BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                    AB 1919


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          Date of Hearing:  May 4, 2016


                       ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT


                           Susan Talamantes Eggman, Chair


          AB 1919  
          (Quirk) - As Amended April 4, 2016


          SUBJECT:  Local transportation authorities:  bonds.


          SUMMARY:  Removes, for local transportation authorities, the  
          requirement in existing law to use premiums from the sale of  
          bonds to be used to pay for the principal and interest of the  
          bonds, thereby allowing those bond premiums to be used for other  
          purposes.


          EXISTING LAW:   


          1)Establishes the Local Transportation Authority and Improvement  
            Act and provides for the formation, administration, powers,  
            taxing, and bonding authority for a local transportation  
            authority (authority).


          2)Authorizes an authority to issue limited tax bonds secured by  
            a pledge of revenues from the proceeds of a retail  
            transactions and use tax approved by the voters.  


          3)Requires all accrued interest and premiums received on the  
            sale of bonds to be placed in the fund to be used for the  








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            payment of the principal of and interest on the bonds.   
            Requires the reminder of the proceeds to be placed in the  
            authority's treasury to be applied to secure the bonds or for  
            the purposes for which the debt was incurred.  


          4)Requires, when the purposes have been accomplished, any money  
            remaining to be either:


             a)   Transferred to the fund to be used for payments for the  
               principal and interest on the bonds or,


             b)   Placed in a fund for the purchase of the outstanding  
               bonds in the open market at prices in the manner determined  
               by the authority.  


          FISCAL EFFECT:  None 


          COMMENTS:  


          1)Background and Bill Summary.  Existing law provides  
            transportation authorities the ability to issue bonds in order  
            to finance capital needs.  When an investor purchases a bond  
            they are in turn lending money to the local transportation  
            authority that issued the bond.  In return for buying the  
            bond, the local transportation agency must pay the investor  
            debt service, the principal amount of bond and interest, which  
            is the cost of borrowing the money.  Bond proceeds are used by  
            local transportation authorities to fund capital projects, the  
            costs of bond issuance and debt service.  Local transportation  
            authorities are required to use all interest and premiums (the  
            amount by which the price of a bonds exceeds its principal  
            amount) received from the sale of bonds on the debt service of  
            the bond.  








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            This bill removes, for local transportation authorities, the  
            requirement in existing law to use premiums from the sale of  
            bonds to be used to pay for the principal and interest of the  
            bonds, thereby allowing those bond premiums to be used for  
            other purposes.  This bill is sponsored by the Alameda County  
            Transportation Commission.


          2)Author's Statement.  According to the author, "Current  
            language limits an issuer's ability to structure municipal  
            bonds to best meet investor demand and in doing so promotes  
            structures that lead to higher interest costs.  Commonly in  
            California and nationally, municipal issuers can issue bonds  
            with either a par structure, discount structure or premium  
            structure.  All proceeds from the bond sale, including any  
            premium generated through a premium bond structure, are  
            eligible to be used for project costs. 



            "Current law, does not allow bond premium to be used to fund  
            capital projects.  This reduces the flexibility of issuers and  
            eliminates the incentive or financial benefit to the  
            transportation authority to offer a premium structure to  
            investors.  This restriction is inconsistent with current  
            practice in the municipal bond market and promotes bond  
            structures that have higher costs which, in turn, reduce the  
            amount of money available for transportation projects.  





            "A transportation authority organized under the Local  
            Transportation Authority and Improvement Act should be able to  
            issue bonds consistent with investor demand in order to  
            minimize borrowing costs and use more taxpayer dollars for  








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            projects.  This should include the ability to issue premium  
            bonds to fund eligible project costs if and when this  
            structure results in the lowest borrowing cost.  The goal for  
            the proposed changes is to remove the restrictive language  
            that currently requires bond premium from the sale of bonds to  
            be used only for the payment of principal and interest on the  
            bonds."  





          3)Arguments in Support.  The Alameda County Transportation  
            Commission argues that removing the current restriction on the  
            use of premiums will lower the cost of the bond transaction,  
            lower the amount of debt the transportation authority must  
            carry, and thus increase the amount of local sales tax dollars  
            available for project delivery.


          4)Arguments in Opposition.  None on file.  





          REGISTERED SUPPORT / OPPOSITION:




          Support


          Alameda County Transportation Commission












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          Opposition


          None on file


          




          Analysis Prepared by:Misa Lennox / L. GOV. / (916) 319-3958