BILL ANALYSIS
SB 99
Page 1
SENATE THIRD READING
SB 99 (Local Government Committee)
As Amended August 31, 2009
Majority vote
SENATE VOTE :39-0
LOCAL GOVERNMENT 7-0 APPROPRIATIONS 17-0
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|Ayes:|Caballero, Knight, |Ayes:|De Leon, Conway, Ammiano, |
| |Arambula, Davis, Duvall, | | |
| |Krekorian, Skinner | |Charles Calderon, Coto, |
| | | |Davis, Fuentes, Hall, |
| | | |Harkey, Miller, |
| | | |Nielsen, John A. Perez, |
| | | |Skinner, Solorio, Audra |
| | | |Strickland, Torlakson, |
| | | |Hill |
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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.
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4)Requires a conduit financing provider that maintains a website
to make the following information available on its Web site:
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;
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,
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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 State Controller (Controller).
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 joint powers agency (JPA) or other entity created
pursuant to the Act to file a copy of the full text of the
original joint powers agreement and any amendments with the
Controller whenever a JPA or other entity files a notice of
agreement or amendment with the Secretary of State (SOS).
10)Requires an authority or other entity created pursuant to the
Joint Exercise of Powers Act (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 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 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 :
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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
Controller.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, annual cost pressures to the Controller's office to
compile and review full texts of original joint powers
agreements and their amendments, potentially in the range of
$75,000 per year.
COMMENTS : 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 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
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issue tax-exempt debt is conditioned on public benefit being
provided by the project that is being 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.
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 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."
This bill 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 the Assembly Local Government Committee
7-0.
Analysis Prepared by : Jennifer R. Klein / L. GOV. / (916)
319-3958
FN: 0002642