BILL ANALYSIS Ó
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SB 1086 HEARING: 4/24/14
AUTHOR: De Leon FISCAL: Yes
VERSION: 2/19/14 TAX LEVY: No
CONSULTANT: Grinnell
the Safe Neighborhood Parks, Rivers, and Coastal Protection
Bond Act of 2014
Enacts the Safe Neighborhood Parks, Rivers, and Coastal
Protection Bond Act of 2014.
Background and Existing Law
When public agencies issue bonds, they essentially borrow
money from investors, who provide cash in exchange for the
agencies' commitment to repay the principal amount of the
bond plus interest in the future. Bonds are usually either
revenue bonds, which repay investors out of revenue
generated from the project the agency buys with bond
proceeds, like a parking garage, or general-obligation
bonds, which the public agency pays out of general revenues
and is guaranteed by its full faith and credit.
Section 1 of Article XVI of the California Constitution and
the state's General Obligation Bond Law guide the issuance
of the state's general obligation debt. The Constitution
allows the Legislature to place general obligation bonds on
the ballot for specific purposes with a two-thirds vote of
the Assembly and Senate. Voters also can place bonds on
the ballot by initiative, as they have for parks, water
projects, high-speed rail, and stem cell research, among
others in recent years. Either way, general obligation
bonds must be ratified by majority vote of the state's
electorate. Unlike local general obligation bonds, when
the state's electorate approves a state general obligation
bond, they don't automatically trigger an increased tax or
other revenue stream to repay the bonds. Article XVI of
the California Constitution commits the state to repay
investors from general revenues above all other claims,
except payments to public education. California voters
approved $38.4 billion of general obligation bonds between
1974 and 1999, but approximately $95 billion since 2000.
SB 1086 (DeLeon) - 2/19/14 -- PageB
Bond acts have standard provisions that authorize the
Treasurer to sell a specified amount of bonds, and
generally include several uniform provisions that:
Establish the state's obligation to repay them, and
pledge its full faith and credit to repayment,
Set forth issuance procedures, and link the bond
act to the state's General Obligation Bond Law,
Create a finance committee with specified
membership, chaired by the State Treasurer,
Charge the committee to determine whether it is
"necessary or desirable" to issue the bonds,
Add other mechanisms necessary for the Treasurer
and the Department of Finance to implement the Bond
Act, including allowing the board to request a loan
from the Pooled Money Investment Board to advance
funds for bond-funded programs prior to the bond sale,
among others.
In bond acts, the Legislature generally:
Sets forth categories of projects eligible for bond
funds, such as library construction or school facility
modernization,
Chooses an administrative agency to award the
funds, such as the State Librarian or the State
Allocation Board,
Sets the criteria to guide the administrative
agency's funding in each category,
Enacts enforcement and audit provisions, and
Provides for an election to approve the bond act.
Should the voters approve the bond act, the Legislature
then appropriates funds to the chosen state agencies to
fund projects consistent with the criteria, generally as
part of the Budget Act. The Department of Finance then
surveys departments to determine need for bond funds based
on a project's readiness, and then asks the Treasurer to
sell bonds in a specified amount. After the bond sale, the
Department of Finance determines which bond acts and
departments receive bond proceeds.
In recent years, the Legislature has enacted, and voters
approved the following bonds for parks:
Safe Neighborhood Parks, Clean Water, Clean Air,
and Coastal Protection Act of 2000 of $2.1 billion (AB
18, Villaraigosa),
California Clean Water, Clean air, Safe
SB 1086 (DeLeon) - 2/19/14 -- PageC
neighborhood parks, and Coastal Protection Act of 2002
of $2.6 billion (AB 1602, Keeley), and
The following bond act was placed on the ballot by
initiative:
The Safe Drinking Water, Water Quality and Supply,
Flood Control, River and Coastal Protection Bond Act
of 2006 of $5.4 billion (Proposition 84).
