BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 2395| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: AB 2395 Author: Lowenthal (D), et al. Amended: 7/2/14 in Senate Vote: 21 SENATE NATURAL RESOURCES AND WATER COMMITTEE : 8-0, 6/10/14 AYES: Pavley, Cannella, Evans, Hueso, Jackson, Lara, Monning, Wolk NO VOTE RECORDED: Fuller SENATE GOVERNANCE & FINANCE COMMITTEE : 6-0, 6/25/14 AYES: Wolk, Knight, Beall, DeSaulnier, Hernandez, Liu NO VOTE RECORDED: Walters ASSEMBLY FLOOR : 76-0, 5/23/14 - See last page for vote SUBJECT : Oxnard Harbor District: infrastructure projects: funding SOURCE : Author DIGEST : This bill allows the Oxnard Harbor District (District), aside from the $1 million borrowing limit for land acquisition as specified in existing law, to borrow money by issuance of promissory notes, or execute conditional sales contracts to purchase personal property, in an amount or of a value not exceeding $10 million at any one time, for the purposes of acquiring land for and constructing or operating any work, project, or facility authorized by existing law, or for the making of improvement or the purchase of or maintenance of CONTINUED AB 2395 Page 2 the equipment. This does not apply to any money borrowed from any agency or department of the United State government or of the State of California. ANALYSIS : Existing law: 1.Establishes procedures for harbor districts to borrow up to $1 million for the purposes of acquiring land for constructing or operating any work, project, or facilities. This level of indebtedness must be authorized by a resolution adopted by a two-thirds vote of the board of a harbor district. Prohibits the term of a loan of funds from exceeding five years and from incurring a rate of interest exceeding 12%. 2.Requires a proposed harbor district to provide a petition which contains, among other things, a general description of the improvement and development work proposed to be done in the harbor, which work may include the dredging of channels, shipways, berths, anchorage places and turning basins, the construction of jetties, breakwaters, bulkheads, seawalls, wharves, ferry slips, warehouses, roads and spur tracks or belt line railways, together with any other work necessary for the development and improvement of the harbor. 3.Requires a harbor district, notwithstanding #2 above, to acquire, construct, own, operate, control, or develop any and all harbor works or facilities within the limits of its established boundaries. No interest in lands may be acquired, either by lease, purchase, or the exercise of the power of eminent domain within any port district, chartered port, harbor improvement district, incorporated city, or recreational harbor district without the prior consent to the acquisition by resolution of the governing body of each district, port, or city in which the lands are located. 4.Authorizes, notwithstanding #3 above, a harbor district that does not operate on tide and submerged lands that have been granted by legislative enactment to acquire, construct, own, operate, control, or develop any and all harbor works or facilities within or outside the boundaries of the district. Specifies that no interest in lands may be acquired, either by lease, purchase, or the exercise of the power of eminent CONTINUED AB 2395 Page 3 domain within any port district, chartered port, harbor improvement district, incorporated city, county, or recreational harbor district without the prior consent to the acquisition by resolution of the governing body of the district, port, city, or county in which the lands are located. This bill: 1.Allows the District, aside from the $1 million borrowing limit for land acquisition as specified in existing law, to borrow money by issuance of promissory notes, or execute conditional sales contracts to purchase personal property, in an amount or of a value not exceeding $10 million at any one time, for the purposes of acquiring land for and constructing or operating any work, project, or facility authorized by existing law, or for the making of improvement or the purchase of or maintenance of the equipment. This does not apply to any money borrowed from any agency or department of the U.S government or of the State of California. 2.Prohibits monies borrowed pursuant to this bill, from exceeding a term of five years and from incurring a rate of interest exceeding 12%. This level of indebtedness must be authorized by a resolution adopted by a two-thirds vote of the board of the District. 3.Provides that as a condition precedent to the borrowing of any money or the execution of any conditional sales contract, as provided, in excess of $100,000, the board of the District must first authorize a resolution adopted by a two-thirds vote, and have on file a report on the engineering and economic feasibility relating to the project contemplated for the expenditure of the borrowed money or conditional sales contract. The report shall be prepared and signed by an engineer or engineers licensed and registered under the laws of the State of California. 