BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 1919|
|Office of Senate Floor Analyses | |
|(916) 651-1520 Fax: (916) | |
|327-4478 | |
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THIRD READING
Bill No: AB 1919
Author: Quirk (D)
Amended: 4/4/16 in Assembly
Vote: 21
SENATE TRANS. & HOUSING COMMITTEE: 9-2, 6/14/16
AYES: Beall, Cannella, Allen, Galgiani, Leyva, McGuire,
Mendoza, Roth, Wieckowski
NOES: Bates, Gaines
ASSEMBLY FLOOR: 48-30, 5/12/16 - See last page for vote
SUBJECT: Local transportation authorities: bonds
SOURCE: Author
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).
AB 1919
Page 2
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.
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.
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Page 3
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 transportation
authority by allowing the additional revenue generated in the
selling of premium bonds to be used for capital projects.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:NoLocal: No
SUPPORT: (Verified6/17/16)
Alameda County Transportation Commission
OPPOSITION: (Verified6/17/16)
Howard Jarvis Taxpayers Association
ASSEMBLY FLOOR: 48-30, 5/12/16
AYES: Alejo, Arambula, Atkins, Bloom, Bonilla, Bonta, Brown,
Calderon, Campos, Chau, Chiu, Chu, Cooley, Cooper, Dababneh,
Daly, Dodd, Eggman, Frazier, Cristina Garcia, Eduardo Garcia,
Gipson, Gomez, Gonzalez, Gordon, Gray, Roger Hernández,
Holden, Levine, Lopez, Low, McCarty, Medina, Mullin, Nazarian,
O'Donnell, Quirk, Ridley-Thomas, Rodriguez, Salas, Santiago,
Mark Stone, Thurmond, Ting, Weber, Williams, Wood, Rendon
NOES: Achadjian, Travis Allen, Baker, Bigelow, Brough, Chang,
Chávez, Dahle, Beth Gaines, Gallagher, Gatto, Grove, Hadley,
AB 1919
Page 4
Harper, Irwin, Jones, Kim, Lackey, Linder, Maienschein,
Mathis, Mayes, Melendez, Obernolte, Olsen, Patterson,
Steinorth, Wagner, Waldron, Wilk
NO VOTE RECORDED: Burke, Jones-Sawyer
Prepared by:Manny Leon / T. & H. / (916) 651-4121
6/17/16 15:03:34
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