BILL ANALYSIS
SB 99
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Date of Hearing: July 1, 2009
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
Anna Marie Caballero, Chair
SB 99 (Local Government Committee) - As Amended: May 12, 2009
SENATE VOTE : 39-0
SUBJECT : Joint exercise of powers: reporting and disclosures.
SUMMARY : Imposes additional transparency and accountability
requirements on conduit financing providers in California.
Specifically, this bill :
1)Defines "conduit financing" as the issuance of conduit revenue
bonds issued in the name of a conduit financing provider for
the use of a third party that are not the debt of the conduit
financing provider, but become the debt of the third party
receiving the proceeds.
2)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.
3)Defines "conduit revenue bond" 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.
4)Requires a conduit financing provider that maintains a website
to make the following information available on its website:
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;
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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;
and,
h) Annual lists of applications approved for financing by
the governing body of the conduit financing provider for
any fiscal year in which at least one such application is
approved.
5)States that when an audit of a conduit financing provider's
accounts and records is required by law, in addition to any
other requirements, the audit shall include all of the
following:
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 these 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;
and,
e) A disclosure of the amount of debt the conduit financing
provider has issued and the amount of debt still
outstanding at the end of the time period covered by the
audit.
6)Provides that conduit financing providers' audits are
disclosable public records.
7)Requires a conduit financing provider to annually conduct an
audit of its accounts and records and report the results of
that audit to the Controller.
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8)States that the minimum requirements of the annual audit and
report shall be prescribed by the Controller and conform to
generally accepted auditing standards.
9)Requires a notice sent by a joint powers agency (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.
10)Requires an authority or other entity created pursuant to the
Joint Exercise of Powers Act to authorize any issuance of
revenue bonds during a regular meeting, pursuant to the
requirements of the Ralph M. Brown Act.
11)Requires an agency or entity created pursuant to the Joint
Powers Act to disclose to the California Debt Investment and
Advisory Commission (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.
12)Increases penalties on a JPA that issues conduit revenue
bonds and fails to file its annual reports with the
Controller.
13)Makes findings and declarations relating to the need to make
conduit financing providers more transparent and accountable
to the public.
EXISTING LAW :
1)Authorizes, under the Marks-Roos Local Bond Pooling Act of
1985 (Marks Roos Act),
a joint exercise of powers authority to issue or purchase bonds
to assist local agencies in
financing public capital improvements, working capital,
liability, or other insurance needs, or projects whenever
there are significant public benefits for taking that action.
2)Exempts interest on bonds issued by the state, or a local
government in the state, from taxes on income.
3)Establishes penalties on a JPA that issues conduit revenue
bonds and fails to file its annual reports with the
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Controller.
FISCAL EFFECT : Unknown
COMMENTS :
1)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.
2)Certain types of nongovernmental 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, charter 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 multifamily housing.
The issuing agency loans the funds obtained from the financing
to a nongovernmental borrower who builds and operates the
project. A conduit revenue bond is payable solely from the
loan payments received from the nongovernmental 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 being financed.
3)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.
4)According to the author's office, "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
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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."
5)Prior legislation : SB 99 is substantially similar to SB 1293
(Local Government Committee), which was introduced in 2008 and
vetoed by the Governor with the blanket veto message. Last
year, SB 1293 passed out of this Committee 7-0.
REGISTERED SUPPORT / OPPOSITION :
Support
American Federation of State, County and Municipal Employees
CA State Association of Counties
CA Statewide Communities Development Authority
League of CA Cities
State Treasurer Bill Lockyer
Opposition
None on file
Analysis Prepared by : Jennifer R. Klein / L. GOV. / (916)
319-3958