BILL ANALYSIS Ó SENATE COMMITTEE ON GOVERNANCE AND FINANCE Senator Robert M. Hertzberg, Chair 2015 - 2016 Regular ------------------------------------------------------------------ |Bill No: |SB 317 |Hearing | 5/6/15 | | | |Date: | | |----------+---------------------------------+-----------+---------| |Author: |De León |Tax Levy: |No | |----------+---------------------------------+-----------+---------| |Version: |4/23/15 |Fiscal: |Yes | ------------------------------------------------------------------ ----------------------------------------------------------------- |Consultant|Grinnell | |: | | ----------------------------------------------------------------- THE SAFE NEIGHBORHOOD PARKS, RIVERS, AND COASTAL PROTECTION BOND ACT OF 2016 (URGENCY) Enacts the Safe Neighborhood Parks, Rivers, and Coastal Protection Bond Act of 2016, which places a $2.45 billion bond on the November, 2016, ballot. Background and Existing Law I. Bond Acts. When public agencies issue bonds, they essentially borrow money from investors, who provide cash in exchange for the agencies' commitment to repay the principal amount of the bond plus interest. Bonds are usually either revenue bonds, which repay investors out of revenue generated from the project the agency buys with bond proceeds, or general obligation bonds, which the public agency pays out of general revenues and are guaranteed by its full faith and credit. Section 1 of Article XVI of the California Constitution and the state's General Obligation Bond Law guide the issuance of the state's general obligation debt. The Constitution allows the Legislature to place general obligation bonds on the ballot for specific purposes with a two-thirds vote of the Assembly and Senate. Voters also can place bonds on the ballot by initiative, as they have for parks, water projects, high-speed rail, and stem cell research, among others. Either way, general obligation bonds must be ratified by majority vote of the SB 317 (deLeón) 4/23/15 PageB of? state's electorate. Unlike local general obligation bonds, the state's electorate doesn't automatically trigger an increased tax to repay the bonds when they approve a state general obligation bond. Article XVI of the California Constitution commits the state to repay investors from general revenues above all other claims, except payments to public education. California voters approved $38.4 billion of general obligation bonds between 1974 and 1999, but approximately $95 billion since 2000. Additionally, the Legislature enacted and voters approved Proposition 1, which authorized $7.1 billion in bonds for water quality and supply infrastructure (AB 1471, Rendon, 2014). Bond acts have standard provisions that authorize the Treasurer to sell a specified amount of bonds, and generally include several uniform provisions that: Establish the state's obligation to repay them, and pledge its full faith and credit to repayment, Set forth issuance procedures, and link the bond act to the state's General Obligation Bond Law, Create a finance committee with specified membership, chaired by the State Treasurer, Charge the committee to determine whether it is "necessary or desirable" to issue the bonds, Add other mechanisms necessary for the Treasurer and the Department of Finance to implement the bond act, including allowing the board to re-quest a loan from the Pooled Money Investment Board to advance funds for bond-funded programs prior to the bond sale, among others. In bond acts, the Legislature generally: Sets forth categories of projects eligible for bond funds, such as library construction or school facility modernization, Chooses an administrative agency to award the funds, such as the State Librarian or the State Allocation Board, SB 317 (deLeón) 4/23/15 PageC of? Details the criteria to guide the administrative agency's funding in each category, Enacts enforcement and audit provisions, and Provide for an election to approve the bond act. Should the voters approve the bond act, the Legislature then appropriates funds to the chosen agencies to fund projects consistent with the criteria, generally as part of the Budget Act. The Department of Finance then surveys agencies to determine need for bond funds based on a project's readiness, and then asks the Treasurer to sell bonds in a specified amount. After the bond sale, the Department of Finance determines which bond acts and agencies receive bond proceeds. In recent years, the Legislature has enacted, and voters approved the following bonds for parks: Safe Neighborhood Parks, Clean Water, Clean Air, and Coastal Protection Act of 2000 of $2.1 billion (AB 18, Villaraigosa), and