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       |
          |----------+---------------------------------+-----------+---------|
          |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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