BILL ANALYSIS
SENATE LOCAL GOVERNMENT COMMITTEE
Senator Patricia Wiggins, Chair
BILL NO: SB 99 HEARING: 3/04/09
AUTHOR: Committee on Local GovernmentFISCAL: Yes
VERSION: 1/27/09 CONSULTANT:
Weinberger
CONDUIT REVENUE BONDS
Background and Existing Law
The California Constitution exempts interest on bonds
issued by the state, or a local government in the state,
from taxes on income. Federal tax law exempts interest on
state and local bonds as well, but California does not
exempt interest on bonds issued by other states or local
governments located in other states.
Certain types of non-governmental borrowers can take
advantage of tax-exempt financing through "conduit revenue
bonds," which are issued by many types of governmental
agencies, including state financing authorities, chartered
cities, counties, joint powers authorities, redevelopment
agencies, and local housing and industrial development
authorities. These bonds may be issued for various
purposes including economic development, educational and
health facilities, and multi-family housing. The issuing
agency loans the funds obtained from the financing to a
non-governmental borrower who builds and operates the
project. A conduit revenue bond is payable solely from the
loan payments received from the non-governmental party, so
the governmental issuer normally has no liability for debt
service on the bonds. A private firm's use of a
governmental agency's authority to issue tax-exempt debt is
conditioned on public benefit being provided by the project
that is financed.
At its February 6, 2008 informational hearing, the Senate
Local Government Committee identified a number of concerns
about the transparency and accountability of state and
local government entities that issue conduit revenue bonds.
Proposed Law
Senate Bill 99 adds a new chapter to the Government Code,
SB 99 -- 1/27/09 -- Page 2
and makes other statutory changes, to impose additional
transparency and accountability requirements on conduit
financing providers in California.
I. Definitions . Senate Bill 99 defines "conduit
financing" as the issuance of conduit revenue bonds.
The bill defines a "conduit financing provider" as any
county, city, city and county, public district, public
authority, public corporation, nonprofit corporation, joint
powers authority, or other statutorily constituted public
entity that issues one or more conduit revenue bonds.
"Conduit revenue bond" is defined as any municipal security
the proceeds of which are loaned to any non-governmental
borrower including, but not limited to, persons, for-profit
corporations, nonprofit 501(c)(3) corporations,
partnerships, and other legal entities, for purposes that
are permitted for qualified private activity bonds under
federal law. [See 1 of the bill.]
II. Internet posting . Senate Bill 99 requires a conduit
financing provider that maintains a website to make the
following information available on its website:
Regular meeting agendas.
Notices of special meetings.
Notices of meetings of a state body.
Staff reports on the items included on the meeting
agendas.
Minutes of meetings.
Audits of the conduit financing provider's accounts
and records.
Copies of reports of the conduit financing
provider's annual financial transactions required
under state law.
Annual lists of applications approved for
financing. [1]
III. Audits . Senate Bill 99 requires any legally-mandated
audit of a conduit financing provider's accounts and
records to include:
A disclosure of fees imposed on borrowers by or on
behalf of the conduit financing provider.
A disclosure of expenditures related to those fees
made by or on behalf of the conduit financing
SB 99 -- 1/27/09 -- Page 3
provider.
The dollar amount and nature of such fees and
expenses.
A disclosure of the amount of bonds authorized but
unsold at the end of the time period covered by the
audit.
A disclosure of the amount of debt the conduit
financing provider has issued during the period
covered by the audit and the amount of debt still
outstanding at the end of the time period covered by
the audit.
SB 99 requires an audit of a conduit financing provider's
accounts and records to be made publicly available pursuant
to the California Public Records Act.
The bill also requires conduit financing providers to
conduct annual audits and report the results to the State
Controller. [1]
IV. Annual reports . Senate Bill 99 requires that any
report of a conduit financing provider's annual financial
transactions which is required by law to be submitted to
the State Controller or the Legislature must be made in the
time, form, and manner prescribed by the Controller, and
must include any other information he or she deems of
public interest. [1]
V. Controller's costs . Senate Bill 99 requires the
California Debt and Investment Advisory Commission, until
June 30, 2013, to reimburse the State Controller through an
interagency agreement for the Controller's actual costs,
not to exceed $200,000 per fiscal year, related to the
implementation and maintenance of specified statutory
provisions. If, after June 30, 2013, the Controller does
not receive sufficient funding for compiling data contained
in conduit financing providers' annual reports, the
Controller may stop compiling and publishing conduit
financing transactions reports until sufficient funding is
provided. [1]
VI. JPA conduit financing providers . Under the Joint
Exercise of Powers Act public agencies can sign agreements
that create joint powers agencies (JPAs). Joint powers
agencies must notify the Secretary of State of their
SB 99 -- 1/27/09 -- Page 4
existence and the Secretary of State must provide copies of
the JPAs' notices to the State Controller. In addition to
current notice requirements, Senate Bill 99 requires a
notice sent by a JPA to the Secretary of State to include a
copy of the full text of the original joint powers
agreement, and any amendments to that original agreement.
[2]
The Ralph M. Brown Act requires local agencies, including
joint powers authorities, to post an agenda for a regular
meeting of a local legislative body at least 72 hours
before the meeting in a location that is freely accessible
to members of the public. Senate Bill 99 requires an
authority or other entity created pursuant to the Joint
Exercise of Powers Act to adopt a resolution authorizing
any issuance of revenue bonds during a regular meeting,
pursuant to the requirements of the Brown Act. [3 and 5]
Under the Marks-Roos Local Bond Pooling Act, a JPA that
forms a bond pool must disclose to the California Debt and
Investment Advisory Commission (CDIAC) the levels of fees
charged to borrowers. Senate Bill 99 requires an agency or
entity created pursuant to the Joint Powers Act to disclose
to CDIAC the level of fees imposed by, or on behalf of, the
agency or entity for revenue bonds issued pursuant to
Article 2 of the Joint Powers Act. [4]
Local agencies, including entities created pursuant to the
Joint Exercise of Powers Act, must furnish the State
Controller with annual reports of their financial
transactions. Failure to file the required financial
transactions report can result in a forfeiture penalty of
up to $5,000. Senate Bill 99 increases the penalties on a
JPA that issues conduit revenue bonds and fails to file its
annual reports. A JPA that issues conduit revenue bonds
and fails to file its annual report for two or more
consecutive years would be subject to double the forfeiture
penalty that was imposed for the first year. Additionally,
any JPA that issues conduit revenue bonds and fails to file
its annual report for three consecutive years must be
audited by the State Controller and the agency must
reimburse the Controller for the costs of the audit. [6]
VII. Findings and declarations . Senate Bill 99 makes
findings and declarations relating to the need to make
SB 99 -- 1/27/09 -- Page 5
conduit financing providers more transparent and
accountable to the public. [7]
Comments
1. Public funds, public accountability . By providing
tax-exempt financing to non-governmental entities through
conduit revenue bonds, the State General Fund annually
forgoes income tax revenues to help the private sector
build projects that create public benefits. In exchange
for this significant tax expenditure, the state and the
public deserve sufficient opportunities to participate in
conduit financing providers' public deliberations and get
meaningful information about their financial transactions.
Testimony and information provided to the Senate Local
Government Committee suggests that statutory ambiguities
and discrepancies make it difficult to determine whether
all conduit financing providers comply with audit, annual
financial reporting, and other public accountability
requirements. By imposing enhanced Internet posting,
meeting notice, audit, and annual reporting requirements on
all conduit financing providers in California, SB 99 takes
an important step towards ensuring that the public's
interests in conduit financing transactions are protected.
2. Try again . SB 99 replicates SB 1293 (Negrete McLeod,
2008), which Governor Schwarzenegger vetoed, saying that
the bill was not a high priority.
Support and Opposition (2/26/09)
Support : State Treasurer Bill Lockyer, California State
Association of Counties, League of California Cities,
American Federation of State, County, and Municipal
Employees, AFL-CIO.
Opposition : Unknown.