California Clean Water, Clean air, Safe neighborhood parks, and Coastal Protection Act of 2002 of $2.6 billion (AB 1602, Keeley), The following bond act was placed on the ballot by initiative: The Safe Drinking Water, Water Quality and Supply, Flood Control, River and Coastal Protection Bond Act of 2006 of $5.4 billion (Proposition 84). Proposed Law Senate Bill 317 enacts the Safe Neighborhood Parks, Rivers, and Coastal Protection Bond Act of 2016, which places a $2.45 billion bond on the November, 2016, ballot. After bonds are issued and sold, the measure allows the Legislature to appropriate funds according to the following schedule: $1.45 billion for parks in the following categories: SB 317 (deLeón) 4/23/15 PageD of? o $800 million to the Department of Parks and Recreation for creating and expanding safe neighborhood parks in park-poor neighborhoods, in accordance with the Safe Park Development and Community Revitalization Act of 2008 (AB 31, De Leon, 2008) o $200 million for grants for local governments for local park rehabilitation and improvement, allocated on a per capita basis, o $200 million to the Department for grants for the restoration, preservation, and protection of regional parks and parklands, o $200 million to the Department for restoration and preservation of existing state park facilities, and units to preserve and increase public access and to protect natural resources, and o $50 million to the Department for enterprise activities to increase revenue generation to support the department. $370 million for rivers, lakes, and streams in the following categories: o $100 million to the Natural Resources Agency to restore, protect, and expand river parkways, o $100 million to the Agency to implement the Lake Tahoe Environmental Improvement Program, o $100 million for restoration and protection projects, and the development of river parkway projects on the Los Angeles River and its tributaries, o $50 million for deposit into the Salton Sea Restoration Fund. o $20 million for urban stream restoration pursuant to AB 2704 (Aroner, 2002). $350 million for coast and ocean protection to fund SB 317 (deLeón) 4/23/15 PageE of? protection in two categories: o $300 million to the state coastal conservancy to protect beaches, bays, and coastal watershed resources, including agricultural resources and to complete the California Coastal Trail, o $50 million to the Santa Monica Mountains Conservancy to protect Santa Monica Mountain coastal watersheds, $280 million for climate resilience in three categories: o $100 million to the Strategic Growth Council to develop or implement regional or local greenprint or climate adaption plans, or update or develop a climate adaptation element for a general plan. The Council can also use funds to protect agricultural and open-space resources that support adopted sustainable communities strategies. o $150 million to the wildlife conservation board for grants to protect and expand wildlife corridors, o $30 million to the Department of Forestry and Fire Protection for grants to complement existing urban forestry expenditures by covering areas not included from funding in SB 1018 (Committee on Budget and Fiscal Review, 2012). The measure incorporates standard provisions in general obligation bond law either explicitly or by reference, including charging the finance committee with determining whether it's necessary and desirable to issue the bonds; however, the measure neither specifies the members of the finance committee, nor its Chair. State agencies must seek to achieve wildlife conservation objectives through projects on public lands or voluntary projects on private land to the extent feasible. State agencies can use funds for payments to create measureable habitat or other improvements in consultation with the Department of Fish and Wildlife, including habitat exchanges. Priority shall be SB 317 (deLeón) 4/23/15 PageF of? given to projects that implement Natural Community Conservation Plans and endangered species recovery plans. Restoration projects must include planning, monitoring, and reporting necessary to ensure successful implementation. The measure defines many of its terms, and also makes legislative finding and declarations supporting its purposes. State Revenue Impact No estimate. Comments 1. Purpose of the bill . According to the author, "SB 317 enacts into law the Safe Neighborhood Parks, Rivers, and Coastal Protection Act of 2016, otherwise referred to as the Parks Bond. The bond is a $2.45 billion measure that would appear on the November 2016 ballot if it becomes law. If enacted, SB 317 would be the first parks bond passed by this