AgdaPkt 2009-08-24 clsd and reg - Laserfiche WebLink

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8A Page 8 'Budgef Continued from Page 1... Here is a brief list of where things stand on the major budget items important to cities: ProDosition 1A Sorrowina/Securitization: The state will borrow approximately $1.9 billion, 8 percent of city, county, and special district property tax shares pursuant to AS X4 14 and AS X4 15. The payments are required to be made in two equal installments: Jan. 15, 2010, and May 1, 2010. The repayment date listed in statute in June 30, 2013. Local agencies have three basic choices: 1. Carry the state borrowing on local books for the term of the loan and be repaid with interest. The interest rate has yet to be set by the Department of Finance (DO F), but can range as high as 6 percent; 2. Request a hardship exemption from the DOF director. The director is authorized to grant exemptions that may total not more than 10 percent of the total amount eligible (calculated by the total value of 8 percent of all property tax received by local agencies within the county); or 3. Enter into an agreement with California Communities, a joint-powers financing conduit issuer, whereby the participating local agency would exchange their right to state repayment of the borrowed property taxes for an up front payment financed through bonds sold to investors. California Communities would structure the financing, and investors would purchase the state's commitment to repay the local shares of property tax receivables, including interest. Interested cities should be ready to act quickly; once the program is operational. The timelines are expected to be tight. (See the Aug. 7 issue of City Advocate Weeklv for more information.) What's Next The League, CSAC and the California Special Districts Association, along with financing experts from California Communities recently met with representatives of DOF to discuss a number of desired amendments to the securitization language contained in AS X4 15. These requested amendments are all oriented toward improving the prospects of a successful securitization. Investors will be evaluating the risks associated with the state's commitment to repay by the repayment date. To ensure market success and reasonable interest rates, Investors need to be made as comfortable as possible that the state will pay as scheduled. While the meeting with state officials was productive, the League is awaiting the proposed batch of language, which should come shortly. It is hoped that that language will reflect the prior productive discussions. One issue that the DOF has raised is the potential of moving the hardship request process to follow the securitization effort, with the rationale that agencies that can recover full costs through securitization will not need a hardship exemption. The League will be watching for this in the expected language. Assuming agreement is reached on amendments, urgency legislation, requiring a two-thirds vote, is needed to ensure these changes take effect immediately. Hiahwav User's Tax Account (HUTA): After much chaos in the Legislature during the final hours of the budget votes, local governments received welcome news when what had been a proposed unconstitutional $1.7 billion grab of HUT A funds, was transformed first into a loan with a proposed 10-year repayment plan in the Senate, then in the final hours, pulled entirely out of the budget package in the Assembly. The final versions of the legislation that did not get adopted are AS X4 30 and AS X4 24, which remain in the Assembly. Another HUTA-related provision, however, that delayed the receipt of six months of local HUTA funds from July-December 2009, can be found in Section 16 of the cash deferral budget trailer bill AS X4 16. While this language is now operative law, in the context of the final budget package it can be viewed as potentially obsolete. There are several interdependent factors that explain this transformation: 1. The original budget agreement was to take $1.7 billion in local HUTA funds; 2