BILL ANALYSIS Ó
AB 2046
Page 1
ASSEMBLY THIRD READING
AB 2046 (Gomez)
As Amended March 24, 2014
2/3 vote. Urgency
LOCAL GOVERNMENT 6-0
-----------------------------------------------------------------
|Ayes:|Levine, Alejo, Bradford, | | |
| |Gordon, Mullin, Rendon | | |
-----------------------------------------------------------------
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
AB 2046
Page 2
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;
AB 2046
Page 3
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),
AB 2046
Page 4
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,
AB 2046
Page 5
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
AB 2046
Page 6
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
AB 2046
Page 7
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
AB 2046
Page 8
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.
AB 2046
Page 9
"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?
AB 2046
Page 10
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."
AB 2046
Page 11
Analysis Prepared by : Angela Mapp / L. GOV. / (916) 319-3958
FN: 0003147