate reduction bonds pursuant to
this bill sunsets after December 31, 2020.
II. Utility project charges . This bill defines a "utility
project charge" as a charge imposed and adjusted pursuant to
specified provisions of state law which is paid by a retail
water utility's customers to pay financing costs of rate
reduction bonds issued to finance a utility project.
This bill allows and directs a JPA financing a utility
project with rate reduction bonds to impose and collect a
utility project charge with respect to the rate reduction
bonds, subject to Article XIIID of the California
Constitution. To impose a utility project charge, the JPA's
governing body must adopt a financing resolution, which must
include:
The addition of a separate charge to the bill of
each customer of the POU in the class or classes of
customers specified in the financing resolution.
A description of the financial calculation, formula,
or other method that the authority is to use to determine
the utility project charge.
A requirement that the authority enter into a
servicing agreement for collecting the utility project
charge with the local agency for which the financing is
undertaken or its POU.
This bill requires that the method for determining the
project utility charge must include a periodic adjustment
method to the then current utility project charge, to be
applied at least annually, that the JPA must use to correct
for any overcollection or undercollection of financing costs
from the utility project charge or any other adjustment
needed to ensure timely payment of rate reduction bonds'
financing costs, including debt service coverage
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requirements. This bill requires that the method for
determining the project utility charge and the allocation of
utility project charges to, and among, the POU's customers
must be decided solely by the JPA's governing body. This
bill declares the JPA's decision to be final and conclusive.
This bill prohibits any changes to the method for
determining the utility project charge, and the periodic
adjustment method, after they have been established in the
financing resolution and have become final and conclusive.
This bill prohibits the periodic adjustment method
established in the financing resolution from being applied
less frequently than required by the financing resolution
and the documents relating to the applicable rate reduction
bonds.
This bill requires that the servicing agreement for
collecting the utility project charge must require the local
agency or its POU to act as a servicing agent for purposes
of collecting the utility project charge as long as the
servicing agreement remains in effect. Funds collected as a
utility project charge by the local agency or its POU,
acting as a servicing agent on behalf of the JPA, must be
held in trust for the exclusive benefit of the persons
entitled to the financing costs to be paid, directly or
indirectly, from the utility project charge and must not
lose their character as revenues of the JPA by virtue of
possession by the local agency or its POU. The local agency
or its POU must provide the JPA with the information about
estimated water sales and any other information concerning
the POU required by the JPA in connection with the utility
project charge.
This bill contains provisions that:
Define the utility project charge as a
non-bypassable charge.
Establish a customer's obligation to pay a utility
project charge regardless of whether or not the customer
has an agreement to purchase water from a person or
entity other than the POU.
Require timely and complete payment of all utility
project charges, specify collection procedures, and
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prohibit withholding payment of the utility project
charge.
Detail the manner in which a JPA must determine
whether adjustments to the utility project charge are
required and the manner in which a JPA must make such
adjustments.
Specify how revenues must be applied to the payment
of the financing costs of the rate reduction bonds.
Require a JPA to impose and collect utility project
charges sufficient to pay, on a timely basis, rate
reduction bonds' financing costs.
Declare the pledge of a utility project charge to
secure the payment of rate reduction bonds to be
irrevocable.
Prohibit the reduction, impairment, or adjustment of
the utility project charge, with specified exceptions.
Deem revenue from a utility project charge as
special revenue of the JPA, not revenue of a local agency
or its POU.
Define the conditions under which a utility project
charge constitutes a utility project property.
Apply this bill's provisions to any entity providing
water distribution service in lieu of a local agency for
which rate reduction bonds have been issued and remain
outstanding.
III. Rate reduction bonds . This bill defines "rate reduction
bonds" as bonds issued by a JPA, the proceeds of which are
used directly or indirectly to pay or reimburse a local
agency or its POU for the payment of the costs of a utility
project, and that are secured by a pledge of, and are
payable from, utility project property as specified in state
law.
This bill requires that:
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Rate reduction bonds must be within the parameters
set forth by a local agency.
Rate reduction bonds' proceeds must be used for the
utility project identified in the local agency's
application for financing.
A JPA's governing body must, by resolution,
authorize the issuance of rate reduction bonds.
