LOS ANGELES -- For the first year since 1991, demand from California issuers for a slice of the state's $1.56 billion in private-activity bond apportionments has outstripped supply.
The Tax Reform Act of 1986 separates tax-exempt municipal bonds into two basic categories: governmental use and private-activity bonds. The act sets an annual ceiling in every state, based on population, that limits the dollar volume of private-activity bonds that can be issued.
California will issue about $1.8 billion of private-activity bonds in 1994, which comprises this year's $1.56 billion volume cap and a carryforward amount from last year -- authorized but unused.
Mary Kittleson, executive director of the California Debt Limit Allocation Committee, said the committee projected at the beginning of the year that private-activity bond allocation demand would only reach $800 million in 1994.
Kittleson said the excess demand was attributable to a "confluence of events," including stepped-up housing activity spurred by a pickup in the state's general economy.
In rough numbers, she said, the committee this year approved $864 million of allocation for mortgage credit certificates, $487 million for single-family bonds, $60 million for multifamily bonds, $80 million for industrial development bonds, $10 million for student loans, and $60 million for exempt projects. All of the exemptproject allocation went to oil companies.
Several oil companies applied for private-activity bond allocations at the Nov. 15 meeting.
Kittleson said the newfound interest from the oil companies was based on an Internal Revenue Service opinion that said "clean air projects required under federal law qualify as a solid waste project" under the private-activity bond allocation formula.
Chevron U.S.A. requested $200 million in private-activity bond allocation and received $20 million, Shell Oil Co. requested $200 million and received $15 million, and Arco requested $45 million and received $5 million.
The oil companies in 1995 will want allocations "in the hundreds of millions of dollars," Kittleson said. "There is no way the committee is going to be able to meet that level of demand."
Kittleson said she will recommend that the committee next year return to a reservation system that was disbanded in 1992 and 1993 when demand for allocation was low.
"I will recommend that they do specific set-asides for each category," Kittleson said. Applicants would be required to make reservations for the allocations at the beginning of the year. The purpose of reservations would be "to try to manage demand a little bit," she said.
The debt limit allocation committee is headed by state Treasurer Kathleen Brown. Other members are finance director Russell Gould and Controller Gray Davis.
The committee's activities are supported by fees charged to state and local agencies receiving allocations of private-activity bonds. Typically, the private-activity bonds are used for single-family and multifamily housing; facilities for water, mass commuting, sewage, and solid waste disposal; certain energy utilities, qualified hazardous waste plants, small manufacturing projects, student loans, and certain redevelopment projects.
