BILL ANALYSIS Ó
SENATE COMMITTEE ON TRANSPORTATION AND HOUSING
Senator Jim Beall, Chair
2015 - 2016 Regular
Bill No: AB 1919 Hearing Date: June 14, 2016
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|Author: |Quirk |
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|Version: |4/4/2016 |
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|Urgency: |No |Fiscal: |No |
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|Consultant|Manny Leon |
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SUBJECT: Local transportation authorities: bonds
DIGEST: This bill removes a bond requirement in existing law in
order to increase a local transportation authority's flexibility
in utilizing bond proceeds sold for transportation capital
projects.
ANALYSIS:
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 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 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.
AB 1919 (Quirk) Page 2 of ?
This bill removes, specifically for local transportation
authorities, the requirement in existing law to use premiums
from the sale of bonds to pay for the principal and interest of
the bonds, thereby allowing those bond premiums to be used for
other purposes (e.g., capital improvement projects).
COMMENTS:
1)Purpose. The author notes, "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. For authorities, current law does not allow
bond premiums 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."
2)What are premium bonds? Premium bonds are bonds that trade
above their par value (i.e., the face value of the bond).
Generally, a bond will trade at a premium when it offers a
coupon rate (i.e., the yield on the bond paid on its issue
date; however, this rate changes as the value of the bond
changes) that is higher than prevailing interest rates.
Typically, this occurs because investors desire a higher yield
and will pay more for it. For example, a Los Angeles
wastewater system bond with a par value of $100 million is
selling for $119 million because of favorable market
conditions. Under current law, authorities are prohibited
from using the additional revenue generated ($19 million in
the example above) from the sale of premium bonds on
transportation capital projects; rather, this specific revenue
is required to be used for debt service on the actual par
value of the bond.
This bill does not change any requirements tied to a local
transportation authority's responsibility to pay back bond
proceeds over a required time period. Rather, this bill
merely provides additional flexibility for local
AB 1919 (Quirk) Page 3 of ?
transportation authority by allowing the additional revenue
generated in the selling of premium bonds to be used for
capital projects.
Assembly Votes:
Floor: 48-30
Local Gov: 6-2
FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local:
No
POSITIONS: (Communicated to the committee before noon on
Wednesday,
June 8, 2016.)
SUPPORT:
Alameda County Transportation Commission
OPPOSITION:
None received
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