Rate reduction bonds must be nonrecourse to the
credit or any assets of the local agency and the POU for
which the utility project is financed.
Rate reduction bonds must be payable from, and
secured by a pledge of, the utility project property
relating to the rate reduction bonds and any additional
security or credit enhancement specified in the documents
relating to the rate reduction bonds.
This bill defines "utility project property" as the property
right created pursuant to state law, including a JPA's
right, title, and interest:
In and to the financing resolution and the utility
charge established with respect to the rate reduction
bonds, as adjusted from time to time in accordance with
state law.
To be paid the financing costs of the rate reduction
bonds and to all revenues, collections, claims, payments,
moneys, or proceeds for, or arising from, the utility
project charge relating to the rate reduction bonds.
In and to all rights to obtain adjustments to the
utility project charge relating to the rate reduction
bonds pursuant to state law.
This bill requires a JPA issuing rate reduction bonds to
pledge the utility project property relating to the rate
reduction bonds as security for payment. The pledge must be
made pursuant to, and with the effect set forth in, a
specified statute governing a public body's pledge of
collateral to secure bonds. This bill declares that all of
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a JPA's rights with respect to utility project property
pledged as security for the payment of rate reduction bonds
must be for the benefit of, and enforceable by, the
beneficiaries of the pledge to the extent provided in the
documents relating to the rate reduction bonds.
This bill declares that utility project property constitutes
property for all purposes, including for contracts securing
rate reduction bonds, whether or not specified revenues and
proceeds have accrued.
To the extent that any interest in utility project property
is pledged as security for the payment of rate reduction
bonds, this bill requires a local agency or its POU to
contract with the JPA that the local agency or its POU will:
Continue to operate its POU system that includes the
financed utility project to provide service to its
customers,
Collect amounts in respect of the utility project
charge for the benefit and account of the authority and
the beneficiaries of the pledge of the utility project
charge, and
Account for and remit these amounts to, or for the
account of, the authority.
This bill specifies that such a contract is part of the
utility project property.
This bill states that any requirements that a JPA must take
action with respect to utility project property are binding
upon the JPA. This bill prohibits the JPA from rescinding,
altering, or amending any resolution or document containing
the requirement.
This bill declares that the recovery of the financing costs
for the rate reduction bonds from the utility project charge
is irrevocable. This bill prohibits a JPA from:
Revaluing or revising for ratemaking purposes the
financing costs of rate reduction bonds,
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Determining that the financing costs for the related
rate reduction bonds or the utility project charge is
unjust or unreasonable, or
Reducing or impairing the value of utility project
property that includes the utility project charge, either
directly or indirectly.
This bill prohibits any reduction, impairment, postponement,
or termination of the amount of revenues arising with
respect to the financing costs for rate reduction bonds or
the utility project charge until all financing costs to be
paid from the utility project charge are fully met and
discharged.
This bill contains a pledge and agreement made by the State
of California that the State of California will neither
limit nor alter the financing costs or the utility project
property, including the utility project charge, relating to
the rate reduction bonds, or any rights in, to or under, the
utility project property until all financing costs with
respect to the rate reduction bonds are fully met and
discharged, with specified exceptions. This bill allows a
JPA to include this pledge in the governing documents for
rate reduction bonds.
This bill requires a JPA to adjust the utility project
charge relating to rate reduction bonds and the documents
related to those rate reduction bonds as may be necessary to
ensure timely payment of all financing costs with respect to
the rate reduction bonds. The adjustments must not impose
the utility project charge upon classes of customers which
were not subject to the utility project charge pursuant to
the financing resolution imposing the utility project
charge.
This bill declares that financing costs in connection with
rate reduction bonds do not constitute a debt or liability
of the State of California or of any political subdivision
thereof, other than the special obligation of the JPA, and
do not constitute a pledge of the full faith and credit of
the State of California or any of its political
subdivisions, including the JPA. This bill specifies that
this provision does not preclude guarantees or credit
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enhancements in connection with rate reduction bonds.
This bill states that the issuance of rate reduction bonds
does not obligate the State of California or any political
subdivision to levy or to pledge any form of taxation to pay
the rate reduction bonds or to make any appropriation for
their payment.
