Relief for Municipal Bond Issuers Passes Legislature
California Political Desk
March 25, 2008
(SACRAMENTO, CA) – Yesterday, Senate Bill (SB) 344, authored by Senator Michael J. Machado (D-Linden), passed the State Senate on a 33-1 vote. The bill is now before Governor Schwarzenegger for his signature.
SB 344 is sponsored by State Treasurer Bill Lockyer and will help the state and local government bond issuers minimize their losses resulting from the recent turmoil in the variable-rate municipal bond market.
"The Legislature is committed to assisting local governments save millions of tax payer dollars in borrowing costs," stated Senator Machado. "Such savings are critical during tough fiscal budget years like the one we are facing and are a small measure we can take to help preserve vital services for Californians."
Specifically, the bill clarifies that if the state or a local government bond issuer buys back its bonds to take them off the market, that bond debt is not extinguished. Extinguishing debt could create several negative consequences including, but not limited to, calling the tax-exempt status of the bond into question because the insurance on the bonds will also be cancelled and requiring the bond issuer to go back to the voters to reauthorize the bonds.
SB 344 will not allow a bond issuer to change the contractual terms of its bonds. Instead, the bill will merely allow issuers to either take their bonds back onto their books until the marketplace recovers to a point where the issuer can sell the bonds, or to convert or refund their bonds into long-term fixed rate securities.
SB 344 is sponsored by State Treasurer Bill Lockyer and will help the state and local government bond issuers minimize their losses resulting from the recent turmoil in the variable-rate municipal bond market.
"The Legislature is committed to assisting local governments save millions of tax payer dollars in borrowing costs," stated Senator Machado. "Such savings are critical during tough fiscal budget years like the one we are facing and are a small measure we can take to help preserve vital services for Californians."
Specifically, the bill clarifies that if the state or a local government bond issuer buys back its bonds to take them off the market, that bond debt is not extinguished. Extinguishing debt could create several negative consequences including, but not limited to, calling the tax-exempt status of the bond into question because the insurance on the bonds will also be cancelled and requiring the bond issuer to go back to the voters to reauthorize the bonds.
SB 344 will not allow a bond issuer to change the contractual terms of its bonds. Instead, the bill will merely allow issuers to either take their bonds back onto their books until the marketplace recovers to a point where the issuer can sell the bonds, or to convert or refund their bonds into long-term fixed rate securities.
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