BILL ANALYSIS �
REVISED
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SB 1455 HEARING: 4/30/14
AUTHOR: DeSaulnier FISCAL: Yes
VERSION: 4/9/14 TAX LEVY: No
CONSULTANT: Grinnell
the California Reading and Literacy Improvement and Public
Library Construction and Renovation Bond Act of 2016
Enacts the California Reading and Literacy Improvement and
Public Library Construction and Renovation Bond Act of
2016.
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
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1974 and 1999, but approximately $95 billion since 2000.
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,
Direct 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.
Voters have approved the following legislative bond acts
for libraries:
The California Library Construction and Renovation
Bond Act of 1988 for $75 million (SB 181, Keene,
1988).
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The California Reading and Literacy Improvement and
Public Library Construction and Renovation Bond Act of
2000 for $350 million (SB 3, Rainey, 2000)
In June of 2006, the voters rejected Proposition 81, a $600
million state general obligation bond measure.
Proposed Law
Senate Bill 1455 enacts the California Reading and Literacy
Improvement and Public Library Construction and Renovation
Bond Act of 2016, which authorizes the sale of an
unspecified amount of bonds, for voters to consider on the
November, 2016 ballot. The State Librarian administers the
bond, and can adopt rules, regulations, and policies for
implementation.
The bill creates the California Public Library Construction
and Renovation Fund into which the proceeds of the bond
sale are to be deposited, and continuously appropriates
moneys in the fund to the State Librarian to fund grants to
agencies authorized at the time of their application to own
and maintain a library.
Grant recipients must provide a 35% match of grant funds
for the costs of the project, with the remaining 65% coming
from bond funds. Agencies must match funds with cash used
for specified purposes no less than five years before they
can apply for bond funds. In-kind donations do not count
as matching funds, but land donated or acquired for the
facility more than five year prior to the application may
count toward the 35% at its appraised value on the date of
the application so long as state education facility bonds
didn't pay for it. Past payments to architects for plans
and drawings count toward the 35% regardless of when they
were incurred.
The measure allows grant and matching funds to be used for:
Acquiring or constructing new facilities, adding to
existing public libraries, or acquiring land necessary
for either,
Remodeling or rehabilitating existing public
library facilities, or converting other facilities to
libraries, so long as the funds are used to upgrade
electrical and telecommunications system to
accommodate the internet.
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Procure or install furnishings or equipment to make
a facility operable,
Paying architects, engineers, and other
professionals whose services are required to plan or
execute a project,
Service charges paid to public works or other
departments required by the applicant jurisdiction
when providing professional services if billed
directly to the project.
Grant and matching funds cannot be used for:
Books and other library materials,
Administrative costs, such as preparing grant
applications, procuring matching funds, or conducting
an election,
Interest or other carrying charges to finance the
project, and
Ongoing operating expenses.
An agency must apply for more than $500,000, and cannot
apply for a project for which it has already advertised
construction bids. The agency must award construction
contracts for any bond-funded projects on a competitive
basis pursuant to the Public Contracts Code.
The bill sets up the California Public Library Construction
and Renovation Board, comprised of:
The State Librarian,
An Assemblymember appointed by the Speaker of the
Assembly,
A Senator appointed by the Senate Committee on
Rules, and
Two members appointed by the Governor.
Legislative members shall participate in the Board's work
only to the extent it's not incompatible with their
legislative duties. Members of the Legislature who are
members of the board constitute a joint committee.
The Board must consider the following factors when
considering applications:
The needs of urban, suburban, and rural areas,
The age and condition of existing library
facilities within the area,
The degree to which existing facilities are
inadequate to serve the library service areas'
residents,
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The degree to which the proposed projects respond
to the needs of the area's residents,
The degree to which the library integrates
appropriate electronic technologies into the project,
The financial commitment of the applicant to open,
operate, and maintain the proposed project after
completion.
The estimated costs in project applications must be
consistent with normal public construction costs in the
applicant's geographic area, but may exceed that amount by
up to 65% of the costs, up to $30 million, if the applicant
certifies it's capable of financing the higher amount from
other sources. Applicants cannot increase requested
amounts after the board approves the application, and must
return any funding allocated that exceeds the project's
costs. The applicant must return all funding to the Board
if it's awarded funding, but doesn't go through with the
project. The board may withdraw a grant and award funds to
another applicant if the State Librarian determines that a
grant recipient hasn't complied with the terms of its grant
award.
