BILL NUMBER: SB 997 CHAPTERED 09/27/99 CHAPTER 522 FILED WITH SECRETARY OF STATE SEPTEMBER 27, 1999 APPROVED BY GOVERNOR SEPTEMBER 27, 1999 PASSED THE SENATE AUGUST 31, 1999 PASSED THE ASSEMBLY AUGUST 26, 1999 AMENDED IN ASSEMBLY AUGUST 16, 1999 AMENDED IN SENATE MAY 17, 1999 AMENDED IN SENATE APRIL 5, 1999 INTRODUCED BY Senator Brulte FEBRUARY 26, 1999 An act to amend Sections 16731, 16733, 16754.3, and 16781 of the Government Code, relating to state bonds. LEGISLATIVE COUNSEL'S DIGEST SB 997, Brulte. State general obligation bonds. (1) Under the State General Obligation Bond Law, the finance committee for a bond issuance is required to adopt a resolution that includes, among other things, the rate of interest that the bonds to be issued shall bear. This bill would authorize the finance committee to specify that the bonds may pay a variable interest rate, as prescribed in the resolution, as long as no more than 20% of the aggregate principal amount of all outstanding bonds bear a variable interest rate. The bill would make other conforming changes to provisions that relate to general obligation bonds. (2) Under the State General Obligation Bond Law, all of the provisions of that law, with specified exceptions, are applicable to the issuance of refunding bonds. Existing law provides that state general obligation bonds are to be sold by the Treasurer either by sealed bids to the bidder whose bid will result in the lowest interest costs or by negotiated sale upon the Treasurer making certain findings. This bill would authorize the sale of refunding bonds by negotiated sale if the Treasurer determines that it is in the best interest of the state to do so. (3) This bill would incorporate additional changes in Section 16754.3 of the Government Code proposed by AB 1506, to be operative only if AB 1506 and this bill are both chaptered and become effective January 1, 2000, and this bill is chaptered last. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Section 16731 of the Government Code is amended to read: 16731. Whenever the committee determines that the sale of all or any part of the bonds authorized to be issued is necessary or desirable, it shall adopt a resolution to that effect. The resolution shall specify the following as to the bonds then to be sold: (a) The aggregate number, aggregate par value, denominations, and the date of the bonds to be then sold. The denominations shall be in the sum of one thousand dollars ($1,000) or multiples of that sum. The date appearing on the bonds shall be deemed to be the date of issuance for all purposes of this chapter, irrespective of the actual date of delivery of the bonds and the payment of the purchase price of the bonds. (b) The dates of maturity and the amount of the bonds maturing at each date of maturity, which amounts need not be equal, but which dates shall be at annual or semiannual intervals. The first dates of maturity shall be not more than five years, and the last dates of maturity shall be not more than 45 years, after the date of the bonds. (c) Whether or not the bonds are to be subject to redemption at the option of the board prior to maturity, and, if so, the provisions for the redemption, the manner of the call thereof, and the price or prices at which the bonds shall be subject to redemption. (d) The annual rate, or rates, of interest that the bonds to be issued shall bear, which may be in multiples of one-eighth or one-twentieth of 1 percent, payable semiannually, but not in excess of 11 percent. The rate or rates may be determined at the time of the sale of the bonds. Alternatively, the resolution may specify that the bonds may pay a variable interest rate, as prescribed in the resolution. However, at the time and as the result of the issuance of any bonds bearing a variable interest rate, the aggregate principal amount of all state general obligation bonds bearing variable interest rates may not exceed 20 percent of the aggregate principal amount of all state general obligation bonds then outstanding. For purposes of this calculation, variable rate bonds shall not include bonds issued pursuant to Section 16731.6 or bonds that have an effective fixed interest rate through a hedging contract. (e) The interest payment dates. (f) The technical form and language of the bonds. (g) Whether or not the right is reserved to make delivery in the form of temporary or interim bonds, certificates, or receipts, exchangeable for definitive bonds when executed and available for delivery. If the right is reserved, the denominations and form of the temporary securities shall be stated. (h) Whether the bonds are to be issued in coupon form or in fully registered form, or both, and whether or not any coupon bonds are to be subject to registration. If coupon bonds are to be subject to registration, the resolution shall state whether the registration is to be as to principal only, as to both principal and interest, or in either of the forms at the option of the holder, and the form and all of the terms and conditions of the registration. If the registration is provided for, coupon bonds may be interchanged for registered bonds and registered bonds for coupon bonds, and all of the provisions of this chapter with reference to the payment of bonds and interest coupons shall be subject to the terms and conditions of the registration with respect to the payment of registered bonds and the interest on registered bonds. (i) All other terms and conditions of the bonds and of the execution, issuance, and sale of the bonds, which shall be consistent with all of this chapter. SEC. 2. Section 16733 of the Government Code is amended to read: 16733. The rate of interest to be borne by the bonds need not be uniform for all bonds of the same issue, and shall be the rate or rates specified in the bid accepted by the Treasurer, unless a variable interest rate is prescribed for the bonds in the resolution pursuant to subdivision (d) of Section 16731. The first interest payment date may be any date within one year after the date of the bonds. SEC. 3. Section 16754.3 of the Government Code is amended to read: 16754.3. (a) The bonds specified in the resolution shall be sold by the Treasurer, at the time fixed by the Treasurer, and upon the notice that the Treasurer may deem advisable, or at the time to which