California Communities[R] Saves Local Governments Nearly $2 Billion.

Proposition 1A Securitization Program Enables Local Governments to Maintain Valuable Services; Bond Sale Also Saves the State Government More Than $200 Million

WALNUT CREEK, Calif. -- California Statewide Communities Development Authority ("California Communities") has sold $1.9 billion in securitization bonds to protect threatened revenue of cities, counties and special districts ("local government agencies") throughout California. That sum represented 95 percent of the amount that would have been borrowed by the state in a "forced loan" from local government agencies in 2010. A total of 1,269 local government agencies in California participated in the Proposition 1A Securitization program, which is the first bond transaction of its kind ever conducted. California Communities is a joint powers authority sponsored by the California State Association of Counties and the League of California Cities.

As part of the 2009-2010 budget package, the California Legislature suspended the local agency protections of Proposition 1A and passed a provision to withhold more than $2 billion of property tax revenue from cities, counties and special districts. In a plan equivalent to a "forced loan", the State exercised the right to hold those funds to close the budget gap, with the intent to repay these local government agencies in three years. As an alternative, the budget package also permitted the establishment of a third-party securitization program for local governments to use to relieve the burden of loaning the state property tax revenues. California Communities was appointed by the California Legislature as the exclusive authority to offer such a program to purchase the receivables due to local government agencies from the State, allowing local government agencies to maintain their planned revenue streams and protect their budgets and critical services.

"Losing that revenue would have hurt local government and the delivery of critical services, such as police and fire resources," said James Hamill, California Communities. "California Communities was created by local government, for local government, and this program presented a natural opportunity for us to fill in the gap and help ease the burden faced by local governments already dealing with drastic cuts."

The program was voluntary and all costs of issuance and interest incurred will be paid by the State, allowing local agencies to maintain 100-percent of their receivables. More than 85-percent of the cities and all but one county in California participated in the program, where the size of receivables ranged from a few dollars for some agencies to more than $300 million for the largest. California Communities' proven track record in delivering innovative finance programs for local governments and non-profit entities, along with its credibility in the bond marketplace, was instrumental in the successful sale of these bonds. The speed with which the sale was brought to market saved the state more than $200 million in associated interest costs and fees by allowing the bonds to be issued tax-exempt.

Comments from participating Local Government Agencies

* Los Angeles County: "The suspension of Proposition 1A was another example of State leaders trying to balance their budget shortfalls on the backs of local government. Meanwhile, here in Los Angeles County, our own budget was balanced and on-time, just as counties and cities across California are required to do by law. We tried to do the right thing, forecasting the decline in local revenues and property taxes, by creating reserves and rainy day funds. At least we were able to successfully securitize our Proposition 1A funds, allowing us to protect the safety net services that we are required to provide by law." - Supervisor Don Knabe, Chairman, Los Angeles County Board of Supervisors 

* Sacramento Metropolitan Fire District: "The Sacramento Metropolitan Fire District is a participant in the Prop 1A securitization, and we appreciate the efficient and professional process that was implemented through the California Communities Joint Powers Authority. While Metro Fire would have preferred that the legislature not impact local government, the loan process through California Communities has protected Metro Fire's cash flow, and assisted in maintaining Metro's focus upon the critical life saving services we provide to the public. Individual financings would have ultimately costs taxpayers far more, and undoubtedly impacted future service levels." - William Sponable, chief deputy, Sacramento Metropolitan Fire District

* City of Vallejo: "The City of Vallejo is already faced with difficult financial constraints; we're under extraordinary pressure to balance resources and the need to provide the services taxpayers expect. The state has already borrowed funding from K-12 education, resulting in the closure of several of our schools. Another forced loan from the city would severely impede our ability to maintain basic services for our community in this challenging economic environment. We're thankful for this safety valve and glad that California Communities has been able to handle this transaction that will benefit so many cities in California." - Stephanie Gomes, Councilmember, City of Vallejo

* City of Modesto: "The state's forced loan would have had a devastating impact to the City of Modesto, costing us another $4 million in cuts to services. We have already experienced deep cuts- millions of dollars - resulting in layoffs of police officers, firemen and city staff. By getting this provision approved, we don't have to wait and fear additional budget cuts. We can continue to provide the essential services for our community." - Jim Ridenour, Mayor, City of Modesto

* San Diego County: "The Prop 1A Securitization program comes at a critical time for San Diego and Southern California governments being battered by the twin forces of a staggering economic downturn and an ongoing state financial crisis. By working together with California Communities, we can keep funding for critically needed programs flowing and, in the end, provide the services our residents need." - Supervisor Greg Cox, San Diego County Board of Supervisors 

* Merced County: "Local government in California is struggling already. We provide the essential, front-line services that taxpayers expect and taking another six million dollars from us would have really hurt. We would have had to make deeper cuts on top of the cuts we've already been forced to make over the last couple of years. This securitization program is an innovative and welcome solution. It will protect more than just a line on a spread sheet; it will protect jobs and essential services for the people of Merced County." - Supervisor Mike Nelson, Merced County Board of Supervisors

This was a unique and complex problem to resolve and happened with the support and collaboration of the California State Treasurer's Office, the California Department of Finance and a team of professional legal and financial services partners. The bonds are scheduled to close on November 19th with payments to participating local government agencies set to occur in two equal installments on January 15, 2010 and May 3, 2010.

California Communities[R] Proposition 1A Securitization Financing (by the numbers):

* Total Size of Bond Issue = $1,895,000,000

* Total Number of Participating Agencies = 1,269 (plus more than 500 agency fund components)

* County Receivables Financed = more than $1 billion

* Number of Participating Counties = 57 (out of 58 total number of counties in the state)

* City and Town Receivables Financed = more than $600 million

* Number of Participating Cities and Towns = 409 (85% of the total number of cities in the state)

* Special District Receivables Financed = more than $200 million

* Number of Participating Special Districts = 803

* Largest Receivable: Los Angeles County for $310 million (including library and road fund components)

Interested agencies had until November 6 to enroll in the program and submit applications. A complete list of participating agencies and more information about the program is available at www.cacommunities.org.

About California Communities

Created in 1988, the California Statewide Communities Development Authority ("California Communities") is a joint powers authority sponsored by the California State Association of Counties and the League of California Cities. California Communities provides local governments and private entities access to low-cost, tax-exempt financing for projects that promote economic development and provide public benefit. California Communities was created by local government, for local government as a means to efficiently, effectively, and reliably fund community-based public benefit projects on their behalf. California Communities has financed more than $43 billion for public benefit projects in California.