Existing law authorizes the governing body of a public body to authorize the issuance of bonds pursuant to a resolution, indenture, agreement, or other instrument providing for the issuance of bonds. Existing law defines a public body to mean, among other entities, a county, city, or city and county.

This bill, prior to authorization of the issuance of certain bonds, would require the governing body of a public body to obtain and disclose specified information regarding the bonds in a meeting open to the public. The bill would require the information to be obtained as a good faith estimate from an underwriter, financial advisor, or private lender or from a third party borrower, as specified, if the public body issuing bonds is a conduit financing provided, as defined.

By imposing new duties upon local county officials with respect to the public notice requirement described above, this bill would impose a state-mandated local program.

The California Constitution requires local agencies, for the purpose of ensuring public access to the meetings of public bodies and the writings of public officials and agencies, to comply with a statutory enactment that amends or enacts laws relating to public records or open meetings and contains findings demonstrating that the enactment furthers the constitutional requirements relating to this purpose.

This bill would make legislative findings to that effect.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Existing law authorizes the governing body of a public body to authorize the issuance of bonds pursuant to a resolution, indenture, agreement, or other instrument providing for the issuance of bonds. Existing law defines a public body to mean, among other entities, a county, city, or city and county.

This bill, prior to authorization of the issuance of certain bonds, would require the governing body of a public body to obtain and disclose specified information regarding the bonds in a meeting open to the public. The bill would require the information to be obtained as a good faith estimate from an underwriter, financial advisor, or private lender or from a third party borrower, as specified, if the public body issuing bonds is a conduit financing provided, as defined.

By imposing new duties upon local county officials with respect to the public notice requirement described above, this bill would impose a state-mandated local program.

The California Constitution requires local agencies, for the purpose of ensuring public access to the meetings of public bodies and the writings of public officials and agencies, to comply with a statutory enactment that amends or enacts laws relating to public records or open meetings and contains findings demonstrating that the enactment furthers the constitutional requirements relating to this purpose.

This bill would make legislative findings to that effect.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Existing law authorizes the governing body of a public body to authorize the issuance of bonds pursuant to a resolution, indenture, agreement, or other instrument providing for the issuance of bonds. Existing law defines a public body to mean, among other entities, a county, city, or city and county.

This bill, prior to authorization of the issuance of certain bonds, would require the governing body of a public body to obtain and disclose specified information regarding the bonds in a meeting open to the public. The bill would require the information to be obtained as a good faith estimate from an underwriter, financial advisor, or private lender or from a third party borrower, as specified, if the public body issuing bonds is a conduit financing provided, as defined.

By imposing new duties upon local county officials with respect to the public notice requirement described above, this bill would impose a state-mandated local program.

The California Constitution requires local agencies, for the purpose of ensuring public access to the meetings of public bodies and the writings of public officials and agencies, to comply with a statutory enactment that amends or enacts laws relating to public records or open meetings and contains findings demonstrating that the enactment furthers the constitutional requirements relating to this purpose.

This bill would make legislative findings to that effect.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Existing law authorizes the governing body of a public body to authorize the issuance of bonds pursuant to a resolution, indenture, agreement, or other instrument providing for the issuance of bonds. Existing law defines a public body to mean, among other entities, a county, city, or city and county.

This bill, prior to authorization of the issuance of certain bonds, would require the governing body of a public body to obtain and disclose specified information regarding the bonds in a meeting open to the public. The bill would require the information to be obtained as a good faith estimate from an underwriter, financial advisor, or private lender or from a third party borrower, as specified, if the public body issuing bonds is a conduit financing provided, as defined.

By imposing new duties upon local county officials with respect to the public notice requirement described above, this bill would impose a state-mandated local program.

The California Constitution requires local agencies, for the purpose of ensuring public access to the meetings of public bodies and the writings of public officials and agencies, to comply with a statutory enactment that amends or enacts laws relating to public records or open meetings and contains findings demonstrating that the enactment furthers the constitutional requirements relating to this purpose.

This bill would make legislative findings to that effect.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Existing law authorizes the governing body of a public body to authorize the issuance of bonds pursuant to a resolution, indenture, agreement, or other instrument providing for the issuance of bonds.

This bill, prior to authorization of the issuance of certain bonds, would require the governing body of a public body to obtain and disclose specified information regarding the bonds in a meeting open to the public. The bill would require the information to be obtained as a good faith estimate from an underwriter, financial advisor, or private lender or from a third party borrower, as specified, if the public body issuing bonds is a conduit financing provided, as defined.

By imposing new duties upon local county officials with respect to the public notice requirement described above, this bill would impose a state-mandated local program.

The California Constitution requires local agencies, for the purpose of ensuring public access to the meetings of public bodies and the writings of public officials and agencies, to comply with a statutory enactment that amends or enacts laws relating to public records or open meetings and contains findings demonstrating that the enactment furthers the constitutional requirements relating to this purpose.

This bill would make legislative findings to that effect.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Existing law authorizes the governing body of a public body to authorize the issuance of bonds pursuant to a resolution, indenture, agreement, or other instrument providing for the issuance of bonds.

This bill, prior to authorization of the issuance of bonds, would require the governing body of a public body to obtain and disclose specified information regarding the bonds in a meeting open to the public.

By imposing new duties upon local county officials with respect to the public notice requirement described above, this bill would impose a state-mandated local program.

The California Constitution requires local agencies, for the purpose of ensuring public access to the meetings of public bodies and the writings of public officials and agencies, to comply with a statutory enactment that amends or enacts laws relating to public records or open meetings and contains findings demonstrating that the enactment furthers the constitutional requirements relating to this purpose.

This bill would make legislative findings to that effect.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

 UNFINISHED BUSINESS  

Bill No: SB 450

Author:

:

Vote:

SENATE GOVERNANCE & FIN. COMMITTEE: 7-0, 4/19/17

AYES: McGuire, Nguyen, Beall, Hernandez, Hertzberg, Lara, Moorlach

SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8

SENATE FLOOR: 40-0, 5/30/17

AYES: Allen, Anderson, Atkins, Bates, Beall, Berryhill, Bradford, Cannella, De León, Dodd, Fuller, Gaines, Galgiani, Glazer, Hernandez, Hertzberg, Hill, Hueso, Jackson, Lara, Leyva, McGuire, Mendoza, Mitchell, Monning, Moorlach, Morrell, Newman, Nguyen, Nielsen, Pan, Portantino, Roth, Skinner, Stern, Stone, Vidak, Wieckowski, Wiener, Wilk

ASSEMBLY FLOOR: 77-0, 9/11/17 - See last page for vote

SUBJECT:

SOURCE: California State Treasurer John Chiang

DIGEST:

This bill requires the governing body of a public body to obtain and disclose specified information in a public meeting prior to authorizing the issuance of bonds.

