BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 710|
|Office of Senate Floor Analyses | |
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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).
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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.
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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
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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
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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
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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
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Committee.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: No
SUPPORT: (Verified5/29/15)
California Municipal Finance Authority
Independent Cities Finance Authority
OPPOSITION: (Verified6/2/15)
Howard Jarvis Taxpayers Association
Prepared by:Brian Weinberger / GOV. & F. / (916) 651-4119
6/2/15 10:59:15
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