legislature in over 15 years (Proposition 84 of 2006 had some parks funding in it, but it was a broader water and climate bond as well). Investing in community parks and infrastructure is vital to communities throughout the state. It is particularly important in areas where children have no green space and few recreational opportunities. The last time the Legislature provided funding to help communities in parks poor areas, there were four times as many requests as there were dollars. Over time, that need has only become greater. SB 317 is focused on underserved communities but it also provides funds for all areas, from San Diego to Crescent City. It reflects the fact that every region of our state has different needs but all regions need parks and open space." 2. Sixteen tons . Debt is an essential part of almost every government, business, and personal balance sheet, as borrowers seek funds from lenders in exchange for a future commitment to repay them. However, evaluating the State's general obligation debt is difficult; both the State Treasurer and the Legislative Analyst's Office suggest there's no correct amount. Instead, experts suggest that states should look at three criteria: SB 317 (deLeón) 4/23/15 PageG of? affordability, comparability, and optimality<1>: California's debt is affordable. The State Treasurer estimates that the state will spend $6.4 billion in 2014-15, and $6.8 billion in 2015-16. However, these costs reduce the funding that is available for other priorities. Debt service is one of the fastest growing state costs, expected to reach $8.6 billion in 2017-18 assuming no new authorizations, according to the Governor's Five-Year Infrastructure Plan. The Plan proposes no new general obligation bonds, instead relying on more limited lease-revenue bonds because of this increased debt burden. California's comparability to other states is less favorable, but improving. The State Treasurer's 2014 Debt Affordability Report contains the following chart, adjusted for recent upgrades: ---------------------------------------------------------------- |Debt Ratios Of 10 Most Populous States, Ranked By Ratio Of Debt | |To Personal Income | | | ---------------------------------------------------------------- |-----------------+------------+---------+---------+------------| | State | Moody's/ | Debt To |Debt Per |Debt As A % | | | S&P/ |Personal |Capita(b)| | | | Fitch(a) |Income(b)| | Of State | | | | | | GDP(b)(c) | |-----------------+------------+---------+---------+------------| |Texas |Aaa/AAA/AAA | 1.5% | $614 | 1.2% | | | | | | | |-----------------+------------+---------+---------+------------| |Michigan |Aa2/AA-/AA | 2.1% | $785 | 1.9% | |-----------------+------------+---------+---------+------------| |North Carolina |Aaa/AAA/AAA | 2.1% | $806 | 1.7% | | | | | | | |-----------------+------------+---------+---------+------------| |Florida |Aa1/AAA/AAA | 2.5% | $1,088 | 2.5% | |-----------------+------------+---------+---------+------------| |Pennsylvania | Aa3/AA/AA | 2.6% | $1,172 | 2.5% | |-----------------+------------+---------+---------+------------| --------------------------- <1> Robert Wassmer and Ronald Fisher "Debt Burdens of California State and Local Governments: Past, Present and Future." As requested and supported by the California Debt and Investment Advisory Commission. July 2011. SB 317 (deLeón) 4/23/15 PageH of? |Ohio |Aa1/AA+/AA+ | 2.7% | $1,087 | 2.5% | | | | | | | |-----------------+------------+---------+---------+------------| |Georgia |Aaa/AAA/AAA | 2.9% | $1,064 | 2.5% | |-----------------+------------+---------+---------+------------| |California | Aa3/A+/A+ | 5.3% | $2,465 | 4.7% | |-----------------+------------+---------+---------+------------| |Illinois | A3/A-/A- | 5.6% | $2,580 | 4.8% | |-----------------+------------+---------+---------+------------| |New York |Aa1/AA+/AA+ | 6.0% | $3,204 | 5.2% | |-----------------+------------+---------+---------+------------| | | | | | | |-----------------+------------+---------+---------+------------| |Moody's Median | | 2.6% | $1,054 | 2.4% | |All States | | | | | |-----------------+------------+---------+---------+------------| |Median For The | | 2.7% | $1,076 | 2.5% | |10 Most Populous | | | | | |States | | | | | |-----------------+------------+---------+---------+------------| | | | | | | |(a) Moody's, | | | | | |Standard & | | | | | |Poor's, and | | | | | |Fitch Ratings as | | | | | |of August 2014 | | | | | | | | | | | |(b) Figures as | | | | | |reported by | | | | | |Moody's in its | | | | | |2013 State Debt | | | | | |Medians Report | | | | | |released May | | | | | |2014. As of | | | | | |calendar year | | | | | |end 2012. | | | | | | | | | | | | State GDP | | | | | |numbers have a | | | | | |one-year lag. | | | | | --------------------------------------------------------------- Determining optimality or whether government is investing in the quantity and quality of public capital desired by residents, and SB 317 (deLeón) 4/23/15 PageI of? financing the appropriate share with debt, is very difficult. LAO recommends that the Legislature consider the recently released Five-Year Infrastructure Plan as a starting point to developing a coordinated approach to infrastructure funding, and establish a committee to focus on statewide infrastructure. 