Assembly Amendments

define the true interest cost of the bonds to mean the rate necessary to discount the amounts payable on the respective principal and interest payment dates to the purchase price received for the new issue of bonds.

ANALYSIS:

Existing law:

1. Requires the meetings of local governments’ legislative bodies to be “open and public,” thereby ensuring the people’s access to information so they may retain control over the public agencies that serve them.
2. Directs, in the California Public Records Act, with specified exceptions, that public records be open to inspection and that every person has the right to inspect any public record. Public records are defined to include any writing containing information related to the conduct of the public’s business prepared, owned, used, or retained by any state or local agency.
3. Includes, in the California Public Records Act, provisions specifying conditions for public agency compliance with the Act, including the requirement to offer reasonable assistance to persons making requests for information, timeframes for compliance, providing written notice when a request is denied, and similar provisions.
4. Authorizes local agencies to issue a variety of types of bonds to fund a wide range of infrastructure projects.

This bill:

1. Requires the governing body of a public body, county, city, city and county, public district, authority and corporation, nonprofit corporation or other statutorily constituted public entity that is authorized to issue bonds, to obtain and disclose the following information in a meeting open to the public prior to authorizing the issuance of bonds with a term greater than 13 months:
   1. True interest cost of the bonds, meaning the rate necessary to discount the amounts payable on the respective principal and interest payment dates to the purchase price received for the new issue of bonds;
   2. Finance charge of the bonds, meaning the sum of all fees and charges paid to third parties;
   3. Amount of proceeds received by the public body for sale of the bonds less the finance charge of the bonds and any reserves or capitalized interest paid or funded with the proceeds of the bonds; and,
   4. Total payment amount, meaning the sum total of all payments the borrower will make to pay debt service on the bonds plus the finance charge of the bonds not paid with proceeds of the bonds. Requires the total payment amount to be calculated to the final maturity of the bonds.
2. Requires the information in 1), above, to be obtained as a good faith estimate from an underwriter, financial advisor, or private lender, or from a third-party borrower, subject to the following requirements:
   1. Requires, if the public body issuing bonds is a conduit financing provider issuing bonds on behalf of a third-party borrower, the information to be presented to the third-party borrower as a good faith estimate by an underwriter, financial advisor, or private lender engaged by the third-party borrower;
   2. Requires, if the third-party borrower has a governing board, the information to be presented to the governing board or the official, officials, or committee designated by the governing board to obligate the third-party borrower in connection with the financing. Requires, if the third-party borrower does not have a governing board, the information to be presented to the officials of the third-party borrower, as specified; and,
   3. Requires the third-party borrower to provide the information to the public body prior to the disclosure of the information specified in 1), above.
3. Prohibits the requirements in this bill from applying to any public body that is a state entity.

Background

Bonds. California’s local agencies, and in some cases nonprofit and public corporations, are authorized to issue a variety of types of bonds to fund a wide range of infrastructure projects, including assessment bonds, general obligation (GO) bonds, revenue bonds, Mark-Roos bonds, Mello-Roos bonds, conduit bonds, pension obligation bonds, among others. Each type of bond has different requirements for issuance and provides funding for different types of infrastructure development and maintenance. Some types of bonds must be approved by 2/3 of voters like GO bonds (except for school bonds, which require a 55% majority) while others can be issued with majority voter approval.

Each bond type has different restrictions and is secured by a specific revenue source. For example, local governments raise property taxes as needed to repay GO bonds, as is specifically allowed under Proposition 13. Alternatively, a local agency could fund a sewage treatment plant by selling revenue bonds secured by the revenues from the monthly sewer fees paid by citizens. Governments typically pay higher interest rates when they borrow through revenue bonds rather than general obligation bonds.

Additionally, California law authorizes local agencies to issue bonds for the purpose of making loans to entities other than state or local governments are commonly referred to as "conduit bonds," and state or local governments which issue these bonds are commonly referred to as "conduit issuers." A conduit issuer in a conduit bond financing typically issues the bonds and loans the bond proceeds to a conduit borrower. A conduit borrower is generally responsible for the payment of debt service on the conduit bond issue and is usually contractually obligated to maintain the tax-exempt status of the bonds.

Conduit revenue bond financing is a method by which the public subsidizes a private development project. A public entity acts as the "issuer" of the bonds so the interest payments on the bonds will be tax-exempt to the bondholders under the income tax code. Because the bondholders will not be taxed on the interest, they are willing to accept a lower return on their investment, and the cost of borrowing is lower. The bond proceeds are transferred to a private developer, which is responsible for making the payments to the bondholders. The public entity issuing the bonds acts purely as a "conduit" – it does not receive the bond proceeds or pay back the bondholders. But the tax code looks to the form of the transaction, not its substance, so the interest on the bonds is still tax-exempt to the bondholders. The public thereby subsidizes the private development project by foregoing the tax revenues that would otherwise be paid by the bondholders.

California Debt and Investment Advisory Commission (CDIAC). CDIAC provides information, education, and technical assistance on debt issuance and public fund investments to public agencies. The CDIAC, which operates as a part of the State Treasurer’s Office, has nine members, including the State Treasurer, the Governor or the Director of the Department of Finance, the State Controller, two local government finance officials, two Assembly Members, and two Senators.

CDIAC collects, maintains, and provides comprehensive information on all state and local debt authorization and issuance, and serves as a statistical clearinghouse for all state and local debt issues. State law requires CDIAC to make this information readily available upon request by any public official or any member of the public. State and local government debt issuers must submit several types of reports containing information about debt issuance to CDIAC, specifically:

• Any state or local government that proposes to issue debt must submit a report of proposed debt issuance at least 30 days before the debt issue is sold. CDIAC may require information that it considers appropriate to be submitted in the report of proposed debt issuance.
• Any state or local government debt issuer must submit a report of final sale not more than 21 days after the sale of the debt. The report of final sale must be accompanied by a copy of the final official statement for the issue or if there is no official statement, by other specified documents. State law allows CDIAC information that it considers appropriate to be submitted in the report of final sale.
• All local governments issuing Mello-Roos Community Facilities District bonds must provide a fiscal status report containing specified information to CDIAC by October 30 of every year until the bonds have been retired.
• All joint powers authorities issuing bonds pursuant to the Marks-Roos Bond Pooling Act must provide a fiscal status report containing specified information to CDIAC by October 30 of every year until the final maturity of the bonds.

The information that CDIAC collects from reports submitted by bond issuers helps policymakers and members of the public monitor and assess the results of state and local debt issuance. However, the information that CDIAC collected was not sufficient to determine whether bond issuers are managing and spending bond proceeds properly. In response, the Legislature approved SB 1029 (Hertzberg, 2016) to help ensure that bond proceeds are spent for their intended purposes and to make bond proceeds’ disposition more transparent to the public.

