BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 2046
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          ASSEMBLY THIRD READING
          AB 2046 (Gomez)
          As Amended  March 24, 2014
          2/3 vote. Urgency 

           LOCAL GOVERNMENT    6-0                                         
           
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          |Ayes:|Levine, Alejo, Bradford,  |     |                          |
          |     |Gordon, Mullin, Rendon    |     |                          |
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          SUMMARY  :  Authorizes California joint powers authorities (JPAs)  
          to issue bonds and enter into loan agreements to finance or  
          refinance private projects located outside this state.   
          Specifically,  this bill  :  

          1)Allows JPAs to issue or cause to be issued bonds and enter  
            into loan agreements, as specified, for the financing or  
            refinancing of a project that is situated in another state,  
            including working capital related to that project, if all of  
            the following apply:

             a)   The project is owned, developed, or operated by a  
               private entity;

             b)   The issuance of bonds by the JPA and the financing of  
               the project is approved by resolution, order, or other  
               official action of the city, county, or other public body  
               with land use planning authority over the project, or of  
               the state in which the project is situated.  This  
               requirement does not apply to the issuance of refunding  
               bonds if a prior financing or refinancing of the project  
               was approved by the city, county, public body, or state;  
               and,

             c)   The JPA finds, based on the facts and circumstances  
               attendant to the project or the financing or refinancing of  
               the project, that the issuance of the bonds or the  
               financing or refinancing of the project will result in a  
               substantial public benefit to, and are for a public purpose  
               of, the citizens of this state.

          2)Declares that this bill is an urgency statute necessary for  








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            the immediate preservation of the public peace, health, or  
            safety within the meaning of Article IV of the Constitution  
            and shall go into immediate effect.  The facts constituting  
            the necessity are:  in order to timely provide essential  
            bonding authority for the funding of multi-state,  
            public-private projects that are necessary to ensure  
            California's national and international competitiveness and  
            public benefits in this state, it is necessary that this act  
            take effect immediately.

           EXISTING LAW  :

          1)Allows, pursuant to the Joint Exercise of Powers Act (Act),  
            two or more public agencies by agreement to jointly exercise  
            any power common to the contracting parties, as specified, 
          if authorized by their legislative or other governing bodies.  

          2)Establishes the Marks-Roos Local Bond Pooling Act of 1985  
            (Marks-Roos), which finds and declares that:

             a)   There is a critical need within the state to expand,  
               upgrade, and otherwise improve the public capital  
               facilities of local government necessary to support the  
               rehabilitation and construction of residential and economic  
               development; and,

             b)   It is the intent of the Legislature to assist in the  
               reduction of local borrowing costs, help accelerate the  
               construction, repair, and maintenance of public capital  
               improvements, and promote greater use of existing and new  
               financial instruments and mechanisms, such as bond pooling  
               by local agencies.

          3)States, pursuant to Marks-Roos, that it is the Legislature's  
            intent that Marks-Roos be used to assist local agencies in  
            financing public capital improvements, working capital,  
            liability and other insurance needs, or projects whenever  
            there are significant public benefits for taking that action.   
            For the purposes of Marks-Roos, "significant public benefits"  
            means any of the following benefits to the citizens of the  
            local agency:

             a)   Demonstrable savings in effective interest rate, bond  
               preparation, bond underwriting, or bond issuance costs;








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             b)   Significant reductions in effective user charges levied  
               by a local agency;

             c)   Employment benefits from undertaking the project in a  
               timely fashion; or,

             d)   More efficient delivery of local agency services to  
               residential and commercial development.

          4)Provides that a JPA, or any entity acting on behalf of or for  
            the benefit of a JPA, may not authorize bonds to construct,  
            acquire, or finance a public capital improvement, except as  
            specified, unless all of the following conditions are  
            satisfied with respect to each capital improvement to be  
            constructed, acquired, or financed:

             a)   The JPA reasonably expects that the public capital  
               improvement is to be located within the geographical  
               boundaries of one or more local agencies of the JPA that is  
               not itself a JPA;

             b)   A local agency that is not itself a JPA, within whose  
               boundaries the public capital improvement is to be located,  
               has approved the financing of the public capital  
               improvement and made a finding of significant public  
               benefit in accordance with the criteria specified in 3),  
               above, after a public hearing held by that local agency  
               within each county or city and county where the public  
               capital improvement is to be located after notice of the  
               hearing is published once at least five days prior to the  
               hearing in a newspaper of general circulation in each  
               affected county or city and county.  If the public capital  
               improvement to be financed will provide infrastructure,  
               services, or a golf course to support, or in conjunction  
               with, any development project, the local agency for  
               purposes of this requirement shall be the city, county, or  
               city and county with land use jurisdiction over the  
               development project; and,

             c)   A notice with specified contents is sent by certified  
               mail at least five business days prior to the hearing held  
               pursuant to b), above, to the Attorney General and to the  
               California Debt and Investment Advisory Commission (CDIAC),  