3. The good news . Investors ultimately determine a state's creditworthiness and the interest rate paid on a bond when they bid to purchase one. However, ratings issued from the three major ratings agencies often inform investors and the public regarding the investment risk of purchasing a California general obligation bond. These ratings change over time in response to a state's fiscal situation and economy, among other factors. Last year, ratings agencies Standard and Poor's and Moody's both raised its ratings, and ratings agency Fitch has increased the state's rating twice in the last three years. Agencies identified improving revenues and fiscal discipline when making the upgrade. Additionally, California sold $1.2 billion of general-obligation bonds in November with its lowest relative borrowing cost measured by interest rate since 2007. 4. The bad news . SB 317's bond authorization amount of $2.45 billion is consistent with the two most recent legislatively enacted park bonds, less than half of the last bond enacted by initiative, and modest compared with other recently enacted bonds. However, California has a distinct problem: of the $135 billion that voters have authorized, almost $30.4 billion hasn't been issued yet. The state hasn't issued almost $4.5 billion in transportation bonds, and $9 billion in high speed rail bonds, plus $7.5 billion from the recent water bond. The principal reason for this amount is that many bond-funded projects have not received required approvals. The Treasurer generally sells about $1 billion in new money bonds twice per year, so even if the Legislature enacts and the voters approve SB 317, many of its purposes may have to wait several years for funding as projects funded by previously authorized bonds get up and running. 5. Consistent ? California generally repays general obligation bonds over a 30 year period, reflecting sound public finance principles whereby a borrower repays debt incurred to construct an asset over its useful life. Many projects Californian built with bond proceeds are still in use long after the bonds have been repaid. While SB 317's funds parks with that will provide SB 317 (deLeón) 4/23/15 PageJ of? long-term benefits to many communities across the state, it does propose to fund planning efforts by the Strategic Growth Councilv (SGC) and local agencies to implement regional or local greenprint plans, climate adaptation plans, or to update or develop a climate adaptation element for a general plan. While these plans will have long-term impacts, they're not a traditional use of bond proceeds, which have typically been for infrastructure projects like high speed rail, levees, and housing. The Legislature could more easily fund these planning efforts by appropriating funds in the Budget Act. 6. Another . The Committee approved SB 114 (Liu) at its April 15th hearing, which places a bond of an unspecified amount on the November, 2016, ballot to fund K-12 school facilities. 7. Incoming ! The Senate Committee on Natural Resources approved SB 317 on April 28th, 2015 by a vote of 7 to 1. 8. Urgency . On April 23rd, the author amended SB 317 to insert an urgency clause. As an urgency statute, SB 317 would take effect immediately. Support and Opposition (4/30/15) SUPPORT Advanced California Park & Recreation Profession Amigos de Bolsa Chica Amigos de los Rios Anahuak Youth Sports Association Anderson Marsh Interpretive Association Association of California Water Agencies Audubon California Anza-Borrego Foundation Audubon California Benicia State Parks Association Benicia Tree Foundation Big Sur Land Trust Bolsa Chica Land Trust California Association of Local California Association of Commissioners & Board Members California Association of Recreation and Park District Conservation Corps SB 317 (deLeón) 4/23/15 PageK of? California Climate and Agriculture Network California Council of Land Trusts California League of Conservation Voters California League of Parks Associations California