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California Property Tax Deal Squeezes Through Logjam

SAN FRANCISCO — A bond deal expected to approach $2 billion is heading for the November calendar, after a California Senate vote this week.

The California Statewide Communities Development Authority deal will securitize the repayment of property tax revenue that the state government borrowed from local agencies.

The bill was one of dozens that stalled on the Senate floor before the regular session adjourned in mid-September amid a dispute between the two top party leaders, President pro tempore Darrell Steinberg, D-Sacramento, and Republican leader Dennis Hollingsworth, R-Murrieta.

The bills were urgency measures, which needed to take effect immediately and thus required two-thirds votes and therefore some cooperation from the GOP minority. Republicans withheld their votes in September, but cooperated on Wednesday.

SB 67, which passed unanimously, will allow the Communities Development Authority to proceed with its planned securitization deal next month.

The revised budget, adopted in July to close a massive deficit, requires cities, counties and special districts to loan the state general fund 8% of their property tax revenue this year, to be repaid in three years.

In July, lobbyists for the affected local governments secured a bill to allow the loan to be securitized, with local governments receiving the proceeds of the deal, which will be backed by the state’s pledge to repay the debt in three years, supported by language in the state constitution.

The bill also calls for the state government to bear the cost of ­issuance and interest. But a cleanup bill was needed to implement the securitization, and that measure was caught in partisan crossfire in September before being approved Wednesday.

“SB 67 provides an accelerated schedule for the securitization of the Proposition 1A loan to occur no later than mid-November, ensuring that local agencies will receive this funding on exactly the same schedule as they would normally receive distributions of their property tax funds,” says a letter to Gov. Arnold Schwarzenegger from Paul McIntosh, executive director of the California State Association of Counties, Christopher McKenzie, executive director of the League of California Cities, and Neil McCormick, executive director of the California Special Districts Association. The letter urges the governor to sign the bill promptly.

“These same changes in SB 67 make it possible for the state to save an estimated $200 million in interest costs because the bonds can then be issued on a tax-exempt basis,” the letter said.

That’s because a November issuance will allow the deal to be a qualified working-capital financing under Internal Revenue Service rules, according to an interview last month with John Knox, partner at Orrick, Herrington & Sutcliffe LLP, bond counsel for the transaction.

The development authority has named Goldman Sachs & Co. to senior manage the deal, which is slated to price Nov. 10.

As of Tuesday, 1,166 cities, counties, and agencies have signed up to participate, representing more than $1.5 billion out of the $1.9 billion the state is borrowing. Affected municipalities have until Nov. 6 to sign up.

No public statements were issued as to why the Senate managed to break its legislative logjam. According to the Capitol Weekly newspaper, the key issue causing the delay was who got credit for a bill to provide a state tax credit to buyers of new homes.

The GOP insisted on creating a new bill for the tax credit, with a Republican sponsor, killing an identical bill sponsored by Democratic Assemblywomen Anna Caballero, who is planning to run next year for an open Senate seat now held by the GOP, the newspaper reported. A new tax-credit bill sponsored by Republican Sen. Roy Ashburn was approved.

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