4.Requires the District to budget, levy and collect taxes and pay for all indebtedness without limitation by any other provision of current law. 5.Makes legislative findings and declarations regarding the need to finance several significant infrastructure projects, the CONTINUED AB 2395 Page 4 constraints that the $1 million limit places on the District, and the District's accomplishments. Background The California Constitution prevents counties and cities from creating multi-year general obligation debt without two-thirds voter approval. School districts need 55% voter approval. Because the constitutional ban does not mention special districts, the Legislature has allowed many types of special districts to borrow money without voter approval by issuing promissory notes. Unlike bonds, promissory notes are usually short-term debts that are not backed by a specified revenue source. This lack of identified revenue makes them relatively more risky for private investors, which drives up borrowing costs. However, because promissory notes do not need voter approval, they are politically more attractive than bonds. Districts use promissory notes to finance office buildings and other facilities that do not generate revenues. State laws limit most promissory notes from $5 million to $10 million, repaid over 2 to 10 years. Securitized limited obligation notes (SLONs) are like promissory notes, but state law requires the special district to securitize them by pledging a dedicated stream of revenues. State law also imposes more stringent disclosure requirements (SB 1561, Soto, Chapter 288, Statutes of 2002). While SLONs do not need voter approval, they require a four-fifths vote of a district's governing board. Typically, special districts can use SLONs to borrow up to $2 million for 10 years, to be paid back from pledged revenue. State law authorized harbor districts to borrow money by the issuance of promissory notes for the purposes of acquiring land for constructing and/or operating any work, project, or facility, or for making improvements, and purchasing and maintaining equipment. Harbor districts may issue promissory notes for up to $1 million dollars that must be repaid in five years and with interest rate that cannot exceed 12% per year. Districts can also issue SLONs for up to $10 million to be paid back in 10 years. CONTINUED AB 2395 Page 5 The District in Ventura County is one of five independent harbor special districts. The District owns and manages the commercial Port of Hueneme. A five-member Board of Harbor Commissioners, elected at-large from the District, sets the policies for the Port. The Port does not levy, collect or spend local taxes, but instead relies on revenue generated from its operation to support its activities, in conjunction with occasional state and federal funding. Major capital investments of the Port have been historically financed through revenue bonds. The District argues that the $1 million cap for promissory notes takes away a valuable financing option to cover the costs of important infrastructure projects to accommodate the Port's anticipated needs in the next several decades. The District wants the Legislature to increase its general borrowing authority from $1 million to 15% of the District's total assets. FISCAL EFFECT : Appropriation: No Fiscal Com.: No Local: No SUPPORT : (Verified 7/2/14) California Special Districts Association Port of Hueneme/Oxnard Harbor District ARGUMENTS IN SUPPORT : According to the author, "This bill authorizes the District to incur indebtedness beyond a $1 million cap set in statute 30 years ago. This limitation does not accurately or adequately account for the needs and escalated project costs of a modern port competing in a global market." She continues, "The Port of Hueneme is the only deep water port on the Pacific between the major ports of southern and northern California. Although a deep water port, at a depth of only 35 feet MLLW (mean lower low water), the Port is limited in its activities and applications. At least 40 feet MLLW is necessary to accommodate the Port's anticipated needs into the next several decades." ASSEMBLY FLOOR : 76-0, 5/23/14 AYES: Achadjian, Alejo, Allen, Ammiano, Bigelow, Bloom, Bocanegra, Bonilla, Bonta, Bradford, Brown, Buchanan, Ian Calderon, Campos, Chau, Chávez, Chesbro, Conway, Cooley, CONTINUED AB 2395 Page 6 Dababneh, Dahle, Daly, Dickinson, Donnelly, Eggman, Fong, Fox, Frazier, Beth Gaines, Garcia, Gatto, Gomez, Gonzalez, Gordon, Gorell, Gray, Grove, Hagman, Hall, Holden, Jones, Jones-Sawyer, Levine, Linder, Logue, Lowenthal, Maienschein, Mansoor, Medina, Melendez, Mullin, Muratsuchi, Nazarian, Nestande, Olsen, Pan, Patterson, Perea, John A. Pérez, Quirk, Quirk-Silva, Rendon, Ridley-Thomas, Rodriguez, Salas, Skinner, Stone, Ting, Wagner, Waldron, Weber, Wieckowski, Wilk, Williams, Yamada, Atkins NO VOTE RECORDED: Harkey, Roger Hernández, V. Manuel Pérez, Vacancy RM:k 7/2/14 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED