BILL ANALYSIS
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|SENATE RULES COMMITTEE | SB 99|
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THIRD READING
Bill No: SB 99
Author: Senate Local Government Committee
Amended: 5/12/09
Vote: 21
SENATE LOCAL GOVERNMENT COMMITTEE : 5-0, 3/4/09
AYES: Wiggins, Cox, Aanestad, Kehoe, Wolk
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
SUBJECT : Joint exercise of powers: reporting and
disclosures
SOURCE : Author
DIGEST : This bill adds a new chapter to the Government
Code, and makes other statutory changes, to impose
additional transparency and accountability requirements on
conduit financing providers in California.
ANALYSIS : 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
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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.
This bill adds a new chapter to the Government Code, and
makes other statutory changes, to impose additional
transparency and accountability requirements on conduit
financing providers in California.
1. Definitions . This bill defines "conduit financing" as
the issuance of conduit revenue bonds.
This 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.
2. Internet posting . This bill requires a conduit
financing provider that maintains a website to make the
following information available on its website:
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A. Regular meeting agendas.
B. Notices of special meetings.
C. Notices of meetings of a state body.
D. Staff reports on the items included on the
meeting agendas.
E. Minutes of meetings.
F. Audits of the conduit financing provider's
accounts and records.
G. Copies of reports of the conduit financing
provider's annual financial transactions required
under state law.
H. Annual lists of applications approved for
financing.
3. Audits . This bill requires any legally-mandated audit
of a conduit financing provider's accounts and records
to include:
A. A disclosure of fees imposed on borrowers by or
on behalf of the conduit financing provider.
B. A disclosure of expenditures related to those
fees made by or on behalf of the conduit financing
provider.
C. The dollar amount and nature of such fees and
expenses.
D. A disclosure of the amount of bonds authorized
but unsold at the end of the time period covered by
the audit.
E. 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
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by the audit.
This bill 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.
4. JPA conduit financing providers . Under the Joint
Exercise of Powers Act public agencies can sign
agreements that create joint powers agencies (JPAs).
JPAs must notify the Secretary of State of their
existence and the Secretary of State must provide copies
of the JPAs' notices to the State Controller. In
addition to current notice requirements, this bill
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.
The Ralph M. Brown Act requires local agencies,
including JPAs, 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. This bill
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.
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. This bill
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.
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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. This bill
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.
5. Findings and declarations . This bill makes findings and
declarations relating to the need to make conduit
financing providers more transparent and accountable to
the public.
Comments
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, this bill takes an important step towards
ensuring that the public's interests in conduit financing
transactions are protected.
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Prior Legislation
SB 1293 (Negrete McLeod), of 2008 , which was vetoed.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
SUPPORT : (Verified 5/19/09)
American Federation of State, County, and Municipal
Employees, AFL-CIO
California State Association of Counties
California Statewide Communities Development Authority
League of California Cities
State Treasurer Bill Lockyer
AB:do 5/20/09 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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