BILL ANALYSIS Ó
AB 422
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Date of Hearing: April 15, 2015
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
Brian Maienschein, Chair
AB 422
(McCarty) - As Amended April 7, 2015
SUBJECT: Sacramento Regional Transit District: line of credit.
SUMMARY: Authorizes the Sacramento Regional Transit District
(RT) to obtain a short-term revolving line of credit for
operating purposes. Specifically, this bill:
1)Authorizes RT, in addition to its current borrowing authority,
to seek and obtain a short-term revolving line of credit for
operating purposes in anticipation of receipt of operating
grants, with the extension of credit evidenced by a note.
2)Authorizes RT to pledge anticipated grants and any other funds
available, including, but not limited to, fare revenues, as
specified, and any other revenues, income, or receipts, as
security for repayment of the note, the interest on the note,
and the related obligations evidenced by the note.
3)Requires the note to have a maturity date of not more than 60
months from the date of issuance.
4)Authorizes RT to pledge anticipated operating grants and other
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available funds over a multiyear period.
5)Prohibits the maximum indebtedness under the note from
exceeding the following:
a) The maximum amount in federal operating grant revenues
that RT anticipates receiving in a single fiscal year; and,
b) 85% of the amount of the anticipated grants and other
funds that RT anticipates receiving in a single fiscal year
that are pledged to repay the note, the interest on the
note, and the related obligations evidenced by the note.
EXISTING LAW:
1)Establishes the Sacramento Regional Transit District Act (Act)
which governs the powers and functions of RT, establishes RT's
territory, board of directors, and planning duties, and
authorizes RT to issue general obligation bonds and revenue
bonds, as specified.
2)Allows RT to borrow money in accordance with provisions
related to securitized limited obligation notes, short term
loans, and grant anticipation notes.
FISCAL EFFECT: None
COMMENTS:
1)Background. The Legislature authorized the creation of the
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Sacramento Regional Transit District in 1971 to operate a
comprehensive public transportation system for the Sacramento
region. AB 1143 (Dickinson), Chapter 537, Statues of 2011,
made several changes to RT's enabling Act to grant them
additional flexibility in financing costs. AB 1143 authorized
RT to issue revenue bonds with a two-thirds vote of the
governing board instead of requiring a vote of the electorate,
and allowed RT more flexibility in borrowing funds, including
the use of securitized limited obligation notes, short term
loans, and grant anticipation notes. These additional funding
tools were added to statute after RT's creation.
The Legislature has granted several transit districts the
ability to issue tax and revenue anticipation notes (TRANs),
bond anticipation notes (BANs), and grant anticipation notes
(GANs) to provide funds for short periods. Under these laws,
a local agency issues short-term notes in anticipation of
collecting some form of revenue, including tax or bond
proceeds or federal grant funding. TRANs and GANs are
commonly used as a cash management tool allowing a public
agency that receives revenue, like federal grants, on an
uneven basis throughout the year to access funds for needed
expenditures in anticipation of revenue.
Under current law, a local agency takes out a line of credit
at the start of the fiscal year and must pay the note in full
by the end of the same fiscal year, although in some cases the
maturity date can be extended from 12 to 15 months. RT has
relied on this type of short-term borrowing to address the
cash flow issue created by delays in federal funding and
grants, but banks are now hesitant to lend to RT because of
potential gaps between the start of RT's fiscal year and the
actual receipt of federal funds to meet statutory requirements
for repayment. The predictability of revenues and accuracy of
projections have large implications on the security and credit
rating for this type of short-term debt.
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2)Bill Summary. This bill expands RT's ability to do short-term
borrowing to cover operational costs. This bill allows RT to
borrow through a revolving line of credit with a maturity date
of up to 60 months from the date of issuance, and establishes
a borrowing amount that is consistent with limitations in
current law for other types of short-term notes. A revolving
line of credit would allow RT to utilize funds for operating
purposes on an as- needed basis, but will still limit the
amount of borrowing based on the amount of anticipated revenue
they will receive in a single fiscal year.
This bill is sponsored by RT.
3)Author's Statement. According to the author, "[This bill]
seeks to authorize a new method for how RT borrows money from
financial institutions. By granting RT the ability to borrow
through a short term revolving line of credit for operation
purposes, it would allow RT to bridge gaps in their budget
while anticipating on receipts of operation grants."
4)Committee Amendment. The Committee may wish to ask the author
to accept an amendment that will require RT to authorize the
issuance of a note by a resolution adopted by the governing
board. This amendment is consistent with provisions in
existing law which requires RT's governing board to adopt a
resolution to issue TRANs and other types of short-term notes.
5)Arguments in Support. Supporters argue that this bill will
ensure that federal grant funds are most efficiently utilized
and will result in budgetary improvements that will save RT
costs over time.
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6)Arguments in Opposition. None on file.
7)Double-Referral. This bill was heard by the Transportation
Committee on March 23, 2015, and passed with a 13-3 vote.
REGISTERED SUPPORT / OPPOSITION:
Support
Sacramento Regional Transit District [SPONSOR]
California Bankers Association
Opposition
None on file
Analysis Prepared by:Misa Lennox / L. GOV. / (916) 319-3958
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