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               with specified exceptions. 
          5)Provides exemptions to 4), above, for bonds issued to finance:  
            the undergrounding of utility and communication lines;  
            facilities for the generation or transmission of electrical  
            energy for public or private uses, as specified; facilities  
            for the production, storage, transmission, or treatment of  
            water, recycled water, or wastewater; public school  
            facilities; and, public highways located within the  
            jurisdiction of a JPA, as specified.

          6)Allows JPAs to issue bonds, including, at the option of the  
            JPA, bonds bearing interest, to pay the cost of any public  
            capital improvement, working capital, or liability or other  
            insurance program.  In addition, for any purpose for which a  
            JPA may execute and deliver or cause to be executed and  
            delivered certificates of participation in a lease or  
            installment sale agreement with any public or private entity,  
            the JPA, at its option, may issue or cause to be issued bonds,  
            rather than certificates of participation, and enter into a  
            loan agreement with the public or private entity.

          FISCAL EFFECT  :  None

           COMMENTS  :   

          1)Purpose of this bill.  This bill seeks to allow California  
            JPAs to finance private projects located outside the state.   
            This bill is sponsored by the California Municipal Finance  
            Authority (CMFA).

          2)Author's statement.  According to the author, "Today, some  
            (JPAs) perform beyond the local community, and their  
            activities transcend state lines.  To best assist these  
            organizations in achieving their financing goals, JPA's need  
            the ability to finance projects on a nationwide basis through  
            the issuance of taxable and/or tax-exempt bonds.  These  
            projects may be located partially in our state and partially  
            in another state (multi-state projects), or wholly in one or  
            more other states (out-of-state projects).

            "Beyond our state's boundaries, the practice of issuing debt  
            for multi-state and out-of-state projects is already a  
            reality.  In recent years, municipal issuers located in  
            Arizona, Colorado, Florida, Illinois, Texas and Wisconsin,  








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            among other states, have already issued bonds to finance  
            multi-state and out-of-state projects.  These projects provide  
            cost and time savings to borrowers, an improved public finance  
            process and economies of scale.  Some of those projects are  
            located in California, however companies and non-profit  
            organizations seeking to develop their multi-state projects  
            may look beyond California for cost effective bond financings.  
             

            "The public benefits to California for assisting in the  
            financing of multi-state and out-of-state projects can  
            include, among others, (i) time, efficiency and transaction  
            cost benefits to private enterprises with substantial  
            operations, employment or headquarters in California, (ii)  
            creating the perception that California is friendly to private  
            enterprise, (iii) putting California based public finance  
            professionals (including commercial lenders, underwriters,  
            financial advisors, attorneys and others) on an even footing  
            with their competitors in other states, and (iv) in the case  
            of certain JPA's, generating substantial contributions to  
            California charitable organizations for the purpose of  
            benefitting California communities."  

          3)Joint Exercise of Powers Act.  JPAs have existed in California  
            for nearly 100 years, and were originally created to allow  
            multiple local governments in a region to pool resources to  
            meet common needs.  The Act authorizes state and local  
            agencies to create and use a joint powers agreement, which is  
            a legal document that allows the contracting parties to  
            exercise powers that are common to all of the contracting  
            parties.  A joint powers agreement can be administered by one  
            of the contracting agencies, or it can be carried out by a  
            new, separate public entity.  Joint powers agreements are an  
            attractive tool for local governments because they facilitate  
            more efficient service provision through collaboration, and  
            they allow local entities to issue bonds without voter  
            ratification.  Current law authorizes JPAs to jointly exercise  
            any power common to the contracting parties, if authorized by  
            their legislative or governing body.

          4)Marks-Roos Bond Pooling.  Marks-Roos provides JPAs with broad  
            powers to issue bonds for a wide variety of purposes, and was  
            established to facilitate local bond pooling and allow local  
            agencies to achieve reduced issuance costs.  Marks-Roos bonds  








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            may only be issued by JPAs, and JPAs issuing bonds under  
            Marks-Roos need not follow other bond act requirements in the  
            issuance of bonds, such as voter approval.  Marks-Roos bonds  
            are bonds of the issuing JPA, not bonds of the member  
            agencies.  As such, the JPAs member agencies are not liable or  
            otherwise obligated on the bonds unless they expressly agree  
            to assume such liability.

