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