SAN FRANCISCO - The California Legislature is now expected to convene the week of Oct. 12 for a special session.
The session is driven largely by the quest to enact a plan, including bond financing, to repair the state's water infrastructure, but lawmakers are also expected to consider other municipal bond-related legislation that got hung up before the regular session ended earlier this month.
Senate President pro tempore Darrell Steinberg has committed to reconvening the week of Oct. 12, Paul McIntosh, executive director of the California State Association of Counties, wrote on his organization's Web site.
For counties, cities, and local agencies, the session provides the last hope of being able to keep their original schedule to sell up to $1.9 billion of bonds by November to securitize local property tax revenue that is being borrowed by the state government to close its own general fund deficit.
According to a letter from the state's three main local government lobbying groups, lawmakers need to approve a bill no later than Oct. 15. Missing that deadline would cost localities the opportunity to conduct a securitization deal this year and probably also cost the deal its tax-exempt status.
Lawmakers earlier this month were unable to move on a bill designed to clarify the Proposition 1A securitization plans, named after the 2004 ballot measure giving the state government authority to borrow the local money.
Under authority also granted by Proposition 1A, local governments plan to issue the securitization through the California Statewide Communities Development Authority, backed by the state government's promise - binding under the state's constitution - to repay the borrowing within three years.
The cleanup bill to allow the securitization to move forward in November was not controversial in and of itself. However, it died in the waning hours of the regular session as members of the Republican Senate minority, in a dispute over unrelated matters, banded together to deny the two-thirds votes required for urgency measures.
The tax-exempt status of the financing is at stake because a November issuance is needed - for timing reasons related to the scheduled transfer of the proceeds to local governments -to qualify the deal as an eligible working-capital financing, according to John Knox, partner at Orrick, Herrington & Sutcliffe LLP, bond counsel for the transaction.
The state government has already committed to carrying all the finance costs stemming from the securitization, so the additional costs of a taxable financing structure would fall on the state, not the participating local governments.
"We are doing our best to save the state as much as possible in that process," Knox said. "We think Senate Bill 67 gets us a nice straightforward tax-exempt financing that provides a clear benefit to the state. Without it I don't see a clear path to tax-exempt financing."
The expected October session could also provide a last-ditch opportunity to revive legislation the state treasurer's office says it needs to avoid a spike in its debt-service costs on variable-rate bonds.
The treasurer's liquidity legislation, which also needed a two-thirds urgency vote, was another victim of the GOP Senate vote boycott.
That legislation would temporarily, until 2013, raise the permitted limit on liquidity fees for state general obligation bonds to 3% from 2%. With liquidity costs high at the moment, the treasurer's office says it needs the legislation to replace letters of credit that expire next month.
According to a Senate staff report prepared in connection with the bill, failure to get new letters of credit would force the state to either issue new debt to take out the variable-rate bonds, thereby cutting into the state's plans to issue new-money debt.
It could also increase costs by $150 million in the current fiscal year and $600 million in the next, presumably because the variable-rate debt would convert to bank bonds.
According to the official statement for last week's note sale, enhancement agreements on $1 billion in variable rate state general obligation bonds expire on Oct. 20.
But the treasurer's office will still have time to act of lawmakers approve legislation the week of the 12th, spokesman Joe DeAnda said Friday.
"It's an urgency bill, so if it were to pass the Legislature, it would take effect immediately and we do believe it will have a pretty large savings for the state," DeAnda said. "That's why were still pursuing it."
