BILL ANALYSIS                                                                                                                                                                                                    Ó




           ----------------------------------------------------------------- 
          |SENATE RULES COMMITTEE            |                       SB 1029|
          |Office of Senate Floor Analyses   |                              |
          |(916) 651-1520    Fax: (916)      |                              |
          |327-4478                          |                              |
           ----------------------------------------------------------------- 


                                UNFINISHED BUSINESS 


          Bill No:  SB 1029
          Author:   Hertzberg (D), et al.
          Amended:  8/15/16  
          Vote:     21 

           SENATE GOVERNANCE & FIN. COMMITTEE:  7-0, 3/30/16
           AYES:  Hertzberg, Nguyen, Beall, Hernandez, Lara, Moorlach,  
            Pavley

           SENATE APPROPRIATIONS COMMITTEE:  7-0, 5/27/16
           AYES:  Lara, Bates, Beall, Hill, McGuire, Mendoza, Nielsen

           SENATE FLOOR:  39-0, 6/1/16
           AYES:  Allen, Anderson, Bates, Beall, Berryhill, Block,  
            Cannella, De León, Fuller, Gaines, Galgiani, Glazer, Hall,  
            Hancock, Hernandez, Hertzberg, Hill, Hueso, Huff, Jackson,  
            Lara, Leno, Leyva, Liu, McGuire, Mendoza, Mitchell, Monning,  
            Moorlach, Morrell, Nguyen, Nielsen, Pan, Pavley, Roth, Stone,  
            Vidak, Wieckowski, Wolk
           NO VOTE RECORDED:  Runner

           ASSEMBLY FLOOR:  78-0, 8/18/16 - See last page for vote

           SUBJECT:   California Debt and Investment Advisory Commission:   
                     accountability reports


          SOURCE:    California State Treasurer John Chiang


          DIGEST:  This bill 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.









                                                                    SB 1029  
                                                                    Page  2




          Assembly Amendments require CDIAC to consult with appropriate  
          state and local debt issuers and organizations representing debt  
          issuers prior to approving any annual method of reporting  
          pursuant to the bill's provisions.


          ANALYSIS:   




          Existing law:


          1)Requires CDIAC to collect, maintain, and provide comprehensive  
            information on all state and local debt authorization and  
            issuance, and serve as a statistical clearinghouse for all  
            state and local debt issues.


          2)Requires state and local government debt issuers to submit  
            several types of reports containing information about debt  
            issuance to CDIAC:


             a)   Any state or local government that proposes to issue  
               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.


             b)   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.









                                                                    SB 1029  
                                                                    Page  3




             c)   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.  




             d)   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.




          This bill:




          1)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, this bill requires that a  
            local debt policy must include:


             a)   The purposes for which the debt proceeds may be used.


             b)   The types of debt that may be issued.


             c)   The relationship of the debt to, and integration with,  
               the issuer's capital improvement program or budget, if  
               applicable.










                                                                    SB 1029  
                                                                    Page  4



             d)   Policy goals related to the issuer's planning goals and  
               objectives.


             e)   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.


          2)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.


          3)Requires any state or local government debt issuer to provide  
            an annual report to CDIAC for any issue of debt for which the  
            issuer has submitted a report of final sale on or after  
            January 21, 2017. 


          4)Requires that the annual report must cover a reporting period  
            from July 1 to June 30 and must be submitted no later than  
            seven months after the end of the reporting period by any  
            method approved by CDIAC.  CDIAC must consult with appropriate  
            state and local debt issuers and organizations representing  
            debt issuers for purposes that include making a proposed  
            reporting method more efficient and less burdensome for  
            issuers.


          5)Requires that the annual report must consist of the following  
            information:


             a)   Debt authorized during the reporting period, which must  
               include:


               i)     Debt authorized at the beginning of the reporting  
                 period.








                                                                    SB 1029  
                                                                    Page  5





               ii)                                                Debt  
                 authorized and issued during the reporting period.


               iii)                                               Debt  
                 authorized but not issued at the end of the reporting  
                 period.


               iv)                                                Debt  
                 authority that has lapsed during the reporting period.


             b)   Debt outstanding during the reporting period, which must  
               include:


               i)     Principal balance at the beginning of the reporting  
                 period.


               ii)                                                 
                 Principal paid during the reporting period.


               iii)                                                
                 Principal outstanding at the end of the reporting period.


             c)   The use of proceeds of issued debt during the reporting  
               period, which must include:


               i)     Debt proceeds available at the beginning of the  
                 reporting period.


               ii)                                                Proceeds  
                 spent during the reporting period and the purposes for  
                 which it was spent.








