STATE PUBLIC WORKS BOARD LEASE-REVENUE BOND PROGRAM - 6843

(Revised and Renumbered from 6873)

The State Public Works Board (PWB) is authorized to issue lease-revenue bonds to finance the cost of public buildings, when such projects are authorized by the Legislature, pursuant to Government Code Sections 15802 and 15809.

In a typical project, the PWB will authorize interim financing, and the department will construct the project as PWB’s agent.  When the project is complete, the PWB will issue bonds to pay off the interim financing, and as part of that process, the department will lease the facility to PWB.  PWB will then lease the facility back to the department for a rental fee equal to the amount needed to provide for the debt service on the revenue bonds and associated administrative expenses.  Leases can be for periods up to 35 years, although 15 to 25 years is typical.  The lease term cannot exceed the useful life of the capital asset.

Key participants:

1. The PWB adopts resolutions authorizing bond sales and setting policy guidelines for the issuance of its lease revenue bonds, works with the State Treasurer’s Office (STO) in preparing for the bond sale and sizing the bonds, executes key documents, has responsibility for providing certain disclosure information on an initial and continuing basis, and periodically reviews balances in bond fund accounts to determine surplus status.
2. Finance has general powers of fiscal supervision pursuant to Government Code Section 13070, works with STO in preparing Appendix A (the state’s main fiscal disclosure document), may participate in rating agency meetings, prepares fund condition statements as required for the bond sale and for continuing disclosure.  In addition, Finance includes appropriations in the Governor’s Budget for lease-revenue rental payments based on calculations prepared in coordination with the STO.
3. The State Controller’s Office and the State Auditor participate in the due diligence process and provide certain financial information necessary for General Fund disclosure in Appendix A.
4. The State Attorney General’s Office also participates in the due diligence process and, together with bond counsel, provides a legal opinion for the issuance of the bonds.
5. During a bond sale, departments provide project cost, scope, and schedule information, participate in due diligence meetings, and keep the PWB, Finance, and STO informed of any events with material impact on the project status or budget. The department also manages the facility after construction and it is responsible for obtaining rental interruption, casualty (fire) insurance per facility-lease requirements.  After the bond sale, departments must continue to keep PWB, Finance, and STO informed of any events with material impact on the facility.
   
   
6. The STO is the agent for sale of PWB bonds, with all associated rights and responsibilities including appointment of the underwriter(s), setting the bond sale date, organizing document review meetings and due diligence associated with the sale, securing ratings and bond insurance (if any), and pricing.  The STO coordinates continuing disclosure for PWB issues.  The PWB’s current practice is to use the STO as a trustee of the PWB bonds and allow the STO to select a financial advisor related to sales activities.

Fiscal information generic to lease-revenue bonds is found in Section 6844.  Lease requirements for lease-revenue bonds are described in Section 6836 and in Section 6844.