BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 2274
                                                                  Page  1

          Date of Hearing:   April 28, 2014

                      ASSEMBLY COMMITTEE ON BANKING AND FINANCE
                               Roger Dickinson, Chair
                 AB 2274 (Gordon) - As Introduced:  February 21, 2014
          
          SUBJECT  :   The California Debt and Investment Advisory  
          Commission. 

           SUMMARY  :   Modifies the reporting requirements an issuer of debt  
          is required to make to the California Debt and Investment  
          Advisory Commission (CDIAC) before a proposed sale of debt  
          issue. Specifically,  this bill  :  

          1)Decreases the number of days from 45 to 21 that the issuer  
            after the sale of debt shall submit a report of final sale.  

          2)Expands the CDIAC's authority to charge fees relating to the  
            principal amount of a debt issue to a lender.  

           EXISTING LAW  

          1)Creates CDIAC consisting of nine members and provides  
            information, education and technical assistance on debt  
            issuance and public fund investments to local public agencies  
            and other public finance professionals. CDIAC was created in  
            1981 with the passage of Chapter 1088, Statutes of 1981  
            (Assembly Bill (AB) 1192, Costa). This legislation established  
            the California Debt Advisory Commission as the State's  
            clearinghouse for public debt issuance information and  
            required it to assist state and local agencies with the  
            monitoring, issuance and management of public debt. The  
            Commission's name was changed to the California Debt and  
            Investment Advisory Commission with the passage of Chapter  
            833, Statutes of 1996 (AB 1197, Takasugi), and its mission was  
            expanded to cover public investments. Among other functions  
            specified in statute, CDIAC:

             a)   Collects information on all state and local debt  
               issuance in California and serves as a statistical  
               clearinghouse;

             b)   Provides technical assistance and continuing education  
               to state and local government officials on the practices  
               and strategies for public debt issuance and investing  








                                                                  AB 2274
                                                                  Page  2

               public funds;

             c)   Undertakes or commissions studies on methods to reduce  
               the costs of debt and improve credit ratings;

             d)   Publishes a monthly newsletter;

             e)   Recommends Legislative changes to improve the sale and  
               servicing of state and local debt;

             f)   Collects reports of annual fiscal status, bond reserve  
               draws and bond defaults for Mello-Roos Community Facilities  
               Districts and Marks-Roos Bond Pools; and, 

             g)   Assists state financing authorities and commissions to  
               carry out their responsibilities.  [Government Code,  
               Section 8855]

          2)Allows the CDIAC to collect fee to the lead underwriter or the  
            purchaser in an amount equal to one-fortieth of 1 percent of  
            the principal amount of the issue, but not to exceed $5,000  
            for any one issue.  Amount received will be deposited in the  
            CDIAC Fund which is created in the State Treasury.

           FISCAL EFFECT  :   Unknown. 

           COMMENTS  :   

          According to the sponsor, California State Treasurer, Bill  
          Lockyer, AB 2274 will better align CDIAC's debt information  
          collection process with current municipal financing practices  
          while also improving the timelines of reports of debt issuance  
          by public agencies in California.  

          CDIAC was created to provide information, education and  
          technical assistance on debt issuance and public fund  
          investments to local public agencies and other public finance  
          professionals. One of its responsibilities is to collect  
          information on all state and local debt issuance in California,  
          as well as, serve as a statistical clearinghouse.

          Specific language in CDIAC's statute referring to methods of a  
          sale or issuance, bond purchase contracts, and bid acceptance,  
          among others, have led some to form the opinion that only  
          authorized and issued bonds or instruments that are issued  








                                                                  AB 2274
                                                                  Page  3

          similarly to bonds should be reported to CDIAC.  Bonds are only  
          one form of debt issued by state and local entities.  And with  
          an evolving market, the language prevents CDIAC from collecting  
          information on new and future types of borrowing made by  
          municipal issuers. 

          The municipal industry has seen an increasing trend of municipal  
          issuers taking on non-traditional financing for capital projects  
          in the form of direct loans from banks. Prior to this, the  
          financing of these projects was done with a bond. This new type  
          of borrowing allows public officials to obtain new debt without  
          disclosure to municipal bondholders. This is problematic because  
          bondholders and rating agencies do not have an accurate picture  
          of the entity's total indebtedness.  More importantly, CDIAC,  
          the state's clearinghouse for debt information, is unable to  
          capture important data that the Legislature and others rely on  
          for comprehensive information on state and local government  
          debt.

          AB 2274 accomplishes three things:

          1)Removing terminology that can be interpreted to be specific to  
            a debt type or method of sale.  The authorizing statute that  
            defined CDIAC's mission, roles, and responsibilities.   
            Government Code Section 8855(i) and 8855(j) does not define  
            the term "debt."  While the lack of a definition has allowed  
            CDIAC to administratively adapt its data collection methods to  
            the changing varieties of state and local debt, it has left  
            CDIAC vulnerable to the challenges from issuers over the types  
            of debt and debt-like obligations they must report.  This  
            problem is exacerbated by the aforementioned Government Code  
            Sections which use terminology related to the filing of debt  
            information with CDIAC that can be more strictly interpreted  
            to apply to bonds only.

          2)Reducing the time for reporting bond sale information to  
            CDIAC, from 45 days to 21 days to improve the usefulness of  
            reports.  Government Code Section 8855(j) required that a  
            report of final sale be submitted to CDIAC 45 days after the  
            bond purchase contract is signed and the bid accepted.  This  
            timeframe is inconsistent with the reporting timeframe used by  
            the Municipal Securities Rulemaking Board (MSRB) and  
            Securities and Exchange Commission (SEC) (MSRB requires  
            underwriters notification within 2 hours; the SEC requires 10  
            days).  The current 45 day period causes CDIAC's data to be  








                                                                  AB 2274
                                                                  Page  4

            inconsistent with other widely referenced market sources.  

          3)Adding the term "lender" as another entity responsible for  
            remitting CDIAC's filing fee to capture non-traditional debt  
            such as direct loans   Government Code Section 8856(a) placed  
            the responsibility for remitting CDIAC's filing fee upon the  
            "lead underwriter" or "the purchaser," and such debt-type  
            specific terminology creates ambiguity for issuers of  
            non-traditional indebtedness and causes conflict between CDIAC  
            staff and an issuer's lender regarding who must pay the filing  
            fee.

           Recommended Amendments:

           1)On page 3, line 14, delete "new"

          2)On page 4, line 15, delete, "by mail, postage prepaid or"

          3)On page 4, line 16 delete "other"

          4)On page 5, delete lines 9-13
           
          REGISTERED SUPPORT / OPPOSITION  :   

           Support 
           
          California State Treasurer (Sponsor)

           Opposition 
           
          None on file.
           
          Analysis Prepared by  :    Kathleen O'Malley / B. & F. / (916)  
          319-3081