LOS ANGELES - A measure to provide local governments more flexibility to issue pension obligation bonds and in so-called Teeter plan financings faces a key vote today in a California legislative committee.
The proposed legislation would add the "Teeter Plan Bond Law of 1994" to the state Government Code, giving counties the right to issue a new type of seven-year revenue bond backed by the recovery of delinquent property taxes.
The bill also would allow cities and counties to combine with other local governments, creating a joint powers agency that could issue bonds to pay unfunded pension liabilities. Individual local governments already may issue bonds for this purpose, but pooling together with other governments for such financings is prohibited.
The Senate Local Government Committee is expected to vote today on the bill, which was introduced by Assemblyman Mike Gotch, D-San Diego. The bill passed the Assembly on a 67-to-0 vote.
On the Senate side, however, opposition has surfaced. The state Department of Finance, an agency with close ties to Gov. Pete Wilson, said recently that it would oppose the bill.
In a letter to the local government committee, the finance department questioned whether allowing pooled financings of pension obligation bonds is sound public policy.
"Additional fiscal liability may result if [local governments] are allowed to incur additional debt to cover an ongoing responsibility" through the bill's proposed pooling mechanism, the letter said.
A finance department spokesman could not be reached yesterday for additional comment.
The bill is endorsed by the California Association of County Treasurers and Tax Collectors and by the California State Association of Counties.
"This is a technical bill," said Roger L. Davis, chairman of the public finance department of Orrick, Herrington & Sutcliffe, which drafted a portion of the bill's language. "It doesn't raise serious economic or policy questions."
"It is helpful to counties," Davis said. "It gives them some flexibility and allows them to do [Teeter plan financings] more cost efficiently."
The Teeter plan is an alternative method of property tax distribution that all but six of the state's 58 counties have adopted.
Teeter plan financings, now issued under a state tax and revenue anticipation note statute, have a maximum maturity of 13 months. The bill allows counties to issue Teeter plan bonds with seven-year maturities.
Officials with Orange County, which drafted the Teeter plan portion of the bill, have said that a longer financing period would help match the flow of delinquent taxes into a county's coffers as interest and penalty charges are repaid.
As the bill works its way through the legislature, officials with one joint powers agency are pursuing plans to sell the state's first pooled pension obligation bond.
The California Statewide Communities Development Authority is considering the sale of a $100 million pooled pension plan issue. The pooling would be accomplished on behalf of small cities and counties, said Jerry Burke, president of HB Capital, the authority's Pleasanton, Calif.-based financial adviser.
The bill would "simplify our task" in issuing the bonds, Burke said.
The authority's financing plan has been slowed because "it does not appear interest rates would permit us to go forward and generate enough savings to make it worthwhile" under current market conditons, Burke said.