            Marks-Roos bonds are issued to assist local agencies with  
            their financing needs.  "Local agencies" are defined to  
            include the sponsoring member of the JPA or any city, county,  
            city and county, authority, district, or public corporation of  
            the state.

            In order to use the Marks-Roos Act, the local agency for which  
            the bonds are being issued must determine that there are  
            significant public benefits for taking that action.   
            "Significant public benefits" are defined to mean:

             a)   Demonstrable savings in effective interest rate, bond  
               preparation, bond underwriting, or bond issuance costs;

             b)   Significant reductions in effective user charges levied  
               by a local agency;

             c)   Employment benefits from undertaking the project in a  
               timely fashion; or,

             d)   More efficient delivery of local agency services to  
               residential and commercial development.

            These determinations are typically made by resolution of the  
            local agency's legislative body when the local agency approves  
            the financing.

            In addition, Marks-Roos states that a JPA may not issue bonds  
            unless a member of the JPA within whose boundaries the public  
            capital improvement is to be located has approved the  
            financing, among other things.  This requirement provides a  
            "nexus" between the members of the JPA and the project.

            Marks-Roos bonds may be issued to directly pay the cost of  
            public capital improvements.  Direct financing of these  
            improvements generally takes the form of bonds issued by the  








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            JPA and secured by payments to be made under a loan agreement,  
            installment purchase agreement, or lease between the JPA and  
            the local agency that is paying for the project.  In this type  
            of arrangement, the JPA acts as a conduit issuer for the local  
            agency and has no obligation on the bonds other than to make  
            payment from the payments made by the local agency pursuant to  
            the underlying agreement between the JPA and the local agency.  
             The source of revenues for the underlying agreement with the  
            local agency can vary greatly and will determine which type of  
            agreement is used.

          5)Restrictions on Marks-Roos.  SB 147 (Kopp), Chapter 35,  
            Statutes of 1998, enacted many of the restrictions on the use  
            of Marks-Roos after CDIAC found that some JPAs (called  
            "roving" or "remote" JPAs) were using their Marks-Roos  
            authority to finance projects, such as golf courses and  
            casinos, outside their member agencies' jurisdictions in order  
            to collect fees.  These types of financing arrangements are  
            known as "land-based'' bond deals and, in some cases, were  
            financing wholly private projects. 

            According to an analysis of SB 147 by the Senate Local  
            Government Committee, "To make sure that remote JPAs don't  
            finance speculative projects within another agency's  
            jurisdiction, SB 147 requires greater participation from the  
            agencies whose territory will include the projects or  
            services.  To ensure that the projects benefit the public, SB  
            147 requires the sponsoring agency to find that a project will  
            promote the public interest.  By placing new restrictions on  
            remote project financing, SB 147 will help ensure that  
            communities don't get stuck with unwanted, or financially  
            shaky, projects (emphasis added)."  Requiring the public  
            agency to make the public benefit determination was in keeping  
            with an informal opinion issued by the Attorney General in  
            1996.

            In addition, according to CDIAC, the sponsor of SB 147, there  
            is not adequate oversight over a project or its financing  
            without a geographic connection.  CDIAC asserted that  
            requiring a project to be located within the boundaries of a  
            member agency of the JPA provides more public accountability  
            for land-based bond deals.

          6)Prior legislation.  SB 188 (Negrete McLeod) of 2007 declared  








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            that a JPA formed by an existing JPA with more than 450  
            members and any public agency in another state has the same  
            powers as a JPA under the Act, including Marks-Roos.  SB 188  
            also declared that any provisions of the Act that limit the  
            location of projects, financing, or other activities to  
            California do not apply to this type of JPA.  SB 188 required,  
            before this type of JPA could issue bonds for a project or  
            other activity, the governmental agency with primary  
            responsibility over land use project approval to approve the  
            project and the use of this JPA to finance the project.  SB  
            188 also required this type of JPA to submit an annual report  
            to CDIAC detailing its projects, financings, and activities.   
            SB 188 was sponsored by the California Statewide Communities  
            Development Authority (CSCDA) in an attempt to expand its  
            tax-exempt operations into other states.  

            An analysis of SB 188 by the Senate Local Government Committee  
            notes, "The public finance industry is becoming a nationwide  
            enterprise and CSCDA wants to maintain its leadership position  
            by becoming a multi-state bond issuer and lender.  Although  
            the Joint Exercise of Powers Act already allows other states'  
            public agencies to join a JPA, the Marks-Roos Act imposes  
            additional limits on membership and the location of projects.   
            To help CSCDA maintain its leadership in the tax-exempt bond  
            markets and expand into other states, SB 188 exempts this type  
            of JPA from any provision of the Joint Exercise of Powers Act  
            that might limit its activities to California."

