BILL ANALYSIS Ó
AB 422
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB
422 (McCarty)
As Amended July 16, 2015
Majority vote
--------------------------------------------------------------------
|ASSEMBLY: | | (May 7, 2015) |SENATE: |35-5 | (August 24, |
| |56-19 | | | |2015) |
| | | | | | |
| | | | | | |
--------------------------------------------------------------------
Original Committee Reference: TRANS.
SUMMARY: Authorizes the Sacramento Regional Transit District
(RT) to obtain a short-term revolving line of credit for
operating purposes.
The Senate amendments:
1)Requires RT to repay the outstanding balance immediately upon
receipt of federal funds to keep RT from carrying a balance
from year-to-year.
2)Limits RT's authority to obtain a line of credit in
anticipation of receipt of federal operating grants in order
to restrict RT from expanding its authority to borrow against
other future operating grants.
AB 422
Page 2
3)Eliminates the superfluous 85% limitation and ties borrowing
limit to the anticipated revenue amount for the next fiscal
year instead of just "a" fiscal year to limit reaching RT's
maximum indebtedness.
EXISTING LAW authorizes local agencies, including transit
districts, to engage in short-term borrowing, but generally
requires full repayment by the end of the fiscal year in which
the note was issued, and in some cases allows repayment within
15 months of the date of issuance of the note.
AS PASSED BY THE ASSEMBLY, this bill:
1)Authorized RT 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)Authorized RT to pledge anticipated grants and any other funds
available, including fare revenues 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)Required the note to have a maturity date of not more than 60
months from the date of issuance.
4)Authorized RT to pledge anticipated operating grants and other
available funds over a multiyear period.
5)Capped the maximum indebtedness under the note at 85% of the
amount of the anticipated grants and other funds pledged to
AB 422
Page 3
repay the note, the interest on the note, and the related
obligations evidenced by the note.
FISCAL EFFECT: None
COMMENTS: Like most transit agencies in California, RT receives
a significant percentage of its operating budget from the
Federal Transit Administration (FTA). The FTA dollars arrive on
a reimbursement basis. 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 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 months to 15 months. RT has relied on
the TRAN statute to address the cash flow issue created by the
FTA funding process for the last decade, but banks are now
hesitant to lend to RT under TRAN because the gap between the
start of 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 months to 15 months to meet
statutory requirements for repayment.
This bill would give RT greater flexibility to negotiate a
short-term line of credit with banks that reflects the reality
of its financial situation. 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. This longer-term credit
line will enable RT to obtain the best possible interest rate
and, according to RT, "will result in budgetary improvements and
will save RT in costs over time."
AB 422
Page 4
Analysis Prepared by:
Victoria Alvarez / TRANS. / (916) 319-2093 FN:
0001284