This bill requires all rate reduction bonds to contain a
statement to the following effect:
"Neither the full faith and credit nor the taxing power
of the State of California or any political subdivision
thereof is pledged to the payment of the principal of, or
interest on, this bond."
IV. Statutory lien . This bill declares that upon the effective
date of the financing resolution relating to rate reduction
bonds, a first priority statutory lien exists on all utility
project property to secure the payment of the rate reduction
bonds. The lien arises pursuant to state law automatically,
without any action on the part of the authority, the local
agency or its POU, or any other person. This bill contains
additional provisions relating to property secured by the
lien and the lien's validity and enforceability.
This bill allows a JPA's financing resolution to require the
JPA, upon application by the beneficiaries of the statutory
lien, and without limiting any other remedies available, to
order the sequestration and payment to the beneficiaries of
revenues arising with respect to utility project property in
the event of default by the local agency or its POU.
V. Applicability of federal bankruptcy law . This bill states
that, notwithstanding any other law, a JPA that has financed
a utility project through the issuance of rate reduction
bonds is not authorized, and no governmental officer or
organization shall be empowered to authorize the JPA, to
become a debtor in a case under the United States Bankruptcy
Code or to become the subject of any similar case or
proceeding under any other law as long as any payment
obligation from utility project property remains with
respect to rate reduction bonds.
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VI. Limited liability company financing . This bill allows a
JPA to elect to effect a financing of a utility project
through a single member limited liability company formed by
the authority by authorizing the company to adopt the
financing resolution and the JPA's issuing rate reduction
bonds payable from, and secured by a pledge of, amounts paid
by the company to the JPA from the applicable utility
project property pursuant to an agreement. This bill
specifies statutory provisions that must apply to and be the
exclusive method of perfecting a pledge of utility project
property by the company securing the payment of financing
costs under any agreement of the company in connection with
the issuance of rate reduction bonds. This bill provides
that specified statutory references to the JPA mean or
include the company as necessary to implement this bill's
provisions.
VII. Definitions . This bill defines the following terms:
1. "Conservation or reclamation purposes" means a
utility project designed to reduce the amount of potable
water to be supplied by a POU or reduce the amount of
water imported by the POU, including without limitation,
storm water capture and treatment, water recycling,
development of local groundwater resources, groundwater
recharging, and water reclamation.
2. "Customer" means a person or entity receiving water
through facilities of a POU.
3. "Financing costs" means any of the following:
Interest and redemption premiums that are
payable on rate reduction bonds.
The cost of retiring the principal of rate
reduction bonds, whether at maturity, including
acceleration of maturity upon an event of default, or
upon redemption, including sinking fund redemption.
A cost related to issuing or servicing rate
reduction bonds, including, but not limited to,
servicing fees, trustee fees, legal fees,
administrative fees, bond counsel fees, bond placement
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or underwriting fees, remarketing fees, broker dealer
fees, independent manager fees, payment under an
interest rate swap agreement, financial advisor fees,
accounting report fees, engineering report fees, and
rating agency fees.
A payment or expense associated with a bond
insurance policy, financial guaranty or a contract,
agreement, or other credit enhancement for rate
reduction bonds or a contract, agreement, or other
financial agreement entered into in connection with
rate reduction bonds.
The funding of one or more reserve accounts
related to rate reduction bonds.
4. "Financing resolution" means a resolution adopted by
the governing body of an authority financing a utility
project with rate reduction bonds that establishes and
imposes a utility project charge in connection with the
rate reduction bonds in accordance with a specified
statute. A financing resolution may be separate from a
resolution authorizing the issuance of the rate reduction
bonds.
5. "Mandate" means a requirement, imposed by a
mandating entity by any means, including a statute, rule,
regulation, an administrative or judicial order, a
building, operating, or licensing requirement or
condition, or an agreement with, or license or permit
from, the mandating entity, on a facility of a POU or a
facility operated in whole or in part for the benefit of
a POU, or on the operations of the POU, or on the water
pumped, acquired, or supplied by the POU.
6. "Mandating entity" means the U.S.; a state of the
U.S.; an agency, department, commission, or other
subdivision of the U.S. or a state of the U.S.; a court
of the U.S. or a state of the U.S.; or any other body or
organization, that has jurisdiction over the operations
of a POU; the facility of a POU, or a facility operated
in whole or in part for the benefit of a POU; or the
water pumped, acquired or sold by a POU. "Mandating
entity" does not include a local agency that owns the
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POU.