Task Force. Following the controversy in 2015, when news reports revealed that approximately $1.3 million in bond proceeds held by the Association for Bay Area Governments’ Finance Authority were missing, State Treasurer John Chiang created a Task Force on Bond Accountability. The Task force developed best practice guidelines for how bond proceeds should be managed to reduce the risk of fraud, waste, and abuse, and to identify strategies to increase transparency and oversight of the use of bond funds.

Comments

Purpose of the bill. According to the author, “The public cannot readily evaluate whether bond financing is a prudent investment choice if they do not completely understand the cost of long-term borrowing and the dimensions of the obligation being undertaken. SB 450 would present financial data in a form similar to that required by federal law for mortgage loans. Bonds are not free money. Although taxpayers may know the principal amount borrowed by the local entity, they may not have a full picture as to annual costs of borrowing, the costs associated with bond transactions, and the total amount that will be paid by taxpayers over lifetime of the bond.”

Mandate? The Legislative Counsel’s Office says that SB 450 would impose a state-mandated local program because it imposes new duties upon local agencies. The California Constitution generally requires the state government to reimburse the costs of new or expanded state mandated local programs. However, on June 3, 2014, California voters approved Proposition 42, which amended the California Constitution to require local agencies to comply with the California Public Records Act and local open meetings laws, the Brown Act. Proposition 42 also requires local agencies to comply with any subsequent statutory enactment amending either the Brown or Public Records Acts that contain specified findings that the newly enacted statute furthers specified constitutional provisions guaranteeing public access to public agency meetings and records. SB 450 contains legislative findings that the bill furthers the purpose of Section 3 of Article I of the California Constitution. As a result, SB 450 disclaims the state’s responsibility for reimbursing local governments’ costs of complying with the bill’s requirements.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

According to the Assembly Appropriations Committee, there are unknown costs to local entities to obtain and disclose the required information. These costs are not reimbursable because they fall under Proposition 42 of 2014, which eliminated reimbursement to local agencies for costs of complying with the California Public Records Act and the Ralph M. Brown Act.

SUPPORT: (Verified 9/11/17)

California State Treasurer John Chiang (source)

California Association of County Treasurers and Tax Collectors

California Taxpayers Association

OPPOSITION: (Verified 9/11/17)

None received

ASSEMBLY FLOOR: 77-0, 9/11/17

AYES: Acosta, Aguiar-Curry, Travis Allen, Arambula, Baker, Berman, Bigelow, Bloom, Bocanegra, Bonta, Burke, Caballero, Calderon, Cervantes, Chau, Chávez, Chen, Chiu, Choi, Chu, Cooley, Cooper, Cunningham, Dababneh, Dahle, Daly, Eggman, Flora, Fong, Frazier, Friedman, Gallagher, Cristina Garcia, Eduardo Garcia, Gipson, Gonzalez Fletcher, Gray, Grayson, Harper, Holden, Irwin, Jones-Sawyer, Kalra, Kiley, Lackey, Levine, Limón, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Muratsuchi, Nazarian, Obernolte, O'Donnell, Patterson, Quirk, Quirk-Silva, Reyes, Ridley-Thomas, Rodriguez, Rubio, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Voepel, Waldron, Weber, Wood, Rendon

NO VOTE RECORDED: Brough, Gloria

Prepared by:

9/11/17 21:42:12

**** END ****

SENATE THIRD READING

STR Bill Id:SB 450

Author:(Hertzberg)

As Amended Ver:September 8, 2017

Majority vote

SENATE VOTE: 40-0

SUMMARY: Requires the governing body of a public body to obtain and disclose specified information in a public meeting prior to authorizing the issuance of bonds. Specifically, this bill:

1. Requires the governing body of a public body, county, city, city and county, public district, authority and corporation, nonprofit corporation or other statutorily constituted public entity that is authorized to issue bonds, to obtain and disclose the following information in a meeting open to the public prior to authorizing the issuance of bonds with a term greater than 13 months:
   1. True interest cost of the bonds, meaning the rate necessary to discount the amounts payable on the respective principal and interest payment dates to the purchase price received for the new issue of bonds;
   2. Finance charge of the bonds, meaning the sum of all fees and charges paid to third parties;
   3. Amount of proceeds received by the public body for sale of the bonds less the finance charge of the bonds and any reserves or capitalized interest paid or funded with the proceeds of the bonds; and,
   4. Total payment amount, meaning the sum total of all payments the borrower will make to pay debt service on the bonds plus the finance charge of the bonds not paid with proceeds of the bonds. Requires the total payment amount to be calculated to the final maturity of the bonds.
2. Requires the information in 1), above, to be obtained as a good faith estimate from an underwriter, financial advisor, or private lender, or from a third-party borrower, subject to the following requirements:
   1. Requires, if the public body issuing bonds is a conduit financing provider issuing bonds on behalf of a third-party borrower, the information to be presented to the third-party borrower as a good faith estimate by an underwriter, financial advisor, or private lender engaged by the third-party borrower;
   2. Requires, if the third-party borrower has a governing board, the information to be presented to the governing board or the official, officials, or committee designated by the governing board to obligate the third-party borrower in connection with the financing. Requires, if the third-party borrower does not have a governing board, the information to be presented to the officials of the third-party borrower, as specified; and,
   3. Requires the third-party borrower to provide the information to the public body prior to the disclosure of the information specified in 1), above.
3. Prohibits the requirements in this bill from applying to any public body that is a state entity.
4. Finds and declares that Section 1 of the bill furthers, within the meaning of the California Constitution, the right of public access to the meetings of local public bodies or the writings of local public officials and local agencies, and makes the following findings: This bill ensures the public's right of access to information about the conduct of their government agencies relating to the issuance of bonds.

FISCAL EFFECT: According to the Assembly Appropriations Committee, there are unknown costs to local entities to obtain and disclose the required information. These costs are not reimbursable because they fall under Proposition 42 of 2014, which eliminated reimbursement to local agencies for costs of complying with the California Public Records Act and the Ralph M. Brown Act.

COMMENTS:

1. Bonds. Existing law grants local agencies, and in some cases, nonprofit and public corporations, the authority to issue a variety of types of bonds to fund a wide range of infrastructure projects, including assessment bonds, general obligation (GO) bonds, revenue bonds, Mark-Roos bonds, and Mello-Roos bonds. Each type of bond has different requirements for issuance and provides funding for different types of infrastructure development and maintenance. Some types of bonds must be approved by a two-thirds vote like GO bonds (except for school bonds, which require a 55% vote) while others can be issued with a majority vote.

