BILL ANALYSIS Ó
AB 1919
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ASSEMBLY THIRD READING
AB
1919 (Quirk)
As Amended April 4, 2016
Majority vote
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|Committee |Votes|Ayes |Noes |
| | | | |
| | | | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Local |6-2 |Eggman, Mullin, |Waldron, Linder |
|Government | |Bonilla, Chiu, | |
| | |Cooley, Gordon | |
| | | | |
| | | | |
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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,
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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
payment of the principal of and interest on the bonds.
Requires the remainder 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
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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.
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
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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
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. The Howard Jarvis Taxpayers
Association argues "?we are concerned that diverting accrued
interest payments for these purposes represents poor fiscal
planning and establishes a bad precedent by shifting more of
the long-term costs of these bonds onto taxpayers."
Analysis Prepared by:
Misa Lennox / L. GOV. / (916) 319-3958 FN:
0002905
AB 1919
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