Proposed Law
Senate Bill 1086 enacts the Safe Neighborhood Parks,
Rivers, and Coastal Protection Bond Act of 2014, which
authorizes the sale of an unspecified amount of bonds, and
does not state upon which ballot voters shall consider the
bond.
The Bond divides funds in unspecified amounts for seven
different programs:
Creation and expansion of neighborhood parks, and
preserve, protect, and restore regional; and state
parks by grants. Funds would be for new parks in
disadvantaged communities pursuant to AB 31 (De Leon,
2008), by per capita block grants, for grants to
regional and state parks that are operated by other
public agencies, and other parks operated through
cooperating agreements. Funds also would be available
for deferred maintenance at state parks.
Protection of rivers, lakes, streams, and
watersheds. Eligible categories include the LA River
Parkway and other river parkways, wildlife habitat
projects, watershed programs at the Department of
Conservation, and flood programs of Department of
Water Resources that provide multiple benefits.
Coast and ocean protection with funds proposed to
the Coastal Conservancy, the Ocean Protection Council,
and for matching local and federal funds for the
restoration of San Francisco Bay wetlands.
Forestry and working lands programs with funds
proposed to the Sierra Nevada Conservancy, the
Wildlife Conservation Board, and the Department of
Conservation.
Regional conservation priorities with funds
proposed to state conservancies in accordance with
their operating statutes,
Youth Employment in Conservation with funds
SB 1086 (DeLeon) - 2/19/14 -- PageD
proposed to the California Conservation Corps, local
conservation corps, and other organizations,
Urban forestry, urban greening, and greenprint
projects.
SB 1086 creates the Safe Neighborhood Parks, Rivers, and
Coastal Protection Fund of 2014, and directs all the
proceeds of the sale of the bonds into that fund. The
Legislature shall appropriate the Fund according to the
bill, but projects funded by the Bond must be consistent
with statewide planning priorities and sustainable
communities' strategies.
State agencies must seek to achieve objections through
projects on public lands or voluntary projects on private
land to the extent feasible.
State agencies can use funds for payments to create
measureable habitat or other improvements in consultation
with the Department of Fish and Wildlife, including habitat
exchanges. Priority shall be given to projects that
implement Natural Community Conservation Plans and
endangered species recovery plans.
The Natural Resources Agency shall develop and adopt a
statewide resource conservation plan that identifies
priorities for the measure's bond proceeds. The plan must
reflect statewide and regional resource protection, public
access, and availability to underserved populations. Plans
from other state agencies and conservancies must be
consistent with the Agency's priorities. Restoration
projects must include planning, monitoring, and reporting
necessary to ensure successful implementation.
SB 1086 includes standard provisions from bond acts, and
incorporates other provisions from the General Obligation
Bond Law by reference, except for its provisions that limit
the use of the proceeds from the sale of bonds. The bill
creates a five-member committee of unspecified membership
to determine whether it is necessary or desirable to issue
the bonds. The measure allows an unspecified agency to
request a loan from the Pooled Money Investment Board.
The bill additionally clarifies that bond proceeds are not
subject to the "Gann Limits" on government spending
(California Constitution, Article XIIIB). The measure also
makes legislative findings and declarations, and defines
many of its terms. The bill contains an urgency clause
SB 1086 (DeLeon) - 2/19/14 -- PageE
with specific facts justifying the urgency.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . According to the author, "SB 1086
is an effort to fund local, regional and state parks and
protect waterways, mountains and beaches. There has not
been a true park and natural resources bond for over a
decade, since the passage of Proposition 40 in 2002.
Unfortunately, there remains a large unmet need to improve
and expand parks and protect natural resources. Although
Proposition 84 in 2006 contained $400 million for state
parks and $400 million for a local competitive grant
program, pursuant to AB 31 (De León), park specific dollars
represented only 15% of the funds available in the $5.1
billion bond. The local competitive grant program
established by AB 31 awarded $368 million in grants
representing 126 park projects in underserved neighborhoods
across the state - from Eureka to El Centro. However, the
program received $3 billion in requests - a ratio of eight
project applications for every one application awarded.
