WASHINGTON -- California legislators are battling over differing versions of a master leasing bill in a bid to win over Gov. Pete Wilson, who voted a bill approved by the Legislature last year.
The outlook for the bill remains murky, despite some lawmakers' determination to try again to save the state millions of dollars by requiring pooling of up to $100 million of annual state equipment lease financings into low-rate public offerings.
Opposition to the bill, spearheaded by a coalition of leasing firms, remains strong in the Senate, which has only until its scheduled adjournment on Sept. 10 to pass its version and resolve differences with an Assembly-passed bill. Also, whether the governor would sign the final bill remains in doubt, legislative aides said.
A bill passed by the Assembly in June is stronger than last year's version because it would require the state Department of General Services to pool its hundreds of equipment leases into periodic master offerings unless lease dealers offer competitive rates on individual financings.
A bill pending in the Senate is almost identical to last year's bill in that it would make the state treasurer the agent for the sale of pooled equipment lease offerings over $100,000.
Big Savings Expected
Both bills promise to reap big savings for the state from lower interest costs. Most of the individual leases negotiated by the department have carried rates up to two points above the market, in part because some of the financings have been taxable, according to Larry Craig of the treasurer's office.
By creating large tax-exempt pools, sponsors believe they will be able to generate considerable savings despite the costs incurred in piecing together such complex offerings.
The Assembly version of the bill reflects a bid by Steven Peace, chairman of the Assembly's Committee on Finance, Insurance, and Public Investment, to get the support of the general services department, which has led opposition to master leasing legislation within the Wilson administration.
By designating the department as the issuer of the pooled offerings, the Assembly bill would eliminate the treasurer's role proposed in last year's bill. The question of who would be in charge of the offerings had sparked a turf battle that was in part responsible for the defeat of the bill.
"Peace's staff thought it would be a way of getting the governor on board, " said Jody Fuji, legislative aide to Assemblyman Rusty Areias, the author of last year's bill. "The chairman interpreted [the bill's defeat] as a turf battle between the governor and the treasurer."
The rewritten bill did succeed in garnering the first-ever endorsement of the general services department last month, even though the leasing industry remains opposed as ever to any such legislation.
"It still contemplates the issuance of some type of instrument sold in public debt markets" that would make the financing of equipment through individual lease-purchase agreements nearly obsolete, said William Slaton of the MLC Group Inc., a leasing firm.
Slaton said he organized a coalition of more than a dozen leasing and equipment companies opposed to the bill, called the Association for Competitive Financing. It includes among others, IBM Corp., Unisys, Baker Capital Corp., Talbot International, U.S. Leasing, and Ford Motor Credit.
But while the Assembly version of the bill has generated interest from the Wilson administration, it also raises what Fuji and other critics say are potentially serious financial questions for the state.
The bill would require the general services department to issue certificates of participation to establish a pool of money for equipment purchases, but it would not require the department to finance purchases that way. Thus, the measure would not guarantee that all the certificate proceeds are used within time periods prescribed under the federal tax laws.
That means the state could run afoul of the laws' arbitrage restrictions and cause the entire pooled issue to become taxable, Fuji said.
Also, despite the interest rate savings that could be achieved with the department's issuance of certificates, Fuji maintained that the state could realize even greater savings if it issued lease revenue bonds under the Areias bill scheme with the treasurer as the sales agent.
Fuji said she believes the treasurer, going through California's public works board, might get rates as low as Texas' recent five-year equipment lease offerings, which have sold between 2% and 3%. The general services department, by contrast, which has not been a frequent or well-known issuer, might get rates between 5% and 6% on its certificates, she said.
With that in mind, Fuji said Areias convinced the Senate committee on government operations last month to return the bill to its original form with the treasurer in charge of sales. The Senate committee's version of the bill is now pending before the Senate Appropriations Committee.
Fuji said she expects the appropriations committee and the full Senate to approve the bill in the next few weeks, and she hopes that the Assembly will concur with the Senate bill.
As expected, however, the Wilson administration through the department of finance indicated its opposition this week to the Senate bill. As in the past, officials insisted that to be acceptable to the administration, the treasurer should be designated the sales agent only for issues above $10 million -- a requirement that Fuji says is little different than current law.
A Familiar Dialogue
"We're about the same place as we were last year," Fuji said. The possibility of another veto may slake enthusiasm for pushing the bill through the Senate, she added, although "to us, it's always been an issue of doing the right thing."
Craig of the treasurer's office said that the Senate's return to the original bill "opens up the whole political dialogue again."
"Everyone agrees that the master leasing concept is a good government concept, but the leasing companies are making a great deal of political hay about the treasurer trying to empire-build at the expense of the administration," Craig said.
"The bottom line is we need to convince the department of general services that we will not impose any new duties on their procurement operations. If we're successful in doing that, the treasurer may become the agent for sale. If we're not, general services may keep doing business the way it has been."
"We will never be able to convince leasing companies like IBM and Pacificorp, who have benefited from the current system," to support the bill, he added.
Craig said the treasurer's office has been making headway in working with the general services department on pooled lease financings as a result of their joint efforts to refinance $40 million of Calnet phone system certificates of participation, which were issued previously by the department.
If the master leasing bill gets bogged down again this year, Craig said the treasurer is prepared to work with the department using its existing legal authority to try to pool more leases.
"We would do all we could to help general services put together a master lease program even without the bill." Craig said. "It would save the state some money, and the treasurer wants to do what's in the best interests of the state.
"The first deal out of the box would have to essentially be prepared and documented from scratch, but we have good models to look at from successful programs around the country."
