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.