BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 422|
|Office of Senate Floor Analyses | |
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THIRD READING
Bill No: AB 422
Author: McCarty (D)
Amended: 7/16/15 in Senate
Vote: 21
SENATE TRANS. & HOUSING COMMITTEE: 11-0, 7/14/15
AYES: Beall, Cannella, Allen, Bates, Gaines, Galgiani, Leyva,
McGuire, Mendoza, Roth, Wieckowski
ASSEMBLY FLOOR: 56-19, 5/7/15 - See last page for vote
SUBJECT: Sacramento Regional Transit District: line of
credit
SOURCE: Sacramento Regional Transit District
DIGEST: This bill enables Sacramento Regional Transit District
(Sacramento RT) to obtain a short-term revolving line of credit
for operating purposes.
ANALYSIS:
Existing law:
1)Establishes the Sacramento RT to operate a single unified
public transportation system in the Sacramento region in order
to meet the present and future public transportation, and mass
and rapid transit, needs of the region.
2)Enables Sacramento RT to borrow funds in accordance with
provisions related to securitized limited obligation notes,
short-term loans, and grant anticipation notes.
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This bill:
1)Enables Sacramento RT to obtain a short-term revolving line of
credit, secured by a note, for operating purposes in
anticipation of receipt of any future funds available to
Sacramento RT.
2)Specifies that the note related to the line of credit cannot
have a maturity date of more than 60 months (five years) from
the date of issuance.
3)Specifies that the maximum amount of indebtedness for this
line of credit cannot exceed maximum anticipated revenues from
federal operating grants that Sacramento RT anticipates
receiving in the next fiscal year.
4)Requires Sacramento RT to repay the outstanding balance
immediately upon receipt of federal funds, and prohibits these
federal operating grant revenues from being used for any other
purpose until the indebtedness is fully paid.
Comments
Purpose. Like many transit agencies in California, Sacramento
RT receives a significant percentage of its operating budget
from the Federal Transit Administration (FTA). The FTA dollars
arrive on a reimbursement basis. Sacramento RT begins spending
the money at the start of its fiscal year (July 1), but has to
wait for congressional action on the FTA budget before it can
receive the funds. In the past, this meant receiving the FTA
funds within 12 months of the start of Sacramento RT's fiscal
year. More recently, the receipt of funds has taken as long as
18 months.
State law allows local governments to use short-term borrowing
to bridge funding gaps under what is typically referred to as
the temporary revenue anticipation note (TRAN) statute. Under
this 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. Sacramento RT has relied
on the TRAN statute to address the cash-flow issue created by
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the FTA funding process for the last decade. According to
Sacramento RT, however, banks are now hesitant to lend to
Sacramento RT under TRAN because the gap between the start of
Sacramento RT's fiscal year and the actual receipt of FTA funds
continues to grow, and there is no guarantee that the FTA
dollars will come in within the necessary 12 to 15 months to
meet statutory requirements for repayment.
The author states that this bill gives Sacramento RT greater
flexibility to negotiate a short-term line of credit with banks
that reflects the reality of its financial situation. This bill
allows Sacramento RT to borrow through a revolving line of
credit with a maturity date of up to 60 months from the date of
issuance. This longer term credit line will enable Sacramento
RT to obtain the best possible interest rate and, according to
Sacramento RT, "will result in budgetary improvements and will
save the district money over time." Sacramento RT claims this
problem is unique to them and does not expect other transit
operators to need similar authority.
Concerns addressed in policy committee. Typically, it can be a
sign of financial trouble when an entity begins to borrow
against future revenues to pay for today's operating costs. In
some ways, this practice is akin to someone utilizing payday
loan establishments - one begins paying interest in order to
spend expected income before it's received, diminishing the
value of that income and slowly sinking into increasing levels
of debt. Sacramento RT contends that this is not the case with
its current situation, and it appears that Sacramento RT
currently intends to responsibly use the authority this bill
grants to resolve a timing issue related to federal operating
grants. The prior version of this bill, however, created the
opportunity for abuse of this short-term borrowing strategy and
for setting an unintended precedent. To address this concern,
this bill was amended in the Senate Transportation and Housing
Committee to require repayment immediately upon receipt of
federal funds and to limit the line of credit to anticipated
federal operating grants.
Prior Legislation
AB 1143 (Dickinson, Chapter 537, Statutes of 2011) expanded,
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among other things, Sacramento RT's ability to engage in
short-term borrowing.
FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local:
No
SUPPORT: (Verified 8/11/15)
Sacramento Regional Transit District (source)
California Bankers Association
City of Sacramento
OPPOSITION: (Verified 8/11/15)
None received
ASSEMBLY FLOOR: 56-19, 5/7/15
AYES: Achadjian, Alejo, Bloom, Bonilla, Bonta, Brown, Burke,
Calderon, Chau, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle,
Daly, Dodd, Eggman, Frazier, Gallagher, Cristina Garcia,
Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gray, Holden,
Irwin, Jones-Sawyer, Levine, Linder, Lopez, Low, Maienschein,
Mathis, McCarty, Medina, Mullin, Nazarian, O'Donnell, Olsen,
Perea, Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas,
Santiago, Mark Stone, Thurmond, Ting, Weber, Williams, Wood,
Atkins
NOES: Travis Allen, Baker, Bigelow, Brough, Chang, Chávez, Beth
Gaines, Grove, Hadley, Harper, Jones, Kim, Lackey, Mayes,
Melendez, Obernolte, Patterson, Wagner, Wilk
NO VOTE RECORDED: Campos, Gordon, Roger Hernández, Steinorth,
Waldron
Prepared by:Erin Riches / T. & H. / (916) 651-4121
8/17/15 10:38:05
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