Any facility that receives bond funds must be dedicated to
public library direct service for at least 20 years. The
board can recover from the recipient an amount equal to the
grant amount multiplied by a ratio of the value of the
facility or its appropriate part to the amount of the state
grant if the applicant or its successor fails to maintain
the library in service for less than 20 years. The Board
must deposit any recovered funds into the Fund, and can
allocate them to different projects. The State Librarian
may also transfer the financial interest that the state may
have in the land or facility resulting from bond funds
through an exchange for a replacement site acquired for the
same purpose.
SB 1455 includes standard provisions from bond acts, and
incorporates other provisions from the General Obligation
Bond Law by reference, except for its limits on the use of
the proceeds from the sale of bonds. The bill creates a
finance committee to determine whether it is necessary or
desirable to issue the bonds, consisting of the following
or their designated representatives:
The State Treasurer, as chair,
The Director of Finance,
The State Librarian.
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SB 1455 allows the State Librarian to use bonds funds for
the actual amount of office, personnel, and other customary
and usual expenses for directly administering grants. The
measure also:
Allows the State Librarian to request a loan from
the Pooled Money Investment Board,
Clarifies that bond proceeds are not subject to the
"Gann Limits" on government spending.
Provides specific direction to the Secretary of
State for the contents of the ballot containing the
bond act, and provides that if voting machines are
used, the voters' expression using machines complies
with the bill.
Directs the State Librarian to prepare a
comprehensive assessment on the statewide need for new
construction, renovation, and rehabilitation of public
libraries, and submit a report to the Governor,
Legislative Analyst, and appropriate policy and fiscal
committees of the Legislature on or before August 15,
2015.
SB 1455 also makes legislative findings and declarations
that support its purposes.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . According to the author, "SB 1455
would place a General Obligation Bond measure on the 2016
statewide general election ballot to fund library
construction and renovations. SB1455 would also require
the California State Library to conduct a needs assessment
on construction and renovation of library facilities.
Public libraries are a vital part of the educational
system. They provide resources and services for all
residents of California, including preschoolers, K-12, and
college-aged students. Today's libraries are offering
essential public services such as online homework tutoring,
computer-based resume building, job search programs, and
literacy tutoring. In new communities, residents are
demanding library facilities, and in older communities,
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many libraries are inadequate and are in desperate need of
rehabilitation or seismic retrofit upgrade. Several
libraries lack the physical infrastructure to allow them to
benefit from modern broadband technology upgrades. The
2007 needs assessment estimated over an $8 billion need in
library construction and renovations. Because construction
costs needs has changed greatly since 2007, a new
comprehensive needs assessment established in SB 1455 will
demonstrate the current need for new library construction
and renovations. The construction and renovation of public
library facilities are necessary to expand access to these
resources to all Californians."
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,
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 |
-------------------------
<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.
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| |
------------------------------------------------------------
|----------------+-----------+--------+---------+-----------|
| 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% |
| | | | | |
|----------------+-----------+--------+---------+-----------|
|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 | | | |
| | | | |
------------------------------------------------------------
------------------------------------------------------------
SB 1455 - 4/9/14 -- PageI
| |
|(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.
3. Breadboxes and Elephants . SB 1455 calls for a library
bond on the 2016 ballot, provides a structure for
allocating funds, and enacts all the fiscal provisions
necessary for the Treasurer to sell bonds. However, it
leaves the amount of the bond blank. As such, it's hard to
assess library bonds within the state's overall priorities
for general obligation debt, and the appropriate share of
that debt used for libraries compared to the rest of the
state's infrastructure needs. The Committee may wish to
consider deferring action on SB 1455 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
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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
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. Technicals . Committee staff recommends the following
amendment:
On Page 8, lines 12 and 13, delete "and included in
the request of the State Librarian to the Committee,"
On Page 7, line 29, strike out "20" and insert
"30."
Strike Section 3 from the bill. This language
contains specific direction to the Secretary of State
regarding contents of the ballot question and the
expression of voters using voting machines
inconsistent with Bond Acts previously approved by the
Committee.
Support and Opposition (04/24/14)
Support : Burbank Public Library; California Library
Association; California Special Districts Association;
California State Association of Counties; City of Oakland;
City of Yorba Linda; County of Sacramento; Friends of the
Goleta Valley Library; Friends of the Orangevale Library;
Friends of the Sacramento Public Library; Palos Verdes
Library District; Santa Cruz City Council; Santa Cruz
Public Libraries; University Heights Library Task Force; 7
individual letters of support and 7 individual letters
received from the Camarillo Public Library.
Opposition : None
SB 1455 - 4/9/14 -- PageK
received.