7. "Publicly owned utility" means a utility furnishing
water service to not less than 25,000 retail customers
that is owned and operated by a local agency or a
department or other subdivision of a local agency and
includes any successor to the powers and functions of the
department or other subdivision.
VIII. Other changes and declarations . This bill makes additional
conforming and clarifying changes to state law. This bill
declares that its provisions must be liberally construed to
effectuate their purposes, and that all incidental powers
necessary to carry into effect its provisions are expressly
granted to, and conferred upon, public entities. This bill
declares that its provisions are severable.
Comments
To comply with federal and state clean drinking water standards,
remediate groundwater contamination, and address the constant
challenge of water scarcity, public water utility operators
anticipate investing billions of dollars in vital water
infrastructure projects over the coming years. For example,
just to comply with two primary drinking water standards under
the Safe Drinking Water Act, the Los Angeles Department of Water
and Power (LADWP) expects to spend $1.4 billion between 2011-12
and 2015-16 to complete its water quality improvement program.
Financing water infrastructure projects with rate reduction
bonds will produce lower borrowing costs for public agencies.
These cost savings reduce the rates that water customers will
pay compared to the rates they would pay if the water
infrastructure had been financed using more traditional
financing mechanisms, like revenue bonds. LADWP estimates that
ratepayers would save as much as $3 million per year for each
$100 million of financing under this bill's provisions. Given
its planned spending for water quality and local water supply
projects, LADWP projects that rate reduction bond financing
would lower rates by 2-4% during the course of the next five
years. In addition to lower borrowing costs, rate reduction
bonds also can, under certain conditions, qualify for off
balance-sheet accounting treatment that benefits the public
utility.
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FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee:
Estimated one-time CPCFA costs of up to $150,000 over two
fiscal years to develop and adopt emergency regulations for
the expeditious review of rate reduction bond issuances,
including the establishment of application fees (Pollution
Control Financing Authority Fund).
Unknown ongoing costs to review and act on applications,
collect data on issuances, and submit annual reports to the
Legislature (Pollution Control Financing Authority Fund).
This bill provides CPCFA with the authority to recover
administrative costs through a fee charged on applicants.
The ability to fully recover costs would depend upon the
number of applications and the amount of the proposed fees
established through the regulatory process.
SUPPORT : (Verified 8/14/13)
Los Angeles Department of Water and Power (source)
Association of California Water Agencies
California Municipal Utilities Association
California Special Districts Association
ARGUMENTS IN SUPPORT : According to the author's office, this
bill will result in interest savings, lower debt service and
lower local borrowing costs, which will reduce future utility
rate increases. JPAs, formed under existing law, have
successfully allowed public agencies to finance the construction
of capital projects by issuing tax exempt revenue bonds. JPAs
have helped meet critical needs, within the state, by helping to
accelerate the construction, repair and maintenance of public
capital improvements. This bill will simply expand this same
authority and benefit to JPAs formed by municipal water utility
companies.
ASSEMBLY FLOOR : 72-0, 5/9/13
AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Bigelow, Bloom,
Blumenfield, Bocanegra, Bonilla, Bonta, Bradford, Brown,
Buchanan, Ian Calderon, Campos, Chau, Chávez, Chesbro, Cooley,
Dahle, Daly, Dickinson, Eggman, Fong, Fox, Frazier, Beth
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Gaines, Garcia, Gatto, Gomez, Gordon, Gorell, Gray, Grove,
Hagman, Hall, Harkey, Roger Hernández, Jones, Jones-Sawyer,
Levine, Linder, Lowenthal, Maienschein, Mansoor, Medina,
Melendez, Mitchell, Morrell, Mullin, Muratsuchi, Nazarian,
Nestande, Olsen, Pan, Perea, V. Manuel Pérez, Quirk,
Quirk-Silva, Rendon, Salas, Skinner, Stone, Ting, Torres,
Wagner, Weber, Wieckowski, Williams, Yamada, John A. Pérez
NO VOTE RECORDED: Conway, Donnelly, Holden, Logue, Patterson,
Waldron, Wilk, Vacancy
AB:k 8/14/13 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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