Current law also authorizes local agencies to issue bonds for the purpose of making loans to entities other than state or local governments commonly referred to as "conduit bonds," and state or local governments which issue these bonds are commonly referred to as "conduit issuers." A conduit issuer in a conduit bond financing typically issues the bonds and loans the bond proceeds to a conduit borrower.

1. Current Reporting Requirements. Under the State Treasurer, the California Debt and Investment Advisory Commission (CDIAC) collects, maintains, and provides comprehensive information on all state and local debt authorization and issuance, and serves as a statistical clearinghouse for all state and local debt issues.

Existing law contains reporting requirements on proposed debt and following the sale of debt, which applies to any state and local government debt issuer. State and local government debt issuers must report to CDIAC on proposed debt 30 days prior to the sale of debt issuance. Additionally, no later than 21 days after the sale of debt, state and local government debt issuers must submit a report of final sale to CDIAC accompanied by the final official statement for the issue and specified documents.

SB 1029 (Hertzberg), Chapter 307, Statutes of 2016, added to existing reporting that state and local government issuers of proposed debt must submit to CDIAC to include a certification that the issuer has adopted local debt policies and that the use of debt is consistent with adopted local policies. Additionally, state and local debt issuers that submit a report following the sale of debt also must submit an annual report.

1. Bill Summary. This bill requires, prior to the authorization to issue bonds with a term greater than 13 months, the governing body of a city, county, special district, public authority, public corporation, nonprofit corporation or any other statutorily constituted public entity, that is authorized to issue bonds to obtain and disclose specified information in a public meeting. This information must include the annual interest rate, finance charge, total amount financed, and total payment amount of the bond. This bill requires that the specified information is obtained as a good faith estimate from an underwriter, financial advisor, or private lender. This bill establishes requirements when the information is provided by a third-party borrower. This bill is sponsored by California State Treasurer John Chiang.
2. Author's Statement. According to the author, "The public cannot readily evaluate whether bond financing is a prudent investment choice if they do not completely understand the cost of long-term borrowing and the dimensions of the obligation being undertaken. SB 450 would present financial data in a form similar to that required by federal law for mortgage loans. Bonds are not free money. Although taxpayers may know the principal amount borrowed by the local entity, they may not have a full picture as to annual costs of borrowing, the costs associated with bond transactions, and the total amount that will be paid by taxpayers over lifetime of the bond. This ensures the public's right of access to information about the issuance of bonds."
3. Arguments in Support. California State Treasurer John Chiang, argues "SB 450 will provide that information by requiring local entities to obtain a "Truth in Public Borrowing Statement" from their underwriter, financial intermediary, or private lender before the authorization of long-term debt obligations. This statement will provide financial information in a form similar to that required by federal law for mortgage loans, and include the annual percentage rate, finance charge, total amount financed, and total payment amount of the bond."
4. Arguments in Opposition. None on file.

Analysis Prepared by: Misa Lennox / L. GOV. / (916) 319-3958 FN: 0001955

SENATE THIRD READING

STR Bill Id:SB 450

Author:(Hertzberg)

As Amended Ver:May 17, 2017

Majority vote

SENATE VOTE: 40-0

SUMMARY: Requires the governing body of a public body to obtain and disclose specified information in a public meeting prior to authorizing the issuance of bonds. Specifically, this bill:

1. Requires the governing body of a public body, county, city, city and county, public district, authority and corporation, nonprofit corporation or other statutorily constituted public entity that is authorized to issue bonds, to obtain and disclose the following information in a meeting open to the public prior to authorizing the issuance of bonds with a term greater than 13 months:
   1. True interest cost of the bonds, meaning the cost of interest expressed as a yearly rate;
   2. Finance charge of the bonds, meaning the sum of all fees and charges paid to third parties;
   3. Amount of proceeds received by the public body for sale of the bonds less the finance charge of the bonds and any reserves or capitalized interest paid or funded with the proceeds of the bonds; and,
   4. Total payment amount, meaning the sum total of all payments the borrower will make to pay debt service on the bonds plus the finance charge of the bonds not paid with proceeds of the bonds. Requires the total payment amount to be calculated to the final maturity of the bonds.
2. Requires the information in 1), above, to be obtained as a good faith estimate from an underwriter, financial advisor, or private lender, or from a third-party borrower, subject to the following requirements:
   1. Requires, if the public body issuing bonds is a conduit financing provider issuing bonds on behalf of a third-party borrower, the information to be presented to the third-party borrower as a good faith estimate by an underwriter, financial advisor, or private lender engaged by the third-party borrower;
   2. Requires, if the third-party borrower has a governing board, the information to be presented to the governing board or the official, officials, or committee designated by the governing board to obligate the third-party borrower in connection with the financing. Requires, if the third-party borrower does not have a governing board, the information to be presented to the officials of the third-party borrower, as specified; and,
   3. Requires the third-party borrower to provide the information to the public body prior to the disclosure of the information specified in 1), above.
3. Prohibits the requirements in this bill from applying to any public body that is a state entity.
4. Finds and declares that Section 1 of this bill furthers, within the meaning of California Constitution, Article I, Section 3(b)(7), as it relates to the right of public access to the meetings of local public bodies or the writings of local public officials and local agencies, and declares that the Legislature makes the following findings: This bill ensures the public's right of access to information about the conduct of their government agencies relating to the issuance of bonds.

FISCAL EFFECT: According to the Assembly Appropriations Committee, there are unknown costs to local entities to obtain and disclose the required information. These costs are not reimbursable because they fall under Proposition 42 of 2014, which eliminated reimbursement to local agencies for costs of complying with the California Public Records Act and the Ralph M. Brown Act.

COMMENTS:

1. Bonds. Existing law grants local agencies, and in some cases, nonprofit and public corporations, the authority to issue a variety of types of bonds to fund a wide range of infrastructure projects, including assessment bonds, general obligation (GO) bonds, revenue bonds, Mark-Roos bonds, and Mello-Roos bonds. Each type of bond has different requirements for issuance and provides funding for different types of infrastructure development and maintenance. Some types of bonds must be approved by a two-thirds vote like GO bonds (except for school bonds, which require a 55% vote) while others can be issued with a majority vote.

Current law also authorizes local agencies to issue bonds for the purpose of making loans to entities other than state or local governments commonly referred to as "conduit bonds," and state or local governments which issue these bonds are commonly referred to as "conduit issuers." A conduit issuer in a conduit bond financing typically issues the bonds and loans the bond proceeds to a conduit borrower.

1. Current Reporting Requirements. Under the State Treasurer, the California Debt and Investment Advisory Commission (CDIAC) collects, maintains, and provides comprehensive information on all state and local debt authorization and issuance, and serves as a statistical clearinghouse for all state and local debt issues.

