BILL ANALYSIS
AB 2383
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Date of Hearing: April 28, 2010
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 2383 (Evans) - As Amended: April 13, 2010
Policy Committee: NA Vote:NA
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill requires the Department of Finance to survey state
agencies that oversee the expenditure of bond proceeds and, for
periods when bond sales are constrained, to set priorities for
bond sales. Specifically, the bill:
1)Requires the department to report to the Joint Legislative
Budget Committee regarding project readiness and cash needs
based on anticipated bond issuances.
2)Establishes priorities for projects when there are more voter
approved bonds with ready projects than the state anticipates
it can sell.
3)States the priorities are immediate job creation,
sustainability of jobs, and benefits of the project to the
economy. Also states that, notwithstanding the above
economic-related criteria, the department may give priority to
projects that respond to an urgent matter of public health or
safety, draw down matching funds, or, if delayed, would cost
substantially more money.
FISCAL EFFECT
The semiannual reporting requirement would result in minor costs
to the Department of Finance. The costs would be limited since
the administration is currently required to monitor and
prioritize projects.
COMMENTS
1)Rationale . The purpose of the bill is to increase monitoring
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and information available to the Legislature regarding
bond-funded capital outlay projects, and, where feasible, to
establish priorities for bond projects based on job creation.
2)Background . The state issues bonds to finance infrastructure,
including school facilities, water, transportation, housing,
and the environment. Historically, once bonds are authorized
by voters and the funds appropriated (either through the bond
act or the Legislature), agencies responsible for the capital
project receive a loan from the PMIA or through commercial
paper sales, which is used to make payments for contracts and
other project expenditures. When debt outstanding to the PMIA
and commercial paper holders reaches a certain level, the
treasurer issues bonds, and uses the proceeds to pay off the
PMIA and commercial paper holders. Under existing law, the
treasurer is responsible for all aspects of bond sales,
including establishing the size and timing of bond issuances.
Following last year's credit crisis, when PMIA loan balances
rose sharply after the state's temporary loss of access to the
bond markets, the Pooled Money Investment Board closed down
access to the PMIA as a source of initial funding for
projects. As a result, the treasurer is selling bonds on a
more contemporaneous basis. The state is currently working off
a large backlog of bonds needed to finance projects that were
shut down or delayed due to the crisis.
The administration has issued a finance letter laying out the
current process and general criteria the administration and
the treasurer are using to fund projects. This bill would
establish more specific criteria, focusing on job creation, if
and when the state has to prioritize in the future.
3)Issues . This bill raises two issues. First, future legislative
priorities for bond project spending may differ from those
enumerated in this bill because of changing needs and
circumstances facing the state. For this reason, it may be
appropriate for the legislature to deal with prioritization of
projects through annual budget language.
Second, the bill is silent on a number of factors the
treasurer must take into account when bond sales are being
prioritized, such as restrictions contained in certain bond
acts and market conditions for taxable and non-taxable bonds.
The committee may wish to amend the bill to include these
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criteria and acknowledge the treasurer's role in the
prioritization process.
Analysis Prepared by : Brad Williams / APPR. / (916) 319-2081