BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 710| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: SB 710 Author: Galgiani (D), et al. Amended: 5/28/15 Vote: 27 - Urgency SENATE GOVERNANCE & FIN. COMMITTEE: 5-0, 5/6/15 AYES: Hertzberg, Beall, Hernandez, Moorlach, Pavley NO VOTE RECORDED: Nguyen, Lara SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8 SUBJECT: Joint exercise of powers SOURCE: Author DIGEST: This bill authorizes California joint powers authorities (JPAs) to issue bonds and enter into loan agreements to finance or refinance private projects that are located outside of California. ANALYSIS: Existing law: 1)Allows two or more public agencies, pursuant to the Joint Exercise of Powers Act, to exercise their common powers by signing joint powers agreements. Sometimes an agreement creates a joint powers authority (JPA). SB 710 Page 2 2)Allows public agencies to use the Joint Exercise of Powers Act and the related Marks-Roos Local Bond Pooling Act to form bond pools to finance public works, working capital, insurance needs, and other public benefit projects. JPAs can issue one large Marks-Roos Act bond and then loan the capital to local agencies, thus creating a "bond pool." 3)Exempts interest on bonds issued by the state, or a local government in the state, from taxes on income. Federal tax law exempts interest on state and local bonds as well, but California does not exempt interest on bonds issued by other states or local governments located in other states. This bill: 1)Allows a JPA, until January 1, 2022, to issue bonds and enter into a loan agreement to finance or refinance 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 city, county, or other public body with land use planning authority over the project, or the state in which the project is situated, approves, by resolution, order, or other official action, the JPA's bond issuance and the project's financing. This approval requirement does not apply to the issuance of refunding bonds if the city, county, public body, or state approved a prior financing or refinancing of the project. c) The JPA has at least 25 local agency members and has issued bonds and entered into loan agreements to finance at least 25 separate projects. SB 710 Page 3 d) 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 California because one or more of the following is satisfied: i) At least 20% of the net proceeds of the issue are allocated to the financing of one or more projects, including related working capital, located in California. ii) The borrower of the proceeds has its principal place of business in California and, if that borrower is subject to income or franchise tax in California or any other state, that borrower has paid to California for the most recent tax year income or franchise tax of at least $50,000, or half of its total income or franchise tax liability to all states, whichever is less. iii) If the borrower has little or no assets other than the project to be financed and is owned by another company or companies, then the company or companies that own a majority of interest in the borrower must have its or their principal place of business in California. iv) The borrower of the bond proceeds or a controlled group of which it is a member has at least 50 full-time equivalent employees in this state. v) The borrower of the bond proceeds or a controlled group of which it is a member has paid to California for the most recent tax year income or franchise tax of at least $100,000. vi) In the case of the financing of one or more multifamily rental family projects, the developer of the project or projects has its principal place of business SB 710 Page 4 in California. Any such developer subject to personal or corporate income tax in California or any other state has paid to California for the most recent tax year income or franchise tax of at least $50,000, or half of its total income or franchise tax liability to all states, whichever is less. 2)Defines the following terms: a) "Controlled group" means a group of corporations, partnerships, limited liability companies, or other persons that are wholly owned or controlled by a single corporation, partnership, limited liability company, or other person. b) "Developer" means a corporation, partnership, limited liability company, or other person that is the initial controlling party within the legal entity that owns the multifamily rental housing project to be financed with proceeds of the bonds and that is expected to be the primary economic beneficiary of, and to take the primary economic risks related to, development and performance of the project. c) "Financing" includes the refinancing of bonds of the authority or of bonds issued by any other state or local entity located within this state. d) "Issue" has the same meaning as in a specified federal regulation. e) "Net proceeds of an issue" means the aggregate principal amount of such issue, less the amount of such issue allocated to original issue discount, issuance costs, reserve funds and credit enhancement costs. f) "Principal place of business" of an entity means the SB 710 Page 5 principal place from which the trade or business of the entity is directed or managed. 3)Requires the Legislative Analyst, on or before January 1, 2021, to prepare and submit to the Legislature a report on the issuance of bonds and the financing of projects pursuant to this bill's provisions. No later than July 1, 2019, JPAs that issue bonds pursuant to the authority granted by this bill must provide information concerning those bonds, the projects financed, the public benefits accruing to California and any other information requested by the Legislative Analyst's Office for the purpose of preparing the report. The report may include recommendations for modifying or extending the application of the bill's provisions. 4)Specifies that, notwithstanding any other law, the interest on an issue of bonds pursuant to provisions enacted by this bill are not be exempt from taxation, and must be included in gross income under the Personal Income Tax Law and the Corporation Tax Law. 5)Directs that a JPA must comply with the California Public Records Act, the Ralph M. Brown Act, and the Bagley-Keene Open Meeting Act, and states that this provision is declaratory of existing law. 6)Prohibits a JPA from utilizing any funds derived from bonds issued pursuant to the provisions of this bill for political purposes. Background Certain types of non-governmental borrowers can take advantage of tax-exempt financing through "conduit revenue bonds," which are issued by many types of governmental agencies, including state financing authorities, chartered cities, counties, joint powers authorities, redevelopment agencies, and local housing and industrial development authorities. These bonds may be SB 710 Page 6 issued for various purposes, including economic development, educational and health facilities, and multi-family housing. The issuing agency loans the funds obtained from the financing to a non-governmental borrower who builds and operates the project. A conduit revenue bond is payable solely from the loan payments received from the non-governmental party, so the governmental issuer normally has no liability for debt service on the bonds. A private firm may only use a governmental agency's authority to issue tax-exempt debt if a public benefit will be provided by the project that is financed. A JPA can issue tax-exempt revenue bonds to finance projects that provide a public benefit and are located within the geographic boundaries of its member agencies. State law requires local approval of the construction, acquisition, and financing of public benefit projects. The local agency with approval power must be the city, county, or city and county within whose boundaries the public benefit project is to be located; the law also specifies that the local agency with approval power must have land use jurisdiction over the project (SB 147, Kopp, Chapter 35, Statutes of 1998; AB 457, Canciamilla, Chapter 56, Statutes of 2001). Other states, including Wisconsin, Colorado, and Arizona, allow public entities formed under their laws to issue conduit financing bonds for projects located outside of those states' boundaries. Some California JPAs want the Legislature to grant them similar authority to issue conduit financing bonds for projects that are not located in California. Related/Prior Legislation This bill is nearly identical to AB 2046 (Gomez, 2014), which was held in the Senate Appropriations Committee last year. SB 188 (Negrete McCleod, 2007) would have allowed a single California JPA, the California Statewide Communities Development authority, to issue debt for projects located outside of California. SB 188 was held in the Senate Appropriations SB 710 Page 7 Committee. FISCAL EFFECT: Appropriation: No Fiscal Com.:YesLocal: No SUPPORT: (Verified5/29/15) California Municipal Finance Authority Independent Cities Finance Authority OPPOSITION: (Verified5/29/15) Howard Jarvis Taxpayers Association WCA Services, Inc. Prepared by:Brian Weinberger / GOV. & F. / (916) 651-4119 5/30/15 17:22:47 **** END ****