Existing law contains reporting requirements on proposed debt and following the sale of debt, which applies to any state and local government debt issuer. State and local government debt issuers must report to CDIAC on proposed debt 30 days prior to the sale of debt issuance. Additionally, no later than 21 days after the sale of debt, state and local government debt issuers must submit a report of final sale to CDIAC accompanied by the final official statement for the issue and specified documents. Some types of statutory authority for bond issuance also contain additional reporting requirements.

SB 1029 (Hertzberg), Chapter 307, Statutes of 2016, added to existing reporting that state and local government issuers of proposed debt must submit to CDIAC to include a certification that the issuer has adopted local debt policies and that the use of debt is consistent with adopted local policies. Additionally, state and local debt issuers that submit a report following the sale of debt also must submit an annual report.

1. Bill Summary. This bill requires, prior to the authorization to issue bonds with a term greater than 13 months, the governing body of a city, county, special district, public authority, public corporation, nonprofit corporation or any other statutorily constituted public entity, that is authorized to issue bonds to obtain and disclose specified information in a public meeting. This information must include the annual interest rate, finance charge, total amount financed, and total payment amount of the bond. This bill requires that the specified information is obtained as a good faith estimate from an underwriter, financial advisor, or private lender. This bill establishes requirements when the information is provided by a third-party borrower. This bill is sponsored by California State Treasurer John Chiang.
2. Author's Statement. According to the author, "The public cannot readily evaluate whether bond financing is a prudent investment choice if they do not completely understand the cost of long-term borrowing and the dimensions of the obligation being undertaken. SB 450 would present financial data in a form similar to that required by federal law for mortgage loans. Bonds are not free money. Although taxpayers may know the principal amount borrowed by the local entity, they may not have a full picture as to annual costs of borrowing, the costs associated with bond transactions, and the total amount that will be paid by taxpayers over lifetime of the bond. This ensures the public’s right of access to information about the issuance of bonds."
3. Arguments in Support. California State Treasurer John Chiang, argues "SB 450 will provide that information by requiring local entities to obtain a "Truth in Public Borrowing Statement" from their underwriter, financial intermediary, or private lender before the authorization of long-term debt obligations. This statement will provide financial information in a form similar to that required by federal law for mortgage loans, and include the annual percentage rate, finance charge, total amount financed, and total payment amount of the bond."
4. Arguments in Opposition. None on file.

Analysis Prepared by: Misa Lennox / L. GOV. / (916) 319-3958 FN: 0001587

Date of Hearing: August 23, 2017

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez Fletcher, Chair

SBPCA Bill Id:SB 450

Author:(Hertzberg) – As Amended Ver:May 17, 2017

Urgency: No State Mandated Local Program: Yes Reimbursable: No

SUMMARY:

This bill requires the governing body of a public body to obtain and disclose specified information in a public meeting prior to authorizing the issuance of bonds. Specifically, this bill:

1. Requires the governing body of a public body, county, city, city and county, public district, authority and corporation, nonprofit corporation, or other statutorily constituted public entity that is authorized to issue bonds, to obtain and disclose the following information in a meeting open to the public prior to authorizing the issuance of bonds with a term greater than 13 months:
   1. The true interest cost and the finance charge of the bonds;
   2. The amount of proceeds received by the public body for sale of the bonds less the finance charge of the bonds and any reserves or capitalized interest paid or funded with the proceeds of the bonds; and,
   3. The total payment amount, which means the sum total of all payments the borrower will make to pay debt service on the bonds plus the finance charge of the bonds not paid with proceeds of the bonds. Requires the total payment amount to be calculated to the final maturity of the bonds.
2. Requires the information in (1) to be obtained as a good faith estimate from an underwriter, financial advisor, or private lender, or from a third-party borrower, as specified.

1. Exempts state entities from the bill's requirements. Defines "state entity" to mean any agency, department, bureau, board, or commission of any kind.

FISCAL EFFECT:

Unknown costs to local entities to obtain and disclose the required information. These costs are not reimbursable because they fall under Proposition 42 of 2014, which eliminated reimbursement to local agencies for costs of complying with the California Public Records Act and the Ralph M. Brown Act.

COMMENTS:

1. Purpose. According to the author, "The public cannot readily evaluate whether bond financing is a prudent investment choice if they do not completely understand the cost of long-term borrowing and the dimensions of the obligation being undertaken. SB 450 would present financial data in a form similar to that required by federal law for mortgage loans. Bonds are not free money. Although taxpayers may know the principal amount borrowed by the local entity, they may not have a full picture as to annual costs of borrowing, the costs associated with bond transactions, and the total amount that will be paid by taxpayers over [the] lifetime of the bond. This ensures the public’s right of access to information about the issuance of bonds."

California State Treasurer John Chiang, argues "SB 450 will provide that information by requiring local entities to obtain a "Truth in Public Borrowing Statement" from their underwriter, financial intermediary, or private lender before the authorization of long-term debt obligations. This statement will provide financial information in a form similar to that required by federal law for mortgage loans, and include the annual percentage rate, finance charge, total amount financed, and total payment amount of the bond."

1. Background. Under the State Treasurer, the California Debt and Investment Advisory Commission (CDIAC) collects, maintains, and provides comprehensive information on all state and local debt authorization and issuance, and serves as a statistical clearinghouse for all state and local debt issues.

Existing law requires state and local government debt issuers to report to CDIAC on proposed debt 30 days prior to the sale of debt issuance. Additionally, no later than 21 days after the sale of debt, state and local government debt issuers must submit a report of final sale to CDIAC accompanied by the final official statement for the issue and specified documents.

In addition, all local government issuers of Mello-Ross Community Facilities District bonds are required to provide a fiscal status report containing specified information to CDIAC by October 30 of every year, until the bonds have been retired.

1. Prior Legislation. SB 1029 (Hertzberg), Chapter 307, Statutes of 2016, added to existing reporting requirements that state and local government issuers of proposed debt must submit to CDIAC to include a certification that the issuer has adopted local debt policies and that the use of debt is consistent with adopted local policies. Additionally, the bill required state and local debt issuers that submit a report following the sale of debt, to also submit an annual report.

Analysis Prepared by: Jennifer Swenson / APPR. / (916) 319-2081

Date of Hearing: July 12, 2017

ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT

Cecilia Aguiar-Curry, Chair

SBPCA Bill Id:SB 450

Author:(Hertzberg) – As Amended Ver:May 17, 2017

SENATE VOTE: 40-0

SUBJECT: Public bodies: bonds: public notice.

