BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: AB 2395 HEARING: 6/25/14
AUTHOR: Lowenthal FISCAL: No
VERSION: 5/8/14 TAX LEVY: No
CONSULTANT: Urquiza
OXNARD HARBOR DISTRICT: INFRASTRUCTURE PROJECTS: FUNDING
Raises the maximum amount of indebtedness the Oxnard Harbor
District can incur from $1 million to 15% of the District's
total assets.
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 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 from $5 million to $10
million, repaid over 2 to 10 years.
Securitized limited obligation notes (SLONs) are like
promissory notes, but state law requires the special
district to securitize them by pledging a dedicated stream
of revenues. State law also imposes more stringent
disclosure requirements (SB 1561, Soto, 2002). While SLONs
don't need voter approval, they require a four-fifths vote
of a district's governing board. Typically, special
districts can use SLONs to borrow up to $2 million for 10
years, to be paid back from pledged revenue.
AB 2395 -- 5/8/14 -- Page 2
State law authorized harbor districts to borrow money by
the issuance of promissory notes for the purposes of
acquiring land for constructing and/or operating any work,
project, or facility, or for making improvements, and
purchasing and maintaining equipment. Harbor district may
issue promissory notes for up to $1 million dollars that
must be repaid in five years and with interest rate that
cannot exceed 12% per year. Districts can also issue SLONs
for up to $10 million to be paid back in 10 years.
The Oxnard Harbor District in Ventura County is one of five
independent harbor special districts. The District owns
and manages the commercial Port of Hueneme. A five-member
Board of Harbor Commissioners, elected at-large from the
District, sets the policies for the Port. The Port does
not levy, collect or spend local taxes, but instead relies
on revenue generated from its operation to support its
activities, in conjunction with occasional state and
federal funding. Major capital investments of the Port have
been historically financed through revenue bonds. The
Oxnard Harbor Districts argues that the $1 million cap for
promissory notes takes away a valuable financing option to
cover the costs of important infrastructure projects to
accommodate the Port's anticipated needs in the next
several decades. The Oxnard Harbor District wants the
Legislature to increase its general borrowing authority
from $1 million to 15% of the District's total assets.
Proposed Law
Assembly Bill 2395 allows the Oxnard Harbor District to
borrow an amount equal to or less than 15% of its total
assets, as determined based on the estimated values of the
assets included in the Port of Hueneme Comprehensive Annual
Financial Report (CAFR).
AB 2395 requires the District, before commencing any action
to borrow funds, to conduct a public hearing to consider
the proposed borrowing.
AB 2395 prohibits the District from borrowing any funds
unless the proposed borrowing is approved by a two-thirds
vote of the board.
The bill authorizes the District to expend any funds for
AB 2395 -- 5/8/14 -- Page 3
the acquisition of any interest in lands pursuant to
current law, and for the acquisition, construction,
development, ownership, and leasing of port facilities,
infrastructure, and other projects, including, but not
limited to, harbor deepening, and for any other buildings,
plants, equipment, aids, facilities, and improvements
necessary for, or incident to, the accommodation and
promotion of commerce and fisheries in the District.
AB 2395 authorizes the District to borrow money and incur
indebtedness and to accept financial or other assistance
from the state or federal government.
The bill makes findings and declarations regarding the need
to finance several significant infrastructure projects, the
constraints that the $1 million limit places on the
District, and the District's accomplishments.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . The Oxnard Harbor District owns
and operates the Port of Hueneme, the only deep water port
between northern and southern California. The District has
identified specific infrastructure projects it must
complete in order to accommodate the Port's anticipated
need and planned growth objectives, including harbor
deepening and associated wharf improvements. These critical
projects will require the District to borrow more than it
is allowed under the current statutory limit. The $1
million borrowing cap was established 30 years ago and does
not adequately account for the needs and escalated project
costs of a modern port competing in a global market. AB
2395 will help the Oxnard Harbor District fund the
infrastructure necessary to meet its goals by increasing
the limit on the amount of money the district can borrow.
2. Promises, promises . Cities and counties can't issue
promissory notes because of a constitutional ban. State
law limits most special districts' promissory notes to
AB 2395 -- 5/8/14 -- Page 4
short terms of two years, five years, and sometimes ten
years. Traditionally, short-term promissory notes are for
smaller projects that don't have a dedicated revenue
stream. Only regional park and open space districts have
access to 20-year promissory notes and the districts must
have anticipated special tax revenues to pay back the
notes. For long-term debts, local officials usually use
30-year bonds that are backed by new revenues. Cities' and
counties' long-term bonds require voter approval;
short-term promissory notes don't. AB 2395 allows the
Oxnard Harbor District to borrow money and incur
indebtedness, including issuing promissory notes, without
any maximum term on the debt and without the need for voter
approval. The Committee may wish to consider whether AB
2395 converts the District's short-term promissory notes
into the functional equivalent of long-term bonds that
ordinarily should require voter approval.
3. Assets and repaying debt ? The amount of total assets
may not reflect the District's capacity to repay debt or
loans because the assets may not be liquid or disposable.
This estimate also changes annually. Based on the most
recent financial report, the Districts' total assets are
listed at approximately $95 million. Under AB 2395, the
borrowing capacity of the district would be approximately
$14 million based on its current assets. The amount of
total assets also does not include any outstanding debt or
liabilities of the District. At the close of fiscal year
2013, the District held $21.2 million in outstanding
revenue bond debt. Based on these factors, the committee
may wish to consider if it is appropriate to base the
amount that the District can borrow on a percentage of the
District's total assets.
4. Precedent and Pattern . Allowing the Oxnard Harbor
District to issue promissory notes without a maturity date
and interest rate on the notes is unprecedented. The
Committee may wish to consider whether AB 2395 will result
in future requests from other district to increase their
borrowing authority without a cap and maturity date on
promissory notes.
5. Another solution ? If the District is constrained by
the $1 million dollar cap on promissory notes, another
solution would be to increase the borrowing cap and
maintain the existing terms on promissory notes, such as
AB 2395 -- 5/8/14 -- Page 5
the maximum term of the debt and interest rate. Consistent
with the existing statue governing harbor districts'
borrowing powers, the committee may wish to consider
amending the bill to increase Oxnard Harbor District's debt
limit for promissory notes from $1 million to $10 million.
6. Special legislation . The California Constitution
prohibits special legislation when a general law can apply
(Article IV, �16). AB 2395 contains findings and
declarations explaining the need for legislation that
applies only to the Oxnard Harbor District.
7. Double-referral . Because some of AB 2395's provisions
fall into the jurisdiction of both the Senate Natural
Resources and Water Committee and the Senate Governance and
Finance Committee, Rules Committee ordered a double
referral. Senate Natural Resources and Water approved AB
2395 at its June 10 hearing by an 8-0 vote.
Assembly Actions
Assembly Local Government: 9-0
Assembly Floor: 76-0
Support and Opposition (6/19/14)
Support : Port of Hueneme; California Special Districts
Association.
Opposition : Unknown.