BILL ANALYSIS �
AB 2274
Page 1
ASSEMBLY THIRD READING
AB 2274 (Gordon)
As Amended May 1, 2014
Majority vote
BANKING & FINANCE 10-0 APPROPRIATIONS 16-0
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|Ayes:|Dickinson, Achadjian, |Ayes:|Gatto, Bigelow, |
| |Bonta, Chau, Gatto, | |Bocanegra, Bradford, Ian |
| |Linder, Perea, Rodriguez, | |Calderon, Campos, Eggman, |
| |Weber, Williams | |Gomez, Holden, Jones, |
| | | |Linder, Pan, Quirk, |
| | | |Ridley-Thomas, Wagner, |
| | | |Weber |
|-----+--------------------------+-----+--------------------------|
| | | | |
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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.
3)Makes other non-substantive changes.
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 AB 1192 (Costa), Chapter 1088,
Statutes of 1981. 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
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the passage of AB 1197 (Takasugi), Chapter 833, Statutes of
1996, 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
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 a fee to the lead underwriter or
the purchaser in an amount equal to one-fortieth of 1% 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 : According to the Assembly Appropriations
Committee, minor and absorbable costs to CDIAC.
COMMENTS : According to the sponsor, California State Treasurer,
Bill Lockyer, this bill 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.
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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
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.
This bill 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 Sections 8855(i) and 8855(j) do 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
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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) requires 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 two hours; the SEC requires
10 days). The current 45-day period causes CDIAC's data to be
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) places
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.
Analysis Prepared by : Kathleen O'Malley / B. & F. / (916)
319-3081
FN: 0003349