BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |SB 1029 |Hearing |3/30/16 |
| | |Date: | |
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|Author: |Hertzberg |Tax Levy: |No |
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|Version: |3/17/16 |Fiscal: |Yes |
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|Consultant|Weinberger |
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California Debt and Investment Advisory Commission:
accountability reports
Requires state and local government debt issuers to report to
the California Debt and Investment Advisory Commission (CDIAC)
specified information about proposed and outstanding debt.
Background
The California Debt and Investment Advisory Commission (CDIAC)
provides information, education, and technical assistance on
debt issuance and public fund investments to public agencies.
The Commission, which operates as a part of the State
Treasurer's Office, has nine members, including the State
Treasurer, the Governor or the Director of Finance, the State
Controller, two local government finance officials, two Assembly
Members, and two Senators.
CDIAC collects, maintains, and provides comprehensive
information on all state and local debt authorization and
issuance, and serves as a statistical clearinghouse for all
state and local debt issues. State law requires CDIAC to make
this information readily available upon request by any public
official or any member of the public. State and local
government debt issuers must submit several types of reports
containing information about debt issuance to CDIAC:
Any state or local government that proposes to issue
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debt must submit a report of proposed debt issuance at
least 30 days before the debt issue is sold. CDIAC may
require information that it considers appropriate to be
submitted in the report of proposed debts issuance.
Any state or local government debt issuer must submit a
report of final sale not more than 21 days after the sale
of the debt. The report of final sale must be accompanied
by a copy of the final official statement for the issue or
if there is no official statement, by other specified
documents. State law allows CDIAC information that it
considers appropriate to be submitted in the report of
final sale.
All local governments issuing Mello-Roos Community
Facilities District bonds must provide a fiscal status
report containing specified information to CDIAC by October
30 of every year until the bonds have been retired.
All joint powers authorities issuing bonds pursuant to
the Marks-Roos Bond Pooling Act must provide a fiscal
status report containing specified information to CDIAC by
October 30 of every year until the final maturity of the
bonds.
The information that CDIAC collects from reports submitted by
bond issuers helps policymakers and members of the public
monitor and assess the results of state and local debt issuance.
However, the information that CDIAC currently collects is not
sufficient to determine whether bond issuers are managing and
spending bond proceeds properly. To help ensure that bond
proceeds are spent for their intended purposes and to make bond
proceeds' disposition more transparent to the public, the State
Treasurer wants the Legislature to expand the reporting
requirements that apply to state and local bond issuers.
Proposed Law
Senate Bill 1029 requires that a report of proposed debt
issuance submitted to CDIAC must include a certification by the
issuer that it has adopted local debt policies concerning the
use of debt and that the contemplated debt issuance is
consistent with those local debt policies. Specifically, SB
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1029 requires that a local debt policy must include:
The purposes for which the debt proceeds may be used.
The types of debt that may be issued.
The relationship of the debt to, and integration with,
the issuer's capital improvement program or budget, if
applicable.
Policy goals related to the issuer's planning goals and
objectives.
Internal control procedures that the issuer has
implemented, or will implement, to ensure that the proceeds
of the proposed debt issuance will be directed to the
intended use.
The bill directs that a bond issuer that issues bonds on behalf
of another governmental entity may rely upon a certification by
that other governmental entity that it has adopted specified
debt policies.
SB 1029 requires that any state or local government debt issuer
to provide a debt accountability report to CDIAC if the issuer
either:
Has outstanding debt as of the end of the prior fiscal
year, or
Has debt that has been authorized by voter approval or
by action of the issuer but not yet issued as of the end of
the prior fiscal year.
The report must be submitted by January 1 of each year and must
include the following information with respect to each
authorized debt issue as of the end of the prior fiscal year:
The principal amount of the issue then outstanding.
The amount of proceeds of the issue that remain unspent.
The amount of debt authorized by the bond act or other
appropriate authorization relevant to the issue that
remains authorized but not issued.
A list of the purposes for which the debt has been
issued and the amounts expended for each purpose in the
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prior fiscal year from the proceeds of the issue.
Any additional information the commission deems
appropriate to fulfill its statutory duties, to be provided
in a format prescribed by the commission.
SB 1029 directs that an issuer can provide some required
elements of the annual debt accountability to CDIAC by
submitting a certified copy of the issuer's most recent annual
report of financial transactions that was submitted to the State
Controller pursuant to state law.
SB 1029 expands the statutory list of CDIAC's responsibilities
to include tracking and reporting on all state and local
outstanding debt that is not fully repaid or redeemed.
The bill replaces a current statutory requirement that specified
information from CDIAC must be readily available upon request by
any public official or any member of the public with a
requirement that the information must be "available to the
public."
