3.6.4 Joint Powers Agency or Authority (JPA) Bonds and Other Issuances
Due to the extensive bond issuance authority afforded JPAs under government code, JPAs are a common vehicle for issuing bonds that are backed by either a lease or installment sale agreement. JPA revenue bond structures (JPA bonds) are of two principal types: lease revenue bonds issued by a JPA and installment sale revenue bonds issued by a JPA. See Section 3.8, Joint Exercise of Powers Agencies. With a lease revenue bond issue, the JPA as lessor enters into a lease with the public agency as lessee and issues “revenue bonds.” The base rental payments made by the public agency under the lease match the principal and interest on the bonds issued by the JPA and constitute the “revenues” securing the JPA bonds. The basic documents are a lease (between the public agency and the JPA) and a trust agreement and indenture (between the JPA and a trustee). In theory, the public agency makes base rental payments to the JPA, which in turn makes payments on the bonds to the trustee, who makes payments to bondholders. In practice, the public agency makes its payments directly to the trustee, who makes payments to bondholders.
With an installment sale revenue bond issue, the JPA as seller enters into an installment sale agreement with the public agency as purchaser and issues “revenue bonds.” The installment payments and the interest payable thereon under the installment sale agreement made by the public agency under the installment sale agreement match the principal and interest on the bonds issued by the JPA and constitute the “revenues” securing the JPA bonds. The basic documents are an installment sale agreement (between the public agency and a JPA) and a trust agreement or indenture (between the JPA and a trustee). In theory, the public agency makes installment sale and interest payments to the JPA, which in turn makes payments on the bonds to the trustee, who makes payments to bondholders. In practice, the public agency makes its payments directly to the trustee, who makes payments to bondholders.
Rather than by a JPA, a nonprofit corporation can issue the bonds on behalf of the public agency (referred to as “63-20 bonds” because of the applicable Internal Revenue Service Revenue Procedure). See Section 4.2.3.2, 63-20 Corporations. These 63-20 bond issues were once common but are now rare.