SUMMARY: Requires the governing body of a public body to obtain and disclose specified information in a public meeting prior to authorizing the issuance of bonds. Specifically, this bill:

1. Requires the governing body of a public body, county, city, city and county, public district, authority and corporation, nonprofit corporation or other statutorily constituted public entity that is authorized to issue bonds, to obtain and disclose the following information in a meeting open to the public prior to authorizing the issuance of bonds with a term greater than 13 months:
   1. The true interest cost of the bonds, which means the cost of interest expressed as a yearly rate;
   2. The finance charge of the bonds, which means the sum of all fees and charges paid to third parties;
   3. The amount of proceeds received by the public body for sale of the bonds less the finance charge of the bonds and any reserves or capitalized interest paid or funded with the proceeds of the bonds; and,
   4. The total payment amount, which means the sum total of all payments the borrower will make to pay debt service on the bonds plus the finance charge of the bonds not paid with proceeds of the bonds. Requires the total payment amount to be calculated to the final maturity of the bonds.
2. Requires the information in 1), above, to be obtained as a good faith estimate from an underwriter, financial advisor, or private lender, or from a third-party borrower, subject to the following requirements:
   1. Requires, if the public body issuing bonds is a conduit financing provider issuing bonds on behalf of a third-party borrower, the information to be presented to the third-party borrower as a good faith estimate by an underwriter, financial advisor, or private lender engaged by the third-party borrower;
   2. Requires, if the third-party borrower has a governing board, the information to be presented to the governing board or the official, officials, or committee designated by the governing board to obligate the third-party borrower in connection with the financing. Requires, if the third-party borrower does not have a governing board, the information to be presented to the officials of the third-party borrower who has the authority to obligate the third-party borrower in connection with the financing; and,
   3. Requires the third-party borrower to provide the information to the public body prior to the disclosure of the information specified in 1), above.
3. Prohibits the requirements in this bill from applying to any public body that is a state entity. Defines "state entity" to mean any agency, department, bureau, board, or commission of any kind.
4. Specifies that failure to comply with the requirements of this bill does not affect the validity of the bonds or their authorization.
5. Finds and declares that Section 1 of the bill furthers, within the meaning of paragraph (7) of subdivision (b) of Section 3 of Article I of the California Constitution, the purposes of that constitutional section as it relates to the right of public access to the meetings of local public bodies or the writings of local public officials and local agencies, and declares, pursuant to paragraph (7) of subdivision (b) of Section 3 of Article I of the California Constitution, that the Legislature makes the following findings: This bill ensures the public's right of access to information about the conduct of their government agencies relating to the issuance of bonds.
6. Provides that no reimbursement is required by this bill because the only costs that may be incurred by a local agency or school district under this act would result from a legislative mandate that is within the scope of paragraph (7) of subdivision (b) of Section 3 of Article I of the California Constitution.

FISCAL EFFECT: According to the Senate Appropriations Committee, pursuant to Senate Rule 28.8, negligible state costs.

COMMENTS:

1. Bonds. Existing law grants local agencies, and in some cases nonprofit and public corporations, the authority to issue a variety of types of bonds to fund a wide range of infrastructure projects, including assessment bonds, general obligation (GO) bonds, revenue bonds, Mark-Roos bonds, and Mello-Roos bonds. Each type of bond has different requirements for issuance and provides funding for different types of infrastructure development and maintenance. Some types of bonds must be approved by a two-thirds vote like GO bonds (except for school bonds, which require a 55% vote) while others can be issued with a majority vote. Each bond type has different restrictions and is secured by a specific revenue source.

Current law also authorizes local agencies to issue bonds for the purpose of making loans to entities other than state or local governments commonly referred to as "conduit bonds," and state or local governments which issue these bonds are commonly referred to as "conduit issuers." A conduit issuer in a conduit bond financing typically issues the bonds and loans the bond proceeds to a conduit borrower. A conduit borrower is generally responsible for the payment of debt service on the conduit bond issue and is usually contractually obligated to maintain the tax-exempt status of the bonds.

1. Current Reporting Requirements. Under the State Treasurer, the California Debt and Investment Advisory Commission (CDIAC) collects, maintains, and provides comprehensive information on all state and local debt authorization and issuance, and serves as a statistical clearinghouse for all state and local debt issues.

Existing law contains reporting requirements on proposed debt and following the sale of debt, which applies to any state and local government debt issuer. State and local government debt issuers must report to CDIAC on proposed debt 30 days prior to the sale
of debt issuance. Additionally, no later than 21 days after the sale of debt, state and local government debt issuers must submit a report of final sale to CDIAC accompanied by the final official statement for the issue and specified documents.

Some types of statutory authority for bond issuance also contain additional reporting requirements. For example, among the list of reports that state and local government debt issuers are required to submit to CDIAC is a specific requirement on all local government issuers of Mello-Ross Community Facilities District bonds to provide a fiscal status report containing specified information to CDIAC by October 30 of every year, until the bonds have been retired.

SB 1029 (Hertzberg), Chapter 307, Statutes of 2016, added to existing reporting that state and local government issuers of proposed debt must submit to CDIAC to include a certification that the issuer has adopted local debt policies and that the use of debt is consistent with adopted local policies. Additionally, state and local debt issuers that submit a report following the sale of debt also must submit an annual report.

1. Bill Summary. This bill requires, prior to the authorization to issue bonds with a term greater than 13 months, the governing body of a city, county, special district, public authority, public corporation, nonprofit corporation or any other statutorily constituted public entity, that is authorized to issue bonds to obtain and disclose specified information in a public meeting. This information must include the annual interest rate, finance charge, total amount financed, and total payment amount of the bond. This bill requires that the specified information is obtained as a good faith estimate from an underwriter, financial advisor, or private lender. This bill establishes requirements when the information is provided by a third-party borrower. This bill is sponsored by California State Treasurer John Chiang.
2. Author's Statement. According to the author, "The public cannot readily evaluate whether bond financing is a prudent investment choice if they do not completely understand the cost of long-term borrowing and the dimensions of the obligation being undertaken. SB 450 would present financial data in a form similar to that required by federal law for mortgage loans. Bonds are not free money. Although taxpayers may know the principal amount borrowed by the local entity, they may not have a full picture as to annual costs of borrowing, the costs associated with bond transactions, and the total amount that will be paid by taxpayers over lifetime of the bond. This ensures the public’s right of access to information about the issuance of bonds."
3. Arguments in Support. California State Treasurer John Chiang, argues "SB 450 will provide that information by requiring local entities to obtain a "Truth in Public Borrowing Statement" from their underwriter, financial intermediary, or private lender before the authorization of long-term debt obligations. This statement will provide financial information in a form similar to that required by federal law for mortgage loans, and include the annual percentage rate, finance charge, total amount financed, and total payment amount of the bond."
4. Arguments in Opposition. None on file.

