General obligation bonds.

(1) The State General Obligation Bond Law generally provides for a procedure that may be adopted by other acts, with any necessary modifications, in authorizing the issuance and sale of state general obligation bonds and providing for the repayment of those bonds, including the determination of interest rates the bonds shall bear. Existing law requires, with regard to a resolution specifying that the bonds may pay a variable interest rate, that the aggregate principal amount of all state general obligation bonds bearing variable interest rates does not exceed 20 percent of the aggregate principal amount of all outstanding general obligation bonds. Existing law exempts, from this calculation, variable rate bonds that have an effective fixed interest rate through a hedging contract. This bill would require the Treasurer to determine, with regard to those bonds that have an effective fixed interest rate through a hedging contract, that the hedging contract either significantly reduces variable rate risk or qualifies for integration with the bonds in calculating the yield on the bonds under certain federal rules. (2) Existing law provides that certain amounts payable or contractual obligations regarding bonds that bear a variable interest rate under a bond act that was approved by the voters before July 1, 2002, are not backed by the full faith and credit of the state. Existing law specifies that this contractual obligation is under a standby bond purchase agreement or other liquidity facility. This bill would instead provide that this contractual obligation is to repay advances and pay interest thereon under a credit enhancement or liquidity agreement. The bill would also provide that those amounts payable or those contractual obligations are backed by the full faith and credit of the state, if the bond act was approved on or after January 1, 2002. (3) Existing law requires, for bonds approved by the voters after January 1, 2006, that the payment of interest include the payment of any amounts owed by a counterparty after any offset for payments owed to the state on a hedging contract, and prohibits the total payments of stated interest on the bonds and payments owed by the state from exceeding a specified maximum rate after a specified offset. This bill would instead provide that the payment of any amounts owed by the state, after any offset, shall be deemed to be included within the appropriation for interest on the bonds. The bill would allow the payments of interest on a bond and the payments on a hedging contract that exceed the maximum rate in a fiscal year to be paid in subsequent fiscal years, under specified conditions. (4) Existing law requires, when the finance committee created by the bond act determines to issue commercial paper notes, for purposes of determining the principal amount of outstanding bonds, that the principal amount deemed outstanding be the maximum amount authorized in the resolution. This bill would delete that condition. (5) Existing law authorizes the Treasurer, when the finance committee created by the bond act deems it in the best interests of the state, to issue notes, on a negotiated or a competitive-bid basis, maturing within a period not to exceed 2 years, in anticipation of the sale of bonds. This bill would increase the maturation date of those notes to 5 years and make related changes. (6) Existing law specifies the manner in which the Treasurer may sell bonds. This bill would revise these provisions regarding the competitive sale of bonds and the conditions for bidding in a competitive sale or purchasing in a negotiated sale. The bill would make other conforming and nonsubstantive changes to the bond law. (7) Existing law allows a finance committee to also provide for the issuance and sale or exchange of refunding bonds for the purpose of redeeming, retiring, or purchasing for retirement, outstanding bonds at or before their maturity, if the committee determines, among other things, that refunding is necessary or advisable to effect a saving in debt service cost to the state. This bill would require the committee, when making this determination, to include, as interest on a refunded bond, the interest, if any, that will result from a related hedging contract and would authorize the committee, when determining debt service savings, to base the interest of a refunding bond upon the effective fixed interest rate under a hedging contract.