The Legislature finds and declares that the incurring or carrying of obligations and making and managing of investments by state and local governments involves a variety of interest rates, payment, and other risks, that a number of financial instruments are available to offset, hedge, or reduce, and improve net costs, and that many state agencies and local governments lack express statutory authority to take advantage of those instruments.
Chapter 12Public Finance Contracts
Section § 5920
This section states that handling financial obligations and investments by state and local governments can be risky due to variable interest rates and payments. It also acknowledges the existence of financial tools to help manage these risks and costs, but notes that many government entities don't have clear legal authority to use these tools.
financial instruments interest rate risks payment risks state government investments local government investments statutory authority risk management financial obligations hedging tools cost reduction investment management offset risks government financial management investment risks net cost improvement
Section § 5921
This section defines key terms for a chapter of law. It clarifies that 'bonds' encompass various forms of debt or financial agreements. 'State' includes any state-level department or authority, while 'local government' refers to any city, county, or public entity within the state.
As used in this chapter, the following definitions apply, unless the context otherwise indicates or requires another or different meaning or intent:
(a)CA Government Code § 5921(a) “Bonds” mean bonds, notes, bond anticipation notes, commercial paper, or other evidences of indebtedness, or reimbursement warrants or refunding warrants, or lease, installment purchase, or other agreements or certificates of participation therein.
(b)CA Government Code § 5921(b) “State” means the state or any department, agency, board, commission, or authority of the state.
(c)CA Government Code § 5921(c) “Local government” means any city, city and county, county, public district, public corporation, authority, agency, board, commission, or other public entity.
bonds financial agreements state authority local government public entities debt instruments commercial paper reimbursement warrants refunding warrants lease agreements installment purchases certificates of participation state departments public districts public corporations
Section § 5921.5
This law allows the California State Treasurer to handle contracts related to certain state bonds. The Treasurer can manage these contracts on the state's behalf, as long as they are also authorized by other laws. This is specifically for bonds where the Treasurer acts as the selling agent.
For purposes of this chapter, in addition to any other authorization provided by law, the Treasurer may enter into and manage on behalf of the state any contracts described in Section 5922 with respect to any state bonds for which the Treasurer acts as the agent for sale pursuant to Chapter 9 (commencing with Section 5700).
California State Treasurer state bonds contracts management agent for sale Chapter 9 Section 5700 bond sales financial contracts authorization state financial management
Section § 5922
This law allows the state and local governments to enter into various financial contracts when issuing or managing bonds or investments. They can engage in specific agreements, like interest rate swaps or currency swaps, to manage risks associated with bonds or investments, and structure these contracts to achieve desired financial outcomes.
Governments must carefully evaluate these contracts to ensure they minimize risks or reduce borrowing costs. Bonds can be issued in foreign currencies if agreements are in place to ensure payment obligations in US dollars. Additionally, governments can enter credit agreements to improve their financial standing. Money from bonds can be invested to support these financial arrangements.
Notwithstanding any other provision of law, all of the following apply:
(a)Copy CA Government Code § 5922(a)
(1)Copy CA Government Code § 5922(a)(1) In connection with, or incidental to, the issuance or carrying of bonds, or acquisition or carrying of any investment or program of investment, the state or any local government may enter into any contracts that the state or local government determines to be necessary or appropriate to place the obligation or investment of the state or local government, as represented by the bonds, investment or program of investment and the contract or contracts, in whole or in part, on the interest rate, currency, cashflow, or other basis desired by the state or local government, including, without limitation, contracts commonly known as interest rate swap agreements, currency swap agreements, forward payment conversion agreements, futures, or contracts providing for payments based on levels of, or changes in, interest rates, currency exchange rates, stock or other indices, or contracts to exchange cashflows or a series of payments, or contracts, including, without limitation, interest rate floors or caps, options, puts or calls to hedge payment, currency, rate, spread, or similar exposure. These contracts or arrangements may also be entered into by the state or by local governments in connection with, or incidental to, entering into or maintaining any agreement that secures bonds, including bonds issued by private entities. These contracts and arrangements shall be entered into with the parties, selected by the means, and contain the payment, security, default, remedy, and other terms and conditions, determined by the state or the local government, 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.
(2)CA Government Code § 5922(a)(2) No local government shall enter into any of the contracts or arrangements pursuant to this subdivision, unless its governing body first determines that the contract or arrangement or program of contracts is designed to reduce the amount or duration of payment, currency, rate, spread, or similar risk or result in a lower cost of borrowing when used in combination with the issuance of bonds or enhance the relationship between risk and return with respect to the investment or program of investment in connection with, or incident to, the contract or arrangement which is to be entered into.
(b)CA Government Code § 5922(b) Bonds issued by the state or by a local government may be payable in accordance with their terms, in whole or in part, in currency other than lawful money of the United States of America, provided that the state or the local government enters into a currency swap or similar agreement for payments in lawful money of the United States of America, which covers the entire amount of the debt service payment obligation of the state or the local government with respect to the bonds payable in other currency, and provided further that if the term of that agreement is less than the term of the bonds, the state or the local government shall covenant to enter into additional agreements as may be necessary to cover the entire amount of the debt service payment obligation. An issuer shall include in its written notice to the California Debt Advisory Commission pursuant to subdivision (g) of Section 8855 a statement of its intent to issue bonds payable in a currency other than lawful money of the United States of America.
