AB 605

This bill authorizes two or more political subdivisions to enter into an

agreement to create a commission to issue a type of municipal bonds referred to as

conduit bonds. A commission is created using the current law procedures for

intergovernmental or interstate cooperation agreements. Generally, conduit bonds

(bonds) are bonds issued by a unit of government under which the proceeds of the

bond sale are transferred to a private entity (the borrower), who must be "qualified"

under federal law. The borrower uses the proceeds to finance a project that has a

public benefit as authorized under state or federal law. In effect, the unit of

government serves as a conduit between the borrower and the bond purchaser.

Generally, the borrower pays a lower interest rate on the bond proceeds than it would

have paid if it had borrowed the money on the open market because the bonds issued

by a unit of government may be exempt from federal or state taxation.

Under this arrangement, the borrower is solely responsible to repay the bonds

and interest on the bonds from revenue generated by the project financed by the bond

sale. Security for the bonds is supported by collateral or revenues of the borrower

who receives the proceeds from the bond sale. Collateral for the bonds may be a

building, equipment, or a revenue stream generated by the borrower's construction

or remodeling of a project. The borrower, not the unit of government that issues the

bonds, is responsible for all debt service payments to the bondholders. And the

borrower, not the unit of government that issues the bonds, is liable to the

bondholders if the bonds are not paid off.

A commission created as authorized under the bill is a unit of government and

a body corporate and politic that is completely separate from the creating political

subdivisions and from the state. The bill defines political subdivision to mean any

city, village, town, or county in this state or any city, village, town, county, district,

authority, agency, commission, or similar governmental entity in another state. A

political subdivision that is a party to an agreement is considered to be a member of

a commission. Before an agreement may take effect, it must be approved by the

attorney general.

A commission is governed, under the bill, by a board and the board members

are appointed under the terms of the agreement creating the commission. The

agreement may also provide for an additional political subdivision to become a

member of a commission, or for a member to withdraw from a commission. At all

times, however, at least one member of a commission must be a political subdivision

that is located in this state.

Under the bill, a commission is granted all of the powers that are necessary or

convenient to carry out the purposes described in the bill. Primarily, a commission

is authorized to issue bonds or refunding bonds to finance or refinance a project,

including funding a reserve fund or capitalized interest, payment of costs of issuance

and other costs related to the financing or refinancing, and to enter into agreements