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . The State Treasurer's recent effort to
review how debt issuers manage and spend debt proceeds suggests
that current debt reporting requirements provide insufficient
transparency and accountability for how some governments handle
their debt proceeds. SB 1029 imposes some additional reporting
requirements on debt issuers that will benefit taxpayers,
investors, and public agencies. Taxpayers deserve to have
enough information to determine, with confidence, that public
officials are being good stewards of public funds. Investors
will benefit from having more knowledge about the types of
internal controls that governments have in place to ensure that
debt proceeds are used as promised. Following broadly-accepted
best-practices, like adopting debt policies, will benefit
government debt issuers by reducing the potential for incidents
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of fraud or mismanagement, thereby improving fiscal outcomes for
public agencies. The enhanced transparency requirements imposed
by SB 1029 are similar to requirements that already apply to
some types of debts, including Mello-Roos districts' bonds and
school districts' general obligation bonds. Applying similar
standards to all types of state and local debt is a common-sense
response to concerns about how debt proceeds are being managed
in California.
2. Workload, Part I . SB 1029 places new, and potentially
unnecessary, administrative burdens on state and local
governments that issue debt. City, county and special district
officials note that some information they would provide to CDIAC
in the debt accountability reports required by SB 1029 will
duplicate information that state law already requires them to
provide in annual financial transactions reports submitted to
the State Controller's Office. Rather than performing
additional work that reproduces information that's already
available, city, county, and special district officials would
prefer to continue submitting a single annual financial
transactions report to the State Controller with some additional
information about outstanding debt issues that could be shared
with the State Treasurer's Office. To reduce the workload
generated by SB 1029, the Committee may wish to consider
amending the bill to specify what bond issuance information
cities, counties, and special districts must provide in their
annual financial transactions reports to the State Controller's
Office and require the Controller to share that information with
the Treasurer's Office in a suitable format.
3. Workload, Part II . SB 1029 requires state and local
government debt issuers to submit annual debt accountability
reports for all debts that are authorized or outstanding at the
time the bill takes effect, not just those debts that get
authorized or issued after the bill takes effect. By requiring
all issuers to report on thousands of authorized and unretired
debts throughout California, SB 1029 may place significant
administrative burdens on some public agency staff, particularly
in smaller local jurisdictions that may have numerous
outstanding debt issues. When the Legislature imposed annual
reporting requirements on issuers of Mello-Roos Community
Facilities District bonds (SB 1464, Mello,1992) and authorities
that issue bonds pursuant to the Marks-Roos Bond Pooling Act (SB
1275, Killea, 1995), it imposed the reporting requirements
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prospectively, not on debts that had already been issued. To
reduce the workload generated by SB 1029, the Committee may wish
to consider amending the bill to require issuers to provide
annual debt accountability reports only for those debts issued
on or after January 1, 2017.
4. Timing is everything . SB 1029 requires debt issuers to
submit debt accountability reports by January 1 each year. Last
year, the Legislature adjusted the schedule by which local
governments must submit annual financial transactions reports to
the State Controller's Office, requiring the reports to be
submitted no later than 7 months after the end of a local
agency's fiscal year (AB 341, Achadjian, 2015). SB 1029 may
require a debt issuer to report information on outstanding debts
to CDIAC well before it is required to report that same
information to the State Controller under the provisions of AB
341. To avoid imposing inconsistent and potentially confusing
reporting requirements, the Committee may wish to consider
amending SB 1029 to align the reporting deadline for annual debt
accountability reports with the existing deadline for submitting
annual financial transaction reports.
5. Too broad ? SB 1029 provides CDIAC with broad authority to
require than an annual debt accountability report must include
any additional information the commission deems appropriate to
fulfill its statutory duties. Some local government officials
are concerned that this expansive language will make it
difficult for local agencies to anticipate what information they
will be required to provide CDIAC in any given year and that a
broad reading of the language would allow CDIAC to use the
annual reports to collect information that is not specifically
related to debt issuance. To avoid unintended consequences, the
Committee may wish to consider amending SB 1029 to allow CDIAC
to collect only information that directly assists policymakers
and members of the public in determining whether state and local
borrowed funds are being properly managed and used for their
intended purposes.
6. State debt policies ? SB 1029's annual debt accountability
reporting requirements apply to both state and local debt
issuers. However, the bill's new requirements relating to a
report of proposed sale refer only to "local" debt policies. It
is unclear why debts issued by the state should not be required
to comply with a debt policy that meets the same requirements
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that the bill imposes on local debt policies. To apply SB
1029's requirements relating to debt policies to state and local
issuers alike, the Committee may wish to consider amending the
bill to delete the word "local" from the phrase "local debt
policies" throughout the bill.
7. Mandate . The California Constitution requires the state to
reimburse local governments for the costs of new or expanded
state mandated local programs. Because SB 1029 imposes new
reporting duties on local government officials, Legislative
Counsel says that it imposes a new state mandate. SB 1029
requires the state to reimburse local agencies if the Commission
on State Mandates determines that the bill imposes a
reimbursable mandate.
Support and
Opposition (3/24/16)
Support : California State Treasurer John Chiang; California
Professional Firefighters; California Taxpayers Association;
Little Hoover Commission.
Opposition : Coalition for Adequate School Housing.
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