BILL ANALYSIS Ó SENATE COMMITTEE ON GOVERNANCE AND FINANCE Senator Robert M. Hertzberg, Chair 2015 - 2016 Regular ------------------------------------------------------------------ |Bill No: |SB 1029 |Hearing |3/30/16 | | | |Date: | | |----------+---------------------------------+-----------+---------| |Author: |Hertzberg |Tax Levy: |No | |----------+---------------------------------+-----------+---------| |Version: |3/17/16 |Fiscal: |Yes | ------------------------------------------------------------------ ----------------------------------------------------------------- |Consultant|Weinberger | |: | | ----------------------------------------------------------------- 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 SB 1029 (Hertzberg) 3/17/16 Page 2 of ? 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 SB 1029 (Hertzberg) 3/17/16 Page 3 of ? 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 SB 1029 (Hertzberg) 3/17/16 Page 4 of ? 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 SB 1029 (Hertzberg) 3/17/16 Page 5 of ? 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 SB 1029 (Hertzberg) 3/17/16 Page 6 of ? 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 SB 1029 (Hertzberg) 3/17/16 Page 7 of ? 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. -- END --