Additionally, recent years of budget deficits at the local
and state level have impacted existing park and natural
resources infrastructure, including limiting the ability to
expand and build more park projects to better serve
California's park-poor neighborhoods."
2. Sixteen tons . Debt is an essential part of almost
every government, business, and personal balance sheet, as
borrowers seek funds from lenders in exchange for a future
commitment to repay them. However, evaluating the State's
general obligation debt is difficult; both the State
Treasurer and the Legislative Analyst's Office suggest
there's no correct amount. Instead, experts suggest that
states should look at three criteria, affordability,
SB 1086 (DeLeon) - 2/19/14 -- PageF
comparability, and optimality<1>:
California's debt is affordable; the State Treasurer
estimates that the state will spend 7.7% of General Fund
revenues on debt service in 2012-13. However, these costs
limit funding other priorities, and debt service is one of
the fastest growing state costs, expected to reach $8.6
billion in 2017-18 assuming no new authorizations,
according to the Governor's Five-Year Infrastructure Plan.
The Plan proposes no new general obligation bonds, instead
relying on more limited lease-revenue bonds because of the
increased debt burden.
California's comparability to other states is less
favorable. The State Treasurer's Debt Affordability Report
contains the following chart:
------------------------------------------------------------
|Debt Ratios Of 10 Most Populous States, Ranked By Ratio Of |
|Debt To Personal Income |
| |
------------------------------------------------------------
|----------------+-----------+--------+---------+-----------|
| State | Moody's/ |Debt To |Debt Per | Debt As A |
| | S&P/ |Personal|Capita(b)| % |
| | Fitch(a) | | | Of State |
| | |Income(b| | GDP(b)(c) |
| | | ) | | |
|----------------+-----------+--------+---------+-----------|
|Texas |Aaa/AA+/AAA| 1.5% | $580 | 1.16% |
| | | | | |
|----------------+-----------+--------+---------+-----------|
|Michigan |Aa2/AA-/AA | 2.2% | $800 | 2.05% |
| | | | | |
|----------------+-----------+--------+---------+-----------|
|North Carolina |Aaa/AAA/AAA| 2.4% | $853 | 1.89% |
| | | | | |
|----------------+-----------+--------+---------+-----------|
|Pennsylvania |Aa2/AA/AA+ | 2.8% | $1,208 | 2.66% |
| | | | | |
|----------------+-----------+--------+---------+-----------|
-------------------------
<1>
Robert Wassmer and Ronald Fisher "Debt Burdens of
California State and Local Governments: Past, Present and
Future." As requested and supported by the California Debt
and Investment Advisory Commission. July 2011.
SB 1086 (DeLeon) - 2/19/14 -- PageG
|Ohio |Aa1/AA+/AA+| 2.8% | $1,047 | 2.50% |
| | | | | |
|----------------+-----------+--------+---------+-----------|
|Florida |Aa1/AAA/AAA| 2.8% | $1,087 | 2.78% |
| | | | | |
|----------------+-----------+--------+---------+-----------|
|Georgia |Aaa/AAA/AAA| 3.0% | $1,061 | 2.51% |
| | | | | |
|----------------+-----------+--------+---------+-----------|
|Illinois | A3/A-/A- | 5.7% | $2,526 | 4.85% |
|----------------+-----------+--------+---------+-----------|
|California | A1/A/A | 5.8% | $2,565 | 4.98% |
|----------------+-----------+--------+---------+-----------|
|New York |Aa2/AA/AA | 6.3% | $3,174 | 5.36% |
-----------------------------------------------------------
------------------------------------------------------------
| | | | |
|Moody's Median All States | 2.8% | $1,074 | 2.47% |
| | | | |
|-----------------------------+--------+---------+-----------|
| | | | |
|Median For The 10 Most | 2.8% | $1,074 | 2.59% |
|Populous States | | | |
| | | | |
------------------------------------------------------------
------------------------------------------------------------
| |
|(a) Moody's, Standard & Poor's, and Fitch Ratings as of |
|September 2012. |
| |
|(b) Figures as reported by Moody's in its 2012 State Debt |
|Medians Report released May 2012. As of calendar year end |
|2011. |
| |
|(c) State GDP numbers have a one-year lag. |
| |
| |
------------------------------------------------------------
Determining optimality, or whether government is investing
in the quantity and quality of public capital desired by
residents, and financing the appropriate share with debt,
is very difficult. LAO recommends that the Legislature
consider the recently released Five-Year Infrastructure
Plan as a starting point to developing a coordinated
approach to infrastructure funding, and establish a
committee to focus on statewide infrastructure.