the sale shall have been so continued, either at public sale, upon sealed bids, to the bidder whose bid will result in the lowest interest cost on account of those bonds or by negotiated sale if the Treasurer determines it will result in a lower interest cost. With respect to bonds sold by the Treasurer by negotiated sales, the Treasurer shall make a finding on the public record as to why a public sale was not used. The Treasurer may sell the bonds at a price below the par value thereof, but the discount on bonds so sold shall not exceed 3 percent of the par value. The interest, if any, accrued to the date of delivery of, and payment for, the bonds shall be added to the sale price of the bonds in any case. (b) The method of determining the lowest interest cost bid shall be prescribed in the bond resolution and shall be limited to either the net interest cost method or the true interest cost method. The net interest cost of each bid shall be determined by ascertaining the total amount of interest which the state would be required to pay under that bid, from the date of the bonds to the respective maturity dates of the bonds then offered for sale, at the interest rate or rates specified in the bid, less the total amount of the premium, if any (or plus the total amount of the discount, if any), offered by the bid. The bid under which the amount so ascertained is the least shall be deemed to be the bid resulting in the lowest net interest cost. Under the true interest cost method, the bonds shall be awarded to the bidder submitting the lowest interest rate bid determined by the nominal interest rate that, when compounded semiannually and used to discount the debt service payments on the bonds to the date of the bonds, results in an amount equal to the price bid for the bonds, excluding interest accrued to the date of delivery. Under either method the sale shall be for cash, payable upon the delivery of the bonds in definitive form, or if the right to deliver temporary securities has been reserved, then upon the delivery of the temporary securities. (c) If the resolution prescribes that the bonds may pay a variable interest rate, as specified in subdivision (d) of Section 16731, the Treasurer may sell the bonds either at public sale, upon sealed bids, or by negotiated sales, as prescribed in subdivision (a). (d) This section shall apply to any bonds authorized at any statewide election held at any time after the effective date of this section. Section 16754 shall apply only to bonds authorized at elections held before the effective date of this section. SEC. 3.5. Section 16754.3 of the Government Code is amended to read: 16754.3. (a) The bonds specified in the resolution shall be sold by the Treasurer, at the time fixed by the Treasurer, and upon the notice that the Treasurer may deem advisable, or at the time to which the sale shall have been so continued, either at public sale to the bidder whose bid will result in the lowest interest cost on account of those bonds or by negotiated sale if the Treasurer determines it will result in a lower interest cost. With respect to bonds sold by the Treasurer by negotiated sales, the Treasurer shall make a finding on the public record as to why a public sale was not used. The Treasurer may sell the bonds at a price below the par value thereof, but the discount on bonds so sold shall not exceed 3 percent of the par value. The interest, if any, accrued to the date of delivery of, and payment for, the bonds shall be added to the sale price of the bonds in any case. (b) The method of determining the lowest interest cost bid shall be prescribed in the bond resolution and shall be limited to either the net interest cost method or the true interest cost method. The net interest cost of each bid shall be determined by ascertaining the total amount of interest that the state would be required to pay under that bid, from the date of the bonds to the respective maturity dates of the bonds then offered for sale, at the interest rate or rates specified in the bid, less the total amount of the premium, if any , or plus the total amount of the discount, if any, offered by the bid. The bid under which the amount so ascertained is the least shall be deemed to be the bid resulting in the lowest net interest cost. Under the true interest cost method, the bonds shall be awarded to the bidder submitting the lowest interest rate bid determined by the nominal interest rate that, when compounded semiannually and used to discount the debt service payments on the bonds to the date of the bonds, results in an amount equal to the price bid for the bonds, excluding interest accrued to the date of delivery. Under either method the sale shall be for cash, payable upon the delivery of the bonds in definitive form, or if the right to deliver temporary securities has been reserved, then upon the delivery of the temporary securities. (c) If the resolution prescribes that the bonds may pay a variable interest rate, as specified in subdivision (d) of Section 16731, the Treasurer may sell the bonds either at public sale or by negotiated sales, as prescribed in subdivision (a). (d) This section shall apply to any bonds authorized at any statewide election held at any time after the effective date of this section. Section 16754 shall apply only to bonds authorized at elections held before the effective date of this section. SEC. 4. Section 16781 of the Government Code is amended to read: 16781. (a) Except as otherwise provided in this article or in subdivision (b), all of the provisions of this chapter are applicable to the issuance and sale of refunding bonds. (b) (1) Sections 16730 and 16757 are not applicable to the issuance and sale of refunding bonds. (2) Notwithstanding Section 16754.3, refunding bonds may be sold by negotiated sale if the Treasurer determines that it is in the best interest of the state to do so. SEC. 5. Section 3.5 of this bill incorporates amendments to Section 16754.3 of the Government Code proposed by both this bill and AB 1506. It shall only become operative if (1) both bills are enacted and become effective on or before January 1, 2000, (2) each bill amends Section 16754.3 of the Government Code, and (3) this bill is enacted after AB 1506, in which case Section 3 of this bill shall not become operative.