            The CSCDA is operated by HB Capital Resources Ltd, a private  
            firm that also operates the Wisconsin-based Public Finance  
            Authority, one of several out-of-state conduit issuers that  
            operates nationwide.  

            SB 188 was held in the Senate Appropriations Committee.

          7)California Municipal Finance Authority.  According to its Web  
            site, "The CMFA mission is to support economic development,  
            job creation and social programs throughout the State of  
            California while giving back to California communities.  By  
            supporting our member communities and their local charities  
            with a portion of the revenue generated through the issuance  
            of taxable and tax-exempt bonds for public, private and  
            non-profit entities, the CMFA is able to directly contribute  
            to the health and welfare of the residents of California.








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            "The CMFA shares 25% of all issuance fees directly with its  
            member communities.  In addition, a grant equal to 25% of the  
            issuance fee is made to the California Foundation for Stronger  
            Communities to fund charities designated by the member  
            communities.  A portion of the annual fees received by the  
            CMFA will also be directed to charitable activities within  
            California communities.  This unique commitment to 'give back'  
            directly to the communities in which we operate sets the CMFA  
            apart."

            The CMFA is not required by law to make charitable  
            contributions.

          8)Policy considerations: This bill raises a number of questions  
            the Legislature may wish to consider:

             a)   Is it appropriate to expand the authority of California  
               JPAs to allow the issuance of tax-exempt bonds for private  
               projects that are located outside California, given the  
               original intent of the Act and Marks-Roos?

             b)   This bill severs the geographical nexus between the  
               bond-issuing JPA and the jurisdiction in which the local  
               agency project is located.  Are there appropriate  
               safeguards in the bill to ensure oversight of and  
               accountability for these financed projects?

             c)   This bill allows the bond-issuing JPA to determine the  
               "substantial public benefit to" the citizens of this state.  
                Is there an inherent conflict of interest in vesting this  
               decision with the entity that stands to benefit financially  
               from such a determination?  Would it be more prudent for a  
               financially disinterested party to make this finding?

             d)   This bill allows the out-of-state jurisdiction to  
               approve projects financed by California JPAs "by  
               resolution, order, or other official action of the city,  
               county, or other public body with land use planning  
               authority over the project, or of the state in which the  
               project is situated."  It does not require a publicly  
               noticed hearing prior to this approval.  Is this sufficient  
               public involvement?









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             e)   This bill states that the approval process described  
               above "does not apply to the issuance of refunding bonds if  
               a prior financing or refinancing of the project was  
               approved by the city, county, public body, or state."  This  
               would appear to allow California JPAs to engage in  
               re-financings without any "official action" of the  
               out-of-state jurisdiction.  Is this a policy the  
               Legislature wishes to support?
          9)Urgency clause.  This bill contains an urgency clause.  The  
            Legislature may wish to consider asking the author to explain  
            the need for an expedited process for this bill.

          10)Arguments in support.  Supporters state, "We would welcome  
            legislation that would allow us to finance public benefit  
            projects for projects outside of California by issuing bonds  
            through the CMFA, which would allow for more non-profit  
            entities benefitting from the CMFA charitable donations?Beyond  
            our state's boundaries, the practice of issuing debt for  
            multi-state and out-of-state projects is already a  
            reality?Companies and non-profit organizations seeking to  
            develop their multi-state projects may look beyond California  
            for cost effective financings.  AB 2046 will ensure that  
            California remains competitive with other states that already  
            have the authority to finance multi-state projects."

          11)Arguments in opposition.  The Howard Jarvis Taxpayers  
            Association, in opposition, writes, "JPA's have been allowed  
            for years to use (certificates of participation) to finance  
            in-state public and private projects.  California Communities,  
            a JPA run by local government associations is among the most  
            well-known of these.  While we believe this form of financing  
                                                                       is itself questionable on several policy grounds, at least the  
            projects financed are located within the boundaries of  
            California.  The same argument cannot be made for 
          AB 2046 and the funding of out of state projects.  This is a  
            broadening of a JPA's finance authority that takes them far  
            away from the citizens they purport to represent.  Making  
            matters worse these taxpayers have no ability to use their  
            voice at the ballot box if they disagree with this proposal,  
            as JPA's can currently issue bonds without voter approval.   
            The lack of safeguards and an appropriate nexus make it  
            extremely difficult to justify the need for this bill."

          








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          Analysis Prepared by  :    Angela Mapp / L. GOV. / (916) 319-3958 


                                                                FN: 0003147