BILL ANALYSIS �
AB 2274
Page 1
Date of Hearing: April 28, 2014
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Roger Dickinson, Chair
AB 2274 (Gordon) - As Introduced: February 21, 2014
SUBJECT : The California Debt and Investment Advisory
Commission.
SUMMARY : Modifies the reporting requirements an issuer of debt
is required to make to the California Debt and Investment
Advisory Commission (CDIAC) before a proposed sale of debt
issue. Specifically, this bill :
1)Decreases the number of days from 45 to 21 that the issuer
after the sale of debt shall submit a report of final sale.
2)Expands the CDIAC's authority to charge fees relating to the
principal amount of a debt issue to a lender.
EXISTING LAW
1)Creates CDIAC consisting of nine members and provides
information, education and technical assistance on debt
issuance and public fund investments to local public agencies
and other public finance professionals. CDIAC was created in
1981 with the passage of Chapter 1088, Statutes of 1981
(Assembly Bill (AB) 1192, Costa). This legislation established
the California Debt Advisory Commission as the State's
clearinghouse for public debt issuance information and
required it to assist state and local agencies with the
monitoring, issuance and management of public debt. The
Commission's name was changed to the California Debt and
Investment Advisory Commission with the passage of Chapter
833, Statutes of 1996 (AB 1197, Takasugi), and its mission was
expanded to cover public investments. Among other functions
specified in statute, CDIAC:
a) Collects information on all state and local debt
issuance in California and serves as a statistical
clearinghouse;
b) Provides technical assistance and continuing education
to state and local government officials on the practices
and strategies for public debt issuance and investing
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public funds;
c) Undertakes or commissions studies on methods to reduce
the costs of debt and improve credit ratings;
d) Publishes a monthly newsletter;
e) Recommends Legislative changes to improve the sale and
servicing of state and local debt;
f) Collects reports of annual fiscal status, bond reserve
draws and bond defaults for Mello-Roos Community Facilities
Districts and Marks-Roos Bond Pools; and,
g) Assists state financing authorities and commissions to
carry out their responsibilities. [Government Code,
Section 8855]
2)Allows the CDIAC to collect fee to the lead underwriter or the
purchaser in an amount equal to one-fortieth of 1 percent of
the principal amount of the issue, but not to exceed $5,000
for any one issue. Amount received will be deposited in the
CDIAC Fund which is created in the State Treasury.
FISCAL EFFECT : Unknown.
COMMENTS :
According to the sponsor, California State Treasurer, Bill
Lockyer, AB 2274 will better align CDIAC's debt information
collection process with current municipal financing practices
while also improving the timelines of reports of debt issuance
by public agencies in California.
CDIAC was created to provide information, education and
technical assistance on debt issuance and public fund
investments to local public agencies and other public finance
professionals. One of its responsibilities is to collect
information on all state and local debt issuance in California,
as well as, serve as a statistical clearinghouse.
Specific language in CDIAC's statute referring to methods of a
sale or issuance, bond purchase contracts, and bid acceptance,
among others, have led some to form the opinion that only
authorized and issued bonds or instruments that are issued
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similarly to bonds should be reported to CDIAC. Bonds are only
one form of debt issued by state and local entities. And with
an evolving market, the language prevents CDIAC from collecting
information on new and future types of borrowing made by
municipal issuers.
The municipal industry has seen an increasing trend of municipal
issuers taking on non-traditional financing for capital projects
in the form of direct loans from banks. Prior to this, the
financing of these projects was done with a bond. This new type
of borrowing allows public officials to obtain new debt without
disclosure to municipal bondholders. This is problematic because
bondholders and rating agencies do not have an accurate picture
of the entity's total indebtedness. More importantly, CDIAC,
the state's clearinghouse for debt information, is unable to
capture important data that the Legislature and others rely on
for comprehensive information on state and local government
debt.
AB 2274 accomplishes three things:
1)Removing terminology that can be interpreted to be specific to
a debt type or method of sale. The authorizing statute that
defined CDIAC's mission, roles, and responsibilities.
Government Code Section 8855(i) and 8855(j) does not define
the term "debt." While the lack of a definition has allowed
CDIAC to administratively adapt its data collection methods to
the changing varieties of state and local debt, it has left
CDIAC vulnerable to the challenges from issuers over the types
of debt and debt-like obligations they must report. This
problem is exacerbated by the aforementioned Government Code
Sections which use terminology related to the filing of debt
information with CDIAC that can be more strictly interpreted
to apply to bonds only.
2)Reducing the time for reporting bond sale information to
CDIAC, from 45 days to 21 days to improve the usefulness of
reports. Government Code Section 8855(j) required that a
report of final sale be submitted to CDIAC 45 days after the
bond purchase contract is signed and the bid accepted. This
timeframe is inconsistent with the reporting timeframe used by
the Municipal Securities Rulemaking Board (MSRB) and
Securities and Exchange Commission (SEC) (MSRB requires
underwriters notification within 2 hours; the SEC requires 10
days). The current 45 day period causes CDIAC's data to be
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inconsistent with other widely referenced market sources.
3)Adding the term "lender" as another entity responsible for
remitting CDIAC's filing fee to capture non-traditional debt
such as direct loans Government Code Section 8856(a) placed
the responsibility for remitting CDIAC's filing fee upon the
"lead underwriter" or "the purchaser," and such debt-type
specific terminology creates ambiguity for issuers of
non-traditional indebtedness and causes conflict between CDIAC
staff and an issuer's lender regarding who must pay the filing
fee.
Recommended Amendments:
1)On page 3, line 14, delete "new"
2)On page 4, line 15, delete, "by mail, postage prepaid or"
3)On page 4, line 16 delete "other"
4)On page 5, delete lines 9-13
REGISTERED SUPPORT / OPPOSITION :
Support
California State Treasurer (Sponsor)
Opposition
None on file.
Analysis Prepared by : Kathleen O'Malley / B. & F. / (916)
319-3081