The California Statewide Communities Development Authority has been approved to operate a securitization program where local governments sell the CSCDA their receivables owed by the State of California.
On October 20 the San Diego County Board of Supervisors voted 5-0 to approve participation in the CSCDA securitization program.
In addition to covering the county’s general fund and library fund, the securitization authorization also covers the county’s special districts which receive property tax revenue.
“It’s positive,” said San Diego County Treasurer-Tax Collector Dan McAllister. “It’s good that we’re moving forward.”
In the November 2004 election the state’s voters passed Proposition 1A, which prevents the state from shifting local government revenues for state use.
Proposition 1A can be suspended if the governor declares a fiscal emergency and a two-thirds vote of the state legislature suspends the local government protection.
Any local revenues taken by the state must be repaid with interest within three years.
The three-year period begins at the end of the fiscal year, so the state must repay local governments by June 30, 2013. The state will repay the amount taken plus interest at a two-percent rate.
When the State of California suspended Prop. 1A, the accompanying legislation included a securitization program in which local governments can sell Prop. 1A receivables to the California Statewide Communities Development Authority.
The amount which would have been borrowed by the state will be disbursed by CSCDA to the county and its special districts on the January 15 and May 3 dates when property taxes are to be sent to the state, and the securitized amount may be spent for any lawful purpose and is not restricted to any specific program.
CSCDA will issue bonds to cover the receivables amount, and the bondholders will receive the interest paid by the state.
The bondholders rather than the county or CSCDA will lose the money if the state defaults on its Prop. 1A repayment.
The CSCDA is a joint powers authority sponsored by the California State Association of Counties and the League of California Cities; its members consist of more than 470 cities, counties, and special districts.
Although CSCDA membership is not required to participate in the securitization program, the County of San Diego is a member.
The CSCDA was created to provide local governments, non-profit public benefit corporations, and private entities with access to low-cost, tax-exempt financing for projects which create jobs, help communities prosper, and improve the quality of life of local residents.
The CSCDA has statutory authority to issue bonds, notes, or other financing documents in order to promote economic development (including the provision and maintenance of multi-family housing), although in the case of a private or non-profit recipient the jurisdiction in which the project is located must approve the project and financing in order for the CSCDA to issue the financing mechanism.
Since its inception the CSCDA has issued more than $30 billion of tax-exempt bonds.
In Fiscal Year 2003-04 the county made an involuntary loan of Vehicle License Fee revenue to the state, and in February 2005 the Board of Supervisors authorized the sale of the county’s VLF receivables to CSCDA, which then sold the county’s receivables to bondholders.
In addition to eliminating the uncertainty of untimely payment, the securitization also provides up-front cash for one-time needs and creates opportunities for near-term debt management.
The county used its revenues from the VLF securitization to pay cash rather than use debt financing for its integrated property tax system and also utilized some of the bond sales money to reduce the San Diego County Employees Retirement Association unfunded liability amount.
In addition to the County of San Diego, which dedicates a specific amount of property tax revenue to the library fund as well as utilizes property tax funding for general fund expenditures, the securitization agreement covers the San Diego County Street Lighting District, the San Diego County Flood Control District, the two County Service Areas formed for paramedic services, the seven County Service Areas formed for fire protection, and the three County Service Areas which cover parks (including County Service Area No. 81 for parks in Fallbrook, Rainbow, and De Luz).
In 2000 the county converted the County Service Areas formed to improve roads into zones of a countywide Permanent Road Division, and 39 PRD zones are also covered by the securitization agreement.