BILL ANALYSIS
SB 613
Page 1
SENATE THIRD READING
SB 613 (Harman)
As Amended January 21, 2010
Majority vote
SENATE VOTE : 36-0
LOCAL GOVERNMENT 9-0 APPROPRIATIONS 17-0
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|Ayes:|Smyth, Caballero, |Ayes:|Fuentes, Conway, |
| |Arambula, Bradford, | |Bradford, |
| |Davis, Knight, Logue, | |Charles Calderon, Coto, |
| |Solorio, Torlakson | |Davis, |
| | | |De Leon, Gatto, Hall, |
| | | |Harkey, Miller, Nielsen, |
| | | |Norby, Skinner, Solorio, |
| | | |Torlakson, Torrico |
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SUMMARY : Authorizes the Irvine Ranch Water District (IRWD) and
the Santa Margarita Water District (SMWD) to provide credit
enhancement, liquidity support, or both, by pledging and
applying all or any part of the districts' revenues to the
payment or security of the principal, redemption price, purchase
price, and interest of any general obligation bonds for
improvement districts or consolidated general obligation bonds
for improvement districts issued or carried by the districts.
Specifically, this bill :
1)Authorizes the board of each district to provide, in the
document in which the pledge is provided for or created, any
covenants, promises, restrictions, and provisions that the
district may deem necessary or desirable, including, but not
limited to, covenants, promises, restrictions, and provisions
relating to:
a) The use of bond proceeds;
b) The maintenance, operation, and preservation of the
district's facilities;
c) Any rates and charges to be established and collected by
the district, including rates and charges for the services
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or products furnished or provided by the district's
facilities;
d) The incurring of additional indebtedness payable from
the revenues; and,
e) The establishment, maintenance, and use of reserve
funds, sinking funds, interest and redemption funds,
maintenance and operation funds, and other special funds
for the payment or security of any or all of the principal,
redemption price, purchase price, and interest.
2)Allows the board of each district to exercise the powers
specified in the Revenue Bond Law of 1941 to carry out the
provisions set forth in the bill.
3)Specifies that pledges authorized by this bill are governed by
specified statutes relating to pledges of collateral to secure
bonds.
4)Requires the board of each district to adopt criteria to
govern its determinations to use the general revenue pledge;
including, evaluating the use of a pledge in lieu of, or in
combination with, other available credit enhancement and
liquidity options.
5)States that the authority granted is in addition to any
authority granted by other provisions of law relating to the
payment of the districts' general obligation bonds from the
proceeds of assessments to be levied upon and collected from
lands of any improvement district or relating to the levy and
collection of the assessments.
6)States that the provisions of this measure do not affect any
other law authorizing or providing for the issuance or
carrying of bonds by the districts.
7)Declares that the authorizations provided in this measure
shall be deemed to provide a complete and supplemental method
for exercising the powers authorized by the bill, and shall be
deemed supplemental to the powers conferred by other
applicable laws.
8)Requires each district, by January 1, 2014, to report back to
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the state describing the district's use, if any, of the
authority granted in this bill.
EXISTING LAW :
1)Authorizes the formation of improvement districts, which are
geographical subdivisions through which water districts can
fund capital improvements that benefit those specific
geographic areas.
2)Authorizes with a two-thirds vote of the property owners in an
improvement district, a water district to finance capital
projects by issuing general obligation bonds, which are
secured by property tax revenues outside of the standard 1%
rate.
FISCAL EFFECT : According to the Assembly Appropriations
Committee:
1)No state costs. Local costs are not reimbursable.
2)Potential reduction in overall borrowing costs to IRWD and
SMWD, and potential redistribution of liability for debt
service payments within the districts.
COMMENTS : IRWD and SMWD are special districts, formed under the
California Water District Act, which together provide water and
sewer service to approximately 480,000 residents within a
service area of over 177,000 acres in Orange County.
When issuing general obligation bonds for improvement districts,
IRWD and SMWD typically purchase credit enhancement, like bond
insurance or a letter of credit, to provide additional security
for the bonds. Credit enhancement improves the bonds' credit
rating and lowers the districts' borrowing costs. Investors
rely on the higher rating of a third-party credit enhancement
provider rather than the issuer's rating, so that the investors
will demand a lower interest rate, more than paying for the cost
of the credit enhancement.
Recent turmoil in the credit markets is making it more difficult
for IRWD and SMWD to purchase affordable third-party credit
enhancement for their improvement districts' general obligation
bonds. District officials want greater flexibility to provide
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their own direct credit enhancement for their bonds. This bill
would allow IRWD and SMWD to pledge their general revenues
towards the payment and security of their improvement districts'
general obligation bonds.
Support arguments: According to IRWD, by allowing each district
to use their strong overall credit to support general obligation
bonds issued by their improvement districts, this bill will
significantly lower the districts' cost of borrowing and, as a
result, will save money for taxpayers and ratepayers.
Opposition arguments: None at this time.
Analysis Prepared by : Katie Kolitsos / L. GOV. / (916)
319-3958
FN: 0005373