HBA-EVB S.B. 1520 76(R)    BILL ANALYSIS


Office of House Bill AnalysisS.B. 1520
By: Madla
Financial Institutions
5/11/1999
Engrossed



BACKGROUND AND PURPOSE 

Currently, most governmental entities are not authorized to lease their
property.  Potential cash benefits or deductions, such as depreciation of
an asset, can be realized by instituting a leaseleaseback transaction.
Lease-leaseback agreements provide for a private entity to pay a
governmental entity for the value of a tax benefit, while ensuring that the
governmental entity will not jeopardize the use of the property.  S.B. 1520
redefines "credit agreement" and defines "leaseleaseback agreement." 

RULEMAKING AUTHORITY

It is the opinion of the Office of House Bill Analysis that this bill does
not expressly delegate any additional rulemaking authority to a state
officer, department, agency, or institution. 

SECTION BY SECTION ANALYSIS

SECTION 1.  Amends Section 1, Article 717q, V.T.C.S., by amending
Subdivision (6) and adding Subdivision (8), as follows: 

(6)  Redefines "credit agreement" to include lease-leaseback agreements.

(8)  Defines "lease-leaseback agreements" to mean contracts, agreements,
notes, security agreements, conveyances, bills of sale, deeds, leases as
lessee or lessor, and currency hedges, swap transactions, or agreements
relating to foreign and domestic currency entered into by issuers to
provide tax benefits to another party that are available with respect to
property under the laws of a foreign country or to encourage private
investment with an issuer in the United States.  Authorizes lease-leaseback
agreements to have the terms, maturities, duration, indemnities, and other
provisions that are approved by the governing body of the issuer.  Requires
the issuer, in connection with a lease-leaseback agreement, to deposit, in
trust, escrow, or similar arrangement, cash or lawful investment
securities, or requires the issuer to enter into one or more payment
agreements, financial guarantees, or insurance contracts, with
counterparties having either a corporate credit or debt rating in any form,
a claims-paying ability, or a rating for financial strength of "AA" or
better by Moody's Investors Service, Inc. or Standard and Poor's Ratings
Group or of "A" (Class XII) or better by the A.M. Best Company's rating
system, or the equivalent of such ratings in the future, that by their
terms, including interest projected to be earned on the cash or investment
securities or payment obligations, are sufficient in amount to pay when due
all amounts required to be paid by the issuer as rent over the full term of
the agreement plus any optional purchase price due under the agreement.
Provides that property sold, acquired, or otherwise transferred under
lease-leaseback agreements is considered for all purposes to be property
owned and held by the issuer and used for public purposes and is exempt
from ad valorem taxes imposed in this state.  Sets forth that a leasehold
interest in the property is exempt from Section 25.07(a) (Leasehold and
Other Possessory Interests in Exempt Property), Tax Code.  Provides that a
sale, lease, sublease, or other transfer of personal property by or to the
issuer under a lease-leaseback agreement is exempt from all sales, use, and
motor vehicle taxes imposed by this state or a political subdivision of
this state. 

SECTION 2.  Emergency clause.
Effective date: upon passage.