(c)CA Government Code § 5922(c) In connection with, or incidental to, the issuance or carrying of bonds, or entering into any of the contracts or arrangements referred to in subdivision (a), the state or a local government may enter into credit enhancement or liquidity agreements, with payment, interest rate, currency, security, default, remedy, and other terms and conditions as the state or the local government determines.
(d)CA Government Code § 5922(d) Proceeds of bonds and any moneys set aside and pledged to secure payment of the bonds or any of the contracts entered into pursuant to this section, may be invested in securities or obligations described in the ordinance, resolution, indenture, agreement, or other instrument providing for the issuance of the bonds or the contract and may be pledged to and used to service any of the contracts or agreements entered into pursuant to this section.
interest rate swap agreements currency swap agreements financial contracts risk management bonds issuance investment programs local government financing payment obligation foreign currency bonds credit enhancement agreements liquidity agreements debt service payment financial risk reduction borrowing costs investment security
Section § 5923
This law states that if there are any conflicts or inconsistencies between this chapter and any other laws, this chapter will take precedence and be followed. Additionally, this chapter should be interpreted in a flexible way to fulfill its purpose.
(a)CA Government Code § 5923(a) To the extent that this chapter is inconsistent with any other general statute or special act or parts thereof, now or hereafter enacted, this chapter is controlling.
(b)CA Government Code § 5923(b) This chapter shall be liberally construed to effect its purpose.
chapter precedence conflict of laws legal inconsistencies controlling law liberal interpretation effects of purpose statutory conflict resolution interpretation of statutes legal priority statutory construction
Section § 5924
This law allows the state of California to automatically set aside the necessary funds from the state treasury without waiting for yearly budget approvals to cover various costs associated with credit enhancements or liquidity agreements for bonds. These financial agreements, which can take forms like letters of credit or standby purchase agreements, help lower the borrowing costs for bonds.
If a financial agent believes these agreements will save money on borrowing costs, the state can incur certain expenses for these agreements, but these costs must stay within specified limits. Specifically, expenses for these enhancements can't be more than 3% of the original principal of the bonds, and interest expenses can't go above certain set rates.
(a)Copy CA Government Code § 5924(a)
(1)Copy CA Government Code § 5924(a)(1) Notwithstanding Section 13340, there is hereby continuously appropriated without regard to fiscal years, from the General Fund in the State Treasury for the purpose of this chapter, an amount that will equal the sum annually as will be necessary to pay all obligations, including principal, interest, fees, costs, indemnities, and all other amounts incurred by the state under or in connection with any credit enhancement or liquidity agreement, as specified in paragraph (2), that is entered into by the state pursuant to this chapter for bonds payable pursuant to an appropriation from the General Fund.
(2)CA Government Code § 5924(a)(2) A credit enhancement or liquidity agreement subject to this section includes a credit enhancement or liquidity agreement that is in
the form of a letter of credit, standby purchase agreement, reimbursement agreement, liquidity facility, or other similar arrangement.
(b)Copy CA Government Code § 5924(b)
(1)Copy CA Government Code § 5924(b)(1) If the agent for sale determines that the credit enhancement or liquidity agreement is expected to result in a lower cost of the borrowing for the bonds to which the credit enhancement or liquidity agreement pertains, the state may incur fees, costs, and other similar expenses under or in connection with any credit enhancement or liquidity agreement entered into by the state pursuant to this chapter.
(2)CA Government Code § 5924(b)(2) The amount appropriated pursuant to subdivision (a) for fees, costs, and other similar expenses incurred in connection with any credit enhancement or liquidity agreement, when expressed as a percentage of the original principal amount of the bonds to which the credit enhancement or liquidity agreement pertains, may not
exceed 3 percent.
(3)CA Government Code § 5924(b)(3) The amount appropriated pursuant to subdivision (a) for interest incurred in connection with any credit enhancement or liquidity agreement, when expressed as a percentage of the outstanding principal amount of the bonds to which the credit enhancement or liquidity agreement pertains, may not exceed the interest rate percentage set forth in subdivision (d) of Section 16731.
credit enhancement liquidity agreement bonds General Fund automatic appropriation state treasury borrowing costs standby purchase agreement reimbursement agreement letter of credit cost limits interest rate limit financial agreements bond saving borrowing expenses
Section § 5925
This law states that when a state or local government buys back its own bonds, those bonds remain active and valid. They are considered as if they're still out there and haven't been canceled, unless the issuer decides otherwise or the bond agreements specifically say something different.
The purchase or other acquisition of bonds by or on behalf of the state or local government that issued the bonds does not cancel, extinguish, or otherwise affect the bonds and the bonds shall be treated as outstanding bonds for all purposes except to the extent otherwise determined by the issuer or otherwise provided in the constituent instruments defining the rights of the holders of the bonds.
bond acquisition state bonds local government bonds outstanding bonds bond cancellation bond validity issuer determination bond agreements bondholder rights constituent instruments bond extinguishment government bond buyback bond status bond definition issuer provisions
