BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: AB 612 HEARING: 6/22/11
AUTHOR: Gordon FISCAL: No
VERSION: 5/2/11 TAX LEVY: No
CONSULTANT: Detwiler
MIDPENINSULA REGIONAL OPEN SPACE DISTRICT'S BORROWING
Extends the period of time for the Midpeninsula Regional
Open Space District's promissory borrowing without voter
approval from 20 years to 30 years.
Background and Existing Law
The California Constitution prevents counties and cities
from creating multi-year general obligation debt without
2/3-voter approval. School districts need 55% voter
approval. Because the constitutional ban doesn't mention
special districts, the Legislature has allowed many types
of special districts to borrow money without voter approval
by issuing promissory notes.
Unlike bonds, promissory notes are usually short-term debts
that are not backed by a specified revenue source. This
lack of identified revenue makes them relatively more risky
for private investors, which drives up the borrowing costs.
However, because promissory notes don't need voter
approval, they are politically more attractive than bonds.
Districts use promissory notes to finance office buildings
and other facilities that don't generate revenues. State
laws limit most promissory notes to $5 million to $10
million, repaid over two to 10 years.
Regional park and open space districts can use two types of
promissory notes:
For revenue-producing purposes, a district can
issue promissory notes with the unanimous vote of its
board of directors. A district can borrow up to
$200,000 or 5% of its general fund, to be repaid over
five years.
For acquiring land and facilities, a district can
issue promissory notes with a 4/5-vote of its board of
directors. A district can borrow up to five years of
AB 612 -- 5/2/11 -- Page 2
anticipated property tax revenues or 20 years of
anticipated special tax revenues, or both. A district
must repay these promissory notes within 20 years (AB
800, Klehs, 1987).
In addition, The East Bay Regional Park District can issue
30-year promissory notes, but only to acquire the land and
facilities designated in its master plan (AB 2425, Sher,
1987).
Special districts can issue securitized limited obligation
notes (SLONs) which must be secured by pledging dedicated
revenues. While SLONs don't need voter approval, they
require a 4/5-vote of a district's governing board.
Special districts can use SLONs to borrow up to $2 million
for 10 years, to be paid back from pledged revenues. The
authority to issue SLONs sunsets on December 31, 2014 (SB
1770, Senate Local Government Committee, 2004).
The Midpeninsula Regional Open Space District issues
20-year promissory notes to borrow money to buy property
for open space in San Mateo and Santa Clara counties. The
District refinances its notes through its membership in a
joint powers agency that borrows money for 30 years. The
District wants statutory permission to issue its own
30-year promissory notes.
Proposed Law
Assembly Bill 612 extends the period of time for the
Midpeninsula Regional Open Space District's promissory
borrowing from 20 years to 30 years. The District must
identify the revenue source to repay the indebtedness. AB
612 contains legislative findings justifying this special
provision.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . By amortizing their borrowing
AB 612 -- 5/2/11 -- Page 3
costs over 30 years instead of 20 years, the Midpeninsula
Regional Open Space District can leverage more capital to
buy and preserve open space. By lowering annual interest
costs and expanding debt capacity, the West Bay's premier
open space agency can acquire more property in one of the
nation's most expensive real estate markets. Making
taxpayers' dollars work harder allows the District to
achieve what its constituents want: greenbelts, open space,
and wilderness.
2. Promises, promises . Cities and counties can't issue
promissory notes because of the constitutional ban. State
law limits most special districts' promissory notes to
short terms of two years, five years, and sometimes 10
years. Only regional park and open space districts have
access to 20-year promissory notes and only the East Bay
Regional Park District can issue 30-year notes.
Traditionally, short-term promissory notes are for smaller
projects that don't have a dedicated revenue stream. For
long-term debts, local officials usually use 30-year bonds
that are backed by new revenues. Long-term bonds require
voter approval; short-term promissory notes don't. The
Committee may wish to consider whether AB 612 morphs
short-term promissory notes into the functional equivalent
of long-term bonds that ordinarily would require voter
approval.
3. Loans and SLONs . All special districts, including the
Midpeninsula Regional Open Space District, can issue
securitized limited obligation notes (SLONs) without voter
approval, provided that they clearly pledge the revenues
that repay the debt. State law caps SLONs at $2 million
for 10 years; less than and shorter than what Midpeninsula
wants. In extending the District's promissory borrowing
from 20 years to 30 years, AB 612 requires it to identify
the revenue source to repay the debt. To make this loan
more secure, the Committee may wish to consider an
amendment that requires the District to formally pledge the
revenue that will repay the indebtedness. This formal
declaration should make it clear to the lender that the
District's debt is payable solely from the pledged
revenues.
4. Legislative history and similar bills . AB 612 is
similar to AB 697 (Ruskin, 2007) which would have allowed
the Midpeninsula Regional Open Space District and the East
AB 612 -- 5/2/11 -- Page 4
Bay Regional Park District to borrow money for 30 years
without voter approval and without identifying the revenues
to repay those debts. That version of AB 697 was never
acted upon by the former Senate Local Government Committee,
but was amended for another purpose by Assembly Member
Hancock. AB 612 is also similar to AB 561 (Gorell, 2012)
which the Committee will also hear on June 22. The Gorell
bill raises the Ventura County Watershed Protection
District's SLON cap to $20 million, allowing the District
to borrow money for 10 years without voter-approval,
provided that it pledges existing revenues.
5. A tale of two committees . The Senate Governance &
Finance Committee's policy jurisdiction includes bills that
affect local agencies' governance and financing. However,
the Committee doesn't review the bills that affect local
governments' programs and policies. For example, the
Committee gets bills that affect water districts' fees, but
not the bills that affect water supply programs or water
quality policies. This division of responsibility was not
always so clear. Both the 1987 Klehs bill that allowed all
regional park and open space districts to extend their
promissory notes from 10 years to 20 years and the 1987
Sher bill that allowed the East Bay Regional Park District
to use 30-year promissory notes went through the former
Senate Natural Resources & Wildlife Committee.
Assembly Actions
Assembly Local Government Committee: 9-0
Assembly Floor: 78-0
Support and Opposition (6/16/11)
Support : Midpeninsula Regional Open Space District;
Acterra; Bay Area Open Space Council; Bay Area Ridge Trail;
Committee for Green Foothills; East Bay Regional Park
District; Greenbelt Alliance; Hidden Villa; Land Trust of
Santa Cruz County; Natural Resources Defense Council;
Peninsula Open Space Trust; Planning and Conservation
League; San Mateo County; Santa Clara County Parks and
Recreation Department; Santa Clara County Open Space
AB 612 -- 5/2/11 -- Page 5
Authority; Santa Clara Valley Audubon Society; Save Mount
Diablo; Save the Redwoods League; Sempervirens Fund; Sierra
Club, Loma Prieta Chapter; Silicon Valley Leadership Group;
Sonoma Land Trust; The Nature Conservancy; Trust for Public
Land.
Opposition : Unknown.