SECTIONS 5900-5909 - California Statutes

GOVERNMENT CODE

SECTION 5900-5909

5900. The Legislature finds and declares all of the following:
(a) The ability of the state and local governments to issue bonds
is essential to their ability to finance public improvements and
other projects and programs which serve important public purposes and
have major social and economic consequences to the people of
California.
(b) The exemption of interest on these bonds from federal income
taxation has been a major feature of this financing, reducing
interest costs to the state and local government issuers and
enhancing the marketability of the bonds.
(c) Proposed federal tax legislation would substantially curtail
the purposes for, and conditions under which, bonds may be issued
with interest exempt from federal income taxation, with the result
that in order to provide financing for those purposes or under those
conditions state and local governments will in some instances be
required, or elect, to issue bonds which bear interest not exempt
from federal income taxation. These bonds often have different terms
and structural features and are sold and traded in a different market
than bonds the interest on which is exempt from federal income
taxation.
(d) The state and local governments have the power to issue bonds
bearing interest subject to federal income taxation, but the state
and local governments may lack clear authority to structure this
financing for the applicable market or otherwise to achieve the
lowest effective borrowing cost or terms most suitable to the state
or local government issuer, the project, or the financing program.

5901. It is the intent of the Legislature that state and local
governments be provided with the powers and flexibility necessary and
appropriate for them to access the market for bonds which bear
interest subject to federal income taxation.

5902. As used in this chapter, the following words and terms shall
have the following meanings, unless the context otherwise indicates
or requires another or different meaning or intent:
(a) "Bonds" means bonds, notes, warrants, bond anticipation notes,
commercial paper, or other evidences of indebtedness, or lease,
installment purchase, or other agreements or certificates of
participation therein.
(b) "Legislative body" means the governing body or board of the
state or local government.
(c) "State or local government" means the state, any department,
agency, board, commission, or authority of the state, or any city,
city and county, county, public district, public corporation,
authority, agency, board, commission, or other public entity.

5903. If, prior to issuing any bonds, the legislative body
determines that the interest payable on the bonds to be issued by the
state or local government will be subject to federal income taxation
under the law in existence on the date of issuance or pending on the
date of issuance with an effective date preceding the date of
issuance, then notwithstanding any other provision of law, the
ordinance, resolution, indenture, agreement, or other instrument
providing for the issuance of the bonds may provide for any of the
following:
(a) The bonds shall be in such denominations, in such form, either
bearer or registered, and payable at such place or places, either
within or without the United States, at such time or times, in lawful
money of the United States of America, with such terms of
redemption, and at such interest rate or rates, either fixed or
variable, including methods of determining such rate or rates if
variable, as the legislative body shall determine.
(b) The bonds shall be sold at public or private sale, in such
manner and place or places, either within or without the United
States, and at such price or prices, above or below par, as the
legislative body shall determine.
(c) In connection with, or incidental to, the sale and issuance of
the bonds, the state or local government may offer, sell, and issue
warrants for additional bonds, as well as issue additional bonds
pursuant to these warrants on terms consistent with this chapter, and
may enter into any contracts which the legislative body determines
to be necessary or appropriate to place the obligation of the state
or local government, as represented by the bonds and the contract or
contracts, in whole or in part on the interest rate, cash flow, or
other basis desired by the legislative body, including, without
limitation, contracts commonly known as interest rate swap
agreements, forward payment conversion agreements, futures, or
contracts providing for payments based on levels of or changes in
interest rates, or contracts to exchange cash flows or a series of
payments, or contracts, including, without limitation, options, puts
or calls to hedge payment, rate, spread, or similar exposure. These
contracts or arrangements may also be entered into by state or local
governments in connection with, or incidental to, entering into any
agreement which secures bonds, including bonds issued by private
entities. These contracts and arrangements shall be made upon the
terms and conditions established by the legislative body, after
giving due consideration for the creditworthiness of the
counterparties, where applicable, including any rating by a
nationally recognized rating agency or any other criteria as may be
appropriate. In addition, these contracts and arrangements may be
made only if the bonds are rated in one of the three highest rating
categories by two nationally recognized rating agencies, and if there
has been receipt, from any rating agency rating the bonds, of
written evidence that the contract or agreement will not adversely
affect the rating.
(d) In connection with, or incidental to, the sale and issuance of
the bonds, or entering into any of the contracts or arrangements
referred to in subdivision (c), the state or local government may
enter into such credit enhancement or liquidity agreements, with such
payment, interest rate, security, default, remedy, and other terms
and conditions as the legislative body shall determine.
(e) Proceeds of the bonds and any moneys set aside or pledged to
secure payment of the bonds, or any of the contracts entered into
pursuant to subdivision (c), may be invested in securities or
obligations described in the ordinance, resolution, indenture,
agreement, or other instrument providing for the issuance of the
bonds and may be pledged to and used to service any of the contracts
or agreements entered into pursuant to this section.

5903.5. Section 5903 shall apply to any bonds the interest on which
will not be subject to federal income taxation under the law in
existence on the date of issuance or pending on the date of issuance
with an effective date preceding the date of issuance,
notwithstanding any other provision of law, if the bonds are issued
by the same state or local government for the same project or purpose
and within 45 days of the date of issuance of bonds described in
Section 5903.

5904. The state or a local government may take any actions, and
enter into any agreements, necessary or appropriate to register or
qualify the bonds described in Section 5903 for offer and sale under
the federal or any state's or nation's securities laws and to comply
with those laws.

5905. One or more state or local governments may cause to be
formed, and may acquire all, but not less than all, of the voting
stock in, one or more corporations, not chartered by a state or
federal agency as a depository institution, but organized for the
purpose of undertaking financing programs approved by each
legislative body and found by each legislative body to be of benefit
to the state or local government.

5906. Any bonds issued by a state or local government pursuant to
this chapter, or otherwise, and the purchasers or holders thereof,
shall be exempt from the usury provisions of Section 1 of Article XV
of the California Constitution. Any loan, lease, installment sale,
investment, forbearance of money, or other agreement between a user
of the proceeds of or other moneys pledged to bonds and the issuer of
the bonds, or entered into by or on behalf of the issuer of the
bonds that provides for the use of the proceeds of the bonds or other
moneys pledged to or securing the bonds, and the issuer of the bonds
or any person acting on its behalf in connection with the foregoing
shall be exempt from the usury provisions of Section 1 of Article XV
of the California Constitution. This section creates and authorizes
exempted classes of transactions and persons pursuant to Section 1 of
Article XV of the California Constitution.

5907. This chapter shall not affect bonds approved by the voters of
the state or local government issuer prior to the effective date of
this chapter, to the extent that this chapter is inconsistent with
the measure authorizing those bonds.

5908. The authority conferred by this chapter includes the
authority to enter into any and all contracts incident to the
exercise of the authority conferred by this chapter, including,
without limitation, contracts for the performance of professional
services.

5909. To the extent that the provisions of this chapter are
inconsistent with any other provision of general law or special act
or any part thereof, now or hereafter enacted, the provisions of this
chapter shall be controlling.