SB 1086 (DeLeon) - 2/19/14 -- PageH
3. Decisions, decisions . SB 1086 proposes a bond act to
fund parks, urban rivers, and other projects, but it
doesn't make several crucial decisions, such as:
The amount of the bond, making it difficult to
assess SB 1086's effect on the state's general
obligation debt,
The amount for each funding category, rendering an
assessment of whether SB 1086 meets current or future
project and maintenance needs problematic,
The election in which the voters will approve the
bond, precluding the Legislature from making decisions
about the appropriate levels of debt funding given
statewide needs in the context of other bond acts, and
The composition of the financing committee, who
determine when it's necessary and desirable for the
Treasurer to issue the bonds necessary to fund the
bill's priorities.
Without specific answers for the above questions, SB 1086
doesn't contain sufficient information to identify the
tradeoffs necessary when considering a bond act. The
Committee may wish to consider deferring action on SB 1086
until such time as the measure contains more specificity.
4. The good news . Investors ultimately determine a
state's creditworthiness and the interest rate paid on a
bond when they bid to purchase a state bond. However,
ratings issued from the three major ratings agencies often
inform investors regarding the investment risk they take
when purchasing a California general obligation bond.
These ratings change over time in response to a state's
fiscal situation and economy, among other factors. In
January, ratings agency Standard and Poor's raised the
outlook on the state's general obligation debt from stable
to positive, which often portends an upgrade, following the
agency's boost for California from A- to A last year, as
well as Fitch's upgrade last August. However, the state
still has the second lowest rating in the nation.
5. The bad news . California has a distinct problem: of the
$127 billion that voters have authorized, almost $27
billion hasn't been issued yet. The state hasn't is-sued
almost $7 billion in transportation bonds, and $9.2 billion
in high speed rail bonds, because the projects haven't yet
received the needed approvals. Should the voters approve
SB 1086 (DeLeon) - 2/19/14 -- PageI
new general obligation debt for parks, the state would
either have to sell sufficient debt to fund everything, and
increase debt service, or choose which projects will be
funded first. Additionally, voters are currently slated to
consider the $11.1 billion Safe, Clean, and Reliable
Drinking Water Supply Act on the November, 2014 ballot
(SBx7 2, Cogdill, 2010). If the voters approve that or a
substitute water bond, then bonds for parks and other
purposes may have to wait some time before proceeds are
available to fund programs.
6. Definitions needed . Terms such as "greenprint" and
"restoration" are not defined, and could cause confusion
without further clarification.
Support and Opposition (4/21/14)
Support : Audubon California; Bay Area Urban Forest
Ecosystem Council; Bolsa Chico Land Trust; Big Sur Land
Trust; California Urban Forests Council; Central Coast
Urban Forests Council; City and County of San Francisco;
Community Services Employment Training; Environmental
Defense Fund; Inland Urban Forest Council; Mountains
Recreation and Conservation Authority; Peninsula Open Space
Trust; Sacramento Valley Regional Forest Council; San Diego
Regional Urban Forests Council; San Joaquin County Urban
Forest Council; Sierra Club California; Sonoma Agricultural
Preservation and Open Space District.
Opposition : None
received.