REGISTERED SUPPORT / OPPOSITION:

Support

California State Treasurer John Chiang [SPONSOR]

California Association of County Treasurers and Tax Collectors

California Taxpayers Association (CalTax)

Concerns

California Special Districts Association

Opposition

None on file

Analysis Prepared by: Misa Lennox / L. GOV. / (916) 319-3958

 THIRD READING  

Bill No: SB 450

Author: Hertzberg (D), et al.

Amended: 5/17/17

Vote: 21

SENATE GOVERNANCE & FIN. COMMITTEE: 7-0, 4/19/17

AYES: McGuire, Nguyen, Beall, Hernandez, Hertzberg, Lara, Moorlach

SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8

SUBJECT: Public bodies: bonds: public notice

SOURCE: California State Treasurer, John Chiang

DIGEST:

This bill requires all public bodies to obtain and disclose specific information in a public meeting before authorizing the issuance of bonds.

Senate Floor Amendments of 5/17/17 alter the information that must be disclosed in a public hearing, and exempt state entities from the requirements of this bill.

ANALYSIS:

Existing law:

1. Requires the meetings of local governments’ legislative bodies to be “open and public,” thereby ensuring the people’s access to information so they may retain control over the public agencies that serve them.
2. Directs, in the California Public Records Act, with specified exceptions, that public records be open to inspection and that every person has the right to inspect any public record. Public records are defined to include any writing containing information related to the conduct of the public’s business prepared, owned, used, or retained by any state or local agency.
3. Includes, in the California Public Records Act, provisions specifying conditions for public agency compliance with the Act, including the requirement to offer reasonable assistance to persons making requests for information, timeframes for compliance, providing written notice when a request is denied, and similar provisions.
4. Authorizes local agencies to issue a variety of types of bonds to fund a wide range of infrastructure projects.

This bill:

1. Requires that, except for state entities and prior to the authorization to issue bonds with a term greater than 13 months, the governing body of a city, county, special district, public authority, public corporation, nonprofit corporation or any other statutorily constituted public entity, that is allowed to issue bonds to obtain and disclose all of the following information in a public meeting:

• The true interest cost of the bonds, which means the cost of interest expressed as a yearly rate.
• The finance charge of the bonds, which means the sum of all fees and charges paid to third parties.
• The amount of proceeds received by the public body for sale of the bonds less the finance charge of the bonds and any reserves or capitalized interest paid or funded with the proceeds of the bonds.
• The total payment amount, which means the sum total of all payments the borrower will make to pay debt service on the bonds plus the finance charge of the bonds not paid with proceeds of the bonds. The total payment amount must be calculated to the final maturity of the bonds.

1. Requires the above information to be obtained as a good faith estimate from an underwriter, financial advisor, or private lender. The information can also be obtained from a third-party borrower under the following circumstances:

• If the public body issuing bonds is a conduit financing provider issuing bonds on behalf of a third-party borrower, the information must be presented to the third-party borrower as a good faith estimate by an underwriter, financial advisor, or private lender engaged by the third-party borrower.
• If the third-party borrower has a governing board, the information must be presented to the governing board or the official, officials, or committee designated by the governing board to obligate the third-party borrower in connection with the financing. If the third-party borrower does not have a governing board, the information must be presented to the officials of the third-party borrower who have authority to obligate the third-party borrower in connection with the financing.
• The third-party borrower must provide the information to the public body prior to the disclosure of the information.

1. Declares that the provisions in the bill further the right of public access to the meetings and writing of local public officials and local agencies relating to the issuance of bonds.
   
2. Specifies that failure to comply with the requirements of this bill does not affect the validity of the bonds or their authorization.

Background

Bonds. California’s local agencies, and in some cases nonprofit and public corporations, are authorized to issue a variety of types of bonds to fund a wide range of infrastructure projects, including assessment bonds, general obligation (GO) bonds, revenue bonds, Mark-Roos bonds, Mello-Roos bonds, conduit bonds, pension obligation bonds, among others. Each type of bond has different requirements for issuance and provides funding for different types of infrastructure development and maintenance. Some types of bonds must be approved by 2/3 of voters like GO bonds (except for school bonds, which require a 55% majority) while others can be issued with majority voter approval.

Each bond type has different restrictions and is secured by a specific revenue source. For example, local governments raise property taxes as needed to repay GO bonds, as is specifically allowed under Proposition 13. Alternatively, a local agency could fund a sewage treatment plant by selling revenue bonds secured by the revenues from the monthly sewer fees paid by citizens. Governments typically pay higher interest rates when they borrow through revenue bonds rather than general obligation bonds.

Additionally, California law authorizes local agencies to issue bonds for the purpose of making loans to entities other than state or local governments are commonly referred to as "conduit bonds," and state or local governments which issue these bonds are commonly referred to as "conduit issuers." A conduit issuer in a conduit bond financing typically issues the bonds and loans the bond proceeds to a conduit borrower. A conduit borrower is generally responsible for the payment of debt service on the conduit bond issue and is usually contractually obligated to maintain the tax-exempt status of the bonds.

Conduit revenue bond financing is a method by which the public subsidizes a private development project. A public entity acts as the "issuer" of the bonds so the interest payments on the bonds will be tax-exempt to the bondholders under the income tax code. Because the bondholders will not be taxed on the interest, they are willing to accept a lower return on their investment, and the cost of borrowing is lower. The bond proceeds are transferred to a private developer, which is responsible for making the payments to the bondholders. The public entity issuing the bonds acts purely as a "conduit" – it does not receive the bond proceeds or pay back the bondholders. But the tax code looks to the form of the transaction, not its substance, so the interest on the bonds is still tax-exempt to the bondholders. The public thereby subsidizes the private development project by foregoing the tax revenues that would otherwise be paid by the bondholders.

CDIAC. The California Debt and Investment Advisory Commission (CDIAC) provides information, education, and technical assistance on debt issuance and public fund investments to public agencies. The Commission, which operates as a part of the State Treasurer’s Office, has nine members, including the State Treasurer, the Governor or the Director of Finance, the State Controller, two local government finance officials, two Assembly Members, and two Senators.