ReLeaf California State Parks Foundation California State Railroad Museum Foundation California Tahoe Alliance California Trout California Urban Forests Council California Yacht Brokers Association Californians for Western Wilderness Canopy Central Coast Lighthouse Keepers Chino Hills State Park interpretive Association City of Benicia City of Encinitas Clean Water Action Common Vision Community Services Employment Training Conejo Recreation and Park District County of Placer Crystal Cove Alliance Defenders of Wildlife Ducks Unlimited East Bay Regional Park District Eco Farm Empire Mine Park Association Environment California Environmental Defense Fund Environmental Justice Coalition for Water Fiesta de Reyes Fort Tejon Historical Association Friends of Balboa Park Friends of China Camp Friends of Lakes Folsom and Natoma Friends of Mt. Tam Friends of Palomar State Park Friends of Pico State Park Friends of Santa Cruz State Parks Friends of Sutter's Fort Friends of the Folsom Powerhouse Association Friends of the Urban Forest Hills for Everyone SB 317 (deLeón) 4/23/15 PageL of? Hollywood Beautification Team Humboldt Redwoods Interpretive Association Huntington Beach Tree Society John Marsh Historic Trust Just one Tree Keep Eureka Beautiful Koreatown Youth and Community Center Land Trust of Santa Cruz County Latino Outdoors Los Angeles Conservation Corps Malibu Creek Docents Marina Recreation Association Marin Agricultural Land Trust Mendocino Woodlands Camp Association Mid Peninsula Regional Open Space Mojave River Natural History Association Mono Lake Committee Mountains Recreation and Conservation Authority Napa County Regional Park and Open Space District National Marine Manufacturers Association National Parks Conservation Association National Trust for Historic Preservation Natural Resources Defense Council Nature Conservancy North East Trees Occidental Arts and Ecology Center Open Space Authority Santa Clara Valley Our City Forest Outdoor Afro Outdoor Outreach Pacific Forest Trust Palos Verdes South Bay Audubon Paradise Recreation and Park District Peninsula Open Space Trust Pine Ridge Association Plumas-Eureka State Park Association Point Cabrillo Lightkeepers Association Poppy Reserve/Mojave Desert Interpretive Association Portola and Castle Rock Foundation Rails to Trails Conservancy Regional Parks Sonoma County Richmond Trees Roseville Urban Forest Foundation Sacramento Tree Foundation SB 317 (deLeón) 4/23/15 PageM of? Santa Ana River Trail and Parkway Santa Clara County Parks Partnership San Francisco Parks Alliance San Francisco Recreation & Parks Santa Clara Valley Open Space Authority Save Our Forest Save Our Shores Save the Bay Save the Redwoods League Sea and Desert Interpretive Association Shasta historical Society Sierra Club California Sierra State Parks Foundation Solano Advocates Green Environments Sonoma County Trails Council Sonoma Ecology Center Sonoma Land Trust South Yuba River Citizens League Southern California Mountains Foundation Sports Leisure Vacations, LLC State Parks Partner Coalition Stewards of the Coast and Redwoods Sustainable Tahoe Tahoe Resource Conservation District Team Sugarloaf The Malibu Adamson House Foundation The Trust for Public Land Topanga Canyon Docents Torrey Pines Association Tree Davis Tree Foundation of Kern Tree Fresno Tree Lodi Tree Musketeers Tree Partners Foundation Tree People Tree San Deigo Trout Unlimited Urban Conservation Corps of the Inland Empire Urban ReLeaf Urban Tree Foundation Valley of the Moon Observatory Association Victoria Avenue Forever Waddell Creek Association SB 317 (deLeón) 4/23/15 PageN of? Watershed Conservation Authority West Hollywood Tree Preservation Society West Marine Environmental Action Committee Western Chapter, international Society of Aboriculture Will Rogers Ranch Foundation Woodland Tree Foundation Worldwide Boaters Safety Group Your Children's Trees Support in Concept or with Concerns Bear Yuba Land Trust California Association of Park and Recreation Commissioners and Board Members California Association of Recreation and Park Districts California Park and Recreation Society Carbon Cycle Institute County of Kern County of Santa Clara East Bay Regional Park District Latino Outdoors Midpeninsula Regional Open Space District OutDoor Afro Placer Land Trust San Francisco Parks Alliance San Francisco Recreation and Park District Sequoia Riverlands Trust Sierra Business Council Sierra Foothill Conservancy Sonoma County Regional Parks State Park Partners Coalition Truckee Donner Land Trust Watershed Conservation Authority Western Region, Tail-to-Trails Conservancy OPPOSITION Unknown -- END --