                                                                    SB 1029  
                                                                    Page  6





               iii)                                               Debt  
                 proceeds remaining at the end of the reporting period.


          6)Directs that compliance with the annual reporting requirement  
            is required for each issue of debt with outstanding debt, debt  
            that has been authorized but not issued, or both during the  
            reporting period.


          7)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.




          8)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."




          Background




          The CDIAC provides information, education, and technical  
          assistance on debt issuance and public fund investments to  
          public agencies.  CDIAC, 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.  










                                                                    SB 1029  
                                                                    Page  7





          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. Existing 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.




          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.  




          In January, 2015, news reports revealed that millions of dollars  
          in bond proceeds held by the Association for Bay Area  
          Governments' Finance Authority were missing.  A former employee  
          of the authority subsequently admitted to taking the missing  
          proceeds.  In response to these disclosures, State Treasurer  
          John Chiang created the Task Force on Bond Accountability.  The  
          Treasurer's task force worked to develop best practice  
          guidelines for how bond proceeds should be managed to reduce the  
          risk of fraud, waste, and abuse and to identify strategies to  
          increase transparency and oversight of the use of bond funds.  




          To assess whether 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  








                                                                    SB 1029  
                                                                    Page  8



          bond issuers.




          Comments




          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.  This bill 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 of fraud or mismanagement, thereby improving  
          fiscal outcomes for public agencies.  The enhanced transparency  
          requirements imposed by this bill 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.




          Workload.  This bill places new and potentially unnecessary  
          administrative burdens on state and local governments that issue  
          debt.  School district officials note that some information they  
          would provide to CDIAC in the annual reports required by this  
          bill will duplicate information that state law already requires  
          them to provide to county offices of education or through other  








                                                                    SB 1029  
                                                                    Page  9



          public reports.  School district officials would prefer to share  
          the data they already compile with CDIAC, rather than performing  
          additional work to comply with separate reporting requirements.


          FISCAL EFFECT:   Appropriation:    No          Fiscal  
          Com.:YesLocal:   No


          According to the Assembly Appropriations Committee:

           CDIAC administrative costs of approximately $132,000 in the  
            first two years (1 PY), $261,000 in years three and four (2  
            PY), and $393,000 annually thereafter (3 PY) for  new  
            positions to receive, review, process, and include reported  
            data on new debt issuances in its database.  (California Debt  
            and Investment Advisory Commission Fund)

           CDIAC indicates that any one-time costs for systems upgrades  
            would be minor and absorbable.  Staff notes that there could  
            be future cost pressures to the extent the bill authorizes  
            CDIAC to develop alternative reporting methods for data  
            collection.  CDIAC indicates it would absorb any future costs  
            for these upgrades.  (California Debt and Investment Advisory  
            Commission Fund)


          SUPPORT:   (Verified8/18/16)


          California State Treasurer John Chiang (source)
          California Association of County Treasurers and Tax Collectors
          California Professional Firefighters
          California Taxpayers Association
          Little Hoover Commission


          OPPOSITION:   (Verified8/18/16)


          Association of California School Administrators
          California's Coalition for Adequate School Housing








                                                                    SB 1029  
                                                                    Page  10





          ARGUMENTS IN SUPPORT:     Supporters argue that this bill's  
          enhanced transparency requirements will help ensure that debt  
          proceeds are spent as intended and will reduce the potential for  
          incidents of fraud or mismanagement.


          ARGUMENTS IN OPPOSITION:     Opponents argue that this bill will  
          require some school debt issuers to engage in duplicative  
          reporting activities which will generate unnecessary costs.

           ASSEMBLY FLOOR:  78-0, 8/18/16
           AYES: Achadjian, Alejo, Travis Allen, Arambula, Atkins, Baker,  
            Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke,  
            Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley,  
            Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth  
            Gaines, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto,  
            Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper,  
            Holden, Irwin, Jones, Jones-Sawyer, Lackey, Levine, Linder,  
            Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Medina,  
            Melendez, Mullin, Nazarian, Obernolte, O'Donnell, Olsen,  
            Patterson, Quirk, Ridley-Thomas, Rodriguez, Salas, Santiago,  
            Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber,  
            Wilk, Williams, Wood, Rendon
           NO VOTE RECORDED: Roger Hernández, Kim




          Prepared by:Brian Weinberger / GOV. & F. / (916) 651-4119
          8/19/16 19:21:48


                                   ****  END  ****


          












                                                                    SB 1029  
                                                                    Page  11