S&P - Public Finance Criteria (2007). - The Global Clearinghouse

Tax-Secured Debtorder that the bondholders receive full and timelypayments. In this instance, the state and programratings are the same. The program rating and outlookwill be adjusted as state rating and/or outlookchanges occur.State Guarantee Programs:■ Michigan State School Bond Loan Fund Program■ Oregon School Bond Guarantee Program■ Utah School Bond Guaranty Program■ Washington School Bond Guaranty ProgramState Permanent Fund ProgramsRatings on programs structured on the basis ofpermanent fund support do not have any directlink to the corresponding state’s rating. Thesefunds are constitutionally created, and the corpusof the fund is leveraged to provide a guaranty of aparticipating local government’s debt service. Theprogram rating is based on an analysis of the legalstructure of the fund, investment policies, liquidity,and operating guidelines. In the event of a ratingaction on the state, any changes in the creditquality of the program will be determined independentlyof the state rating.State Permanent Fund Programs:■ Nevada School District Bond Guarantee Program■ Texas Permanent School Fund Program■ Wyoming School District BondGuarantee ProgramState ProgramsTwo enhancement programs in California do not fitinto the four categories listed above including: theCalifornia Construction Loan Insurance Fund andthe California Motor Vehicle License Fees Program.The Construction Loan Insurance Program is managedby California’s Office of Statewide HealthPlanning & Development, and ultimately providesfor the issuance of state debt to pay debt service ifother funds available in the insurance fund are notsufficient to make debt service. The program israted on par with the state’s GO rating and willmove in tandem with the state rating. The MotorVehicle License Fee Program was created by statute,and guarantees an intercept of monthly license feerevenues collected by the state and transferred tocities and counties for various purposes. The securityprovided by these funds is independent of thecredit quality of the state, and any change in theprogram’s rating will be determined separatelyfrom the state rating.Program Description In Alphabetical Order:California Motor Vehicle License Fee Program (‘A’)Governing statute: This program was authorized in1990 under Assembly Bill 1375 and updated in2004 to hold the program harmless against reductionsin MVLF revenues in fiscal 2005 and beyond.This rating does not move in conjunction with thestate rating.Eligibility: The program is open to cities andcounties to guarantee payment of GO bonds orlease obligations through their allocation of motorvehicle license fees.Program provisions: Upon notification to thestate from a trustee that a required payment wasnot made from other sources, the California StateController is directed to make the payment fromthe community’s share of license fee revenues.Given the historical volatility in statewide licensefee revenues and the distribution formula’s directlink to populations, only cities or counties with apopulation of at least 2,500 are eligible to participatein the program. The local unit also mustdemonstrate that its allocation of license fee revenuesin each of the five preceding fiscal years willcover maximum future debt service at least 2.5x.The issuer must covenant not to similarly guaranteepayment on other obligations, unless the 2.5x coveragelevel can be achieved on the new total futuremaximum debt service.Final state legislation treats the loss of MVLF taxrevenue differently for cities and counties. Citieswill receive a partial replacement of lost revenuethrough state general fund appropriations in anamount that will grow based on what the priorMVLF tax would have produced. Counties willinstead receive a portion of their lost MVLF revenuesfrom a new local property tax allocation,and this new revenue source will grow only to thedegree that local property taxes grow.The cities’ MVLF debt service intercept is heldharmless under the legislature’s recent bill AB 2115,amending state code Chapter 610, section 6e. Thissection provides that MVLF property taxes willconstitute successor taxes for purposes of theMVLF intercept program.Counties’ MVLF debt service intercept is heldharmless under separate legislation, SB 1096,amending Chapter 211, government code Section25350.55, which requires a county auditor to interceptMVLF-related property tax payments in favorof debt service under the intercept program, insteadof intercepting MVLF revenues.Additional Standard & Poor’s requirements: Toqualify for the program rating, the financings mustaccount for the monthly distribution of license feerevenues, and the timing delay associated with thenotification requirement. To receive the programrating issues must be structured to provide formonthly lease or sinking fund payments, include afully funded debt service reserve, and have a payingagent, trustee, or similar representative acting in a88 Standard & Poor’s Public Finance Criteria 2007