CDIAC collects, maintains, and provides comprehensive information on all state and local debt authorization and issuance, and serves as a statistical clearinghouse for all state and local debt issues. State law requires CDIAC to make this information readily available upon request by any public official or any member of the public. State and local government debt issuers must submit several types of reports containing information about debt issuance to CDIAC, specifically:

• Any state or local government that proposes to issue debt must submit a report of proposed debt issuance at least 30 days before the debt issue is sold. CDIAC may require information that it considers appropriate to be submitted in the report of proposed debt issuance.
• Any state or local government debt issuer must submit a report of final sale not more than 21 days after the sale of the debt. The report of final sale must be accompanied by a copy of the final official statement for the issue or if there is no official statement, by other specified documents. State law allows CDIAC information that it considers appropriate to be submitted in the report of final sale.
• All local governments issuing Mello-Roos Community Facilities District bonds must provide a fiscal status report containing specified information to CDIAC by October 30 of every year until the bonds have been retired.
• All joint powers authorities issuing bonds pursuant to the Marks-Roos Bond Pooling Act must provide a fiscal status report containing specified information to CDIAC by October 30 of every year until the final maturity of the bonds.

The information that CDIAC collects from reports submitted by bond issuers helps policymakers and members of the public monitor and assess the results of state and local debt issuance. However, the information that CDIAC collected was not sufficient to determine whether bond issuers are managing and spending bond proceeds properly. In response, the Legislature approved SB 1029 (Hertzberg, 2016) to help ensure that bond proceeds are spent for their intended purposes and to make bond proceeds’ disposition more transparent to the public.

Task Force. Following the controversy in 2015, when news reports revealed that approximately $1.3 million in bond proceeds held by the Association for Bay Area Governments’ Finance Authority were missing, State Treasurer John Chiang created a Task Force on Bond Accountability. The Task force developed best practice guidelines for how bond proceeds should be managed to reduce the risk of fraud, waste, and abuse, and to identify strategies to increase transparency and oversight of the use of bond funds.

Comments

Purpose of the bill. According to the author, “The public cannot readily evaluate whether bond financing is a prudent investment choice if they do not completely understand the cost of long-term borrowing and the dimensions of the obligation being undertaken. SB 450 would present financial data in a form similar to that required by federal law for mortgage loans. Bonds are not free money. Although taxpayers may know the principal amount borrowed by the local entity, they may not have a full picture as to annual costs of borrowing, the costs associated with bond transactions, and the total amount that will be paid by taxpayers over lifetime of the bond.”

Mandate? The Legislative Counsel’s Office says that SB 450 would impose a state-mandated local program because it imposes new duties upon local agencies. The California Constitution generally requires the state government to reimburse the costs of new or expanded state mandated local programs. However, on June 3, 2014, California voters approved Proposition 42, which amended the California Constitution to require local agencies to comply with the California Public Records Act and local open meetings laws, the Brown Act. Proposition 42 also requires local agencies to comply with any subsequent statutory enactment amending either the Brown or Public Records Acts that contain specified findings that the newly enacted statute furthers specified constitutional provisions guaranteeing public access to public agency meetings and records. SB 450 contains legislative findings that the bill furthers the purpose of Section 3 of Article I of the California Constitution. As a result, SB 450 disclaims the state’s responsibility for reimbursing local governments’ costs of complying with the bill’s requirements.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: Yes

SUPPORT: (Verified 5/18/17)

California State Treasurer, John Chiang (source)
California Association of County Treasurers and Tax Collectors
California Taxpayers Association

OPPOSITION: (Verified 5/18/17)

None received

Prepared by: Jimmy MacDonald / GOV. & F. / (916) 651-4119

5/19/17 9:21:20

**** END ****

 THIRD READING  

Bill No: SB 450

Author: Hertzberg (D), et al.

Amended: 3/22/17

Vote: 21

SENATE GOVERNANCE & FIN. COMMITTEE: 7-0, 4/19/17

AYES: McGuire, Nguyen, Beall, Hernandez, Hertzberg, Lara, Moorlach

SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8

SUBJECT: Public bodies: bonds: public notice

SOURCE: California State Treasurer, John Chiang

DIGEST:

This bill requires all public bodies to obtain and disclose specific information before authorizing the issuance of bonds.

ANALYSIS:

Existing law:

1. Requires the meetings of local governments’ legislative bodies to be “open and public,” thereby ensuring the people’s access to information so they may retain control over the public agencies that serve them.
2. Directs, in the California Public Records Act, with specified exceptions, that public records be open to inspection and that every person has the right to inspect any public record. Public records are defined to include any writing containing information related to the conduct of the public’s business prepared, owned, used, or retained by any state or local agency.
3. Includes, in the California Public Records Act, provisions specifying conditions for public agency compliance with the Act, including the requirement to offer reasonable assistance to persons making requests for information, timeframes for compliance, providing written notice when a request is denied, and similar provisions.
4. Authorizes local agencies to issue a variety of types of bonds to fund a wide range of infrastructure projects.

This bill:

1. Requires that, prior to the authorization to issue bonds with a term greater than 13 months, the governing body of a city, county, special district, public authority, public corporation, nonprofit corporation or any other statutorily constituted public entity that is allowed to issue bonds to obtain and disclose all of the following information in a public meeting:

• The annual percentage rate of the bond, which means the cost of interest expressed as a yearly rate.
• The finance charge of the bond, which means the sum of all charges payable by the debtor, including the interest and transaction costs, expressed in dollar terms.
• The amount financed by the bond, which means the amount of credit provided by the creditor.
• The total payment amount, which means the sum total of all payments the borrower will have made by the time the full balance has been paid and includes all fees and finance charges. The total payment amount must be expressed to the final maturity of the borrowing.

1. Requires the above information to be obtained as a good faith estimate from an underwriter, financial advisor, or private lender. The information can also be obtained from a third-party borrower under the following circumstances:

• If the public body issuing bonds is a conduit financing provider issuing bonds on behalf of a third-party borrower, the information must be presented to the third-party borrower as a good faith estimate by an underwriter, financial advisor, or private lender engaged by the third-party borrower.
• If the third-party borrower has a governing board, the information must be presented to the governing board in a manner required by its bylaws. If the third-party borrower does not have a governing board, the information must be provided to the officials of the third-party borrower who have authority to obligate the third-party borrower in connection with the financing.
• The third-party borrower must provide the information to the public body prior to the disclosure of the information.

1. Declares that the provisions in the bill further the right of public access to the meetings and writing of local public officials and local agencies relating to the issuance of bonds.

Background

Bonds. California’s local agencies, and in some cases nonprofit and public corporations, are authorized to issue a variety of types of bonds to fund a wide range of infrastructure projects, including assessment bonds, general obligation (GO) bonds, revenue bonds, Mark-Roos bonds, Mello-Roos bonds, conduit bonds, pension obligation bonds, among others. Each type of bond has different requirements for issuance and provides funding for different types of infrastructure development and maintenance. Some types of bonds must be approved by 2/3 of voters like GO bonds (except for school bonds, which require a 55% majority) while others can be issued with majority voter approval.

Each bond type has different restrictions and is secured by a specific revenue source. For example, local governments