Two Bills Have Muni Angles

California Gov. Jerry Brown is weighing one bill that secures bondholders if a hospital declares bankruptcy, and has already signed another that proponents said could help corporate investment in municipal bonds.

The governor is considering SB 644, which provides a guarantee to potential bond investors in the troubled Doctors Medical Center in San Pablo that they will be repaid even if bankruptcy is declared.

The bill provides a lien against the medical center’s parcel tax revenue, which cannot be removed by a bankruptcy judge even if the center shuts down.

The medial center needs $20 million to continue operating and to avoid bankruptcy. The facility will receive those funds from a parcel tax passed in 2004, but it needs operating loans.

Sen. Loni Hancock, D-Berkeley, the bill’s author, urged the governor to sign it.

“I have informed the governor in the strongest possible terms that this bill is essential to the health and welfare of tens of thousands of East Bay residents. Failure to sign the bill into law will put them at risk,” Hancock said in a press release Wednesday.

Brown this week signed into law SB 506, which clarifies that the purchaser of a bond can submit a warrant as payment for its tax liabilities rather than the third party.

California allows taxpayers to use registered warrants, including those issued in lieu of bond interest or principal, to pay state income and corporate tax liabilities.

However, when the statute was drafted, companies owned bonds in paper form. Now those documents are held in electronic form by third parties.

As a result, state law did not clearly establish whether it was the investor that purchased the bond, or the third party that could use a warrant to pay its tax liabilities, according to a press release by the bill’s author, Joe Simitian, D-Palo Alto.

Simitian said he introduced the bill after Apple Inc. raised the issue that the wording of the old law prevented it from investing in California debt.

“With the governor’s signature on SB 506, California corporations will have additional investment opportunities, and the state of California will have additional investors,” Simitian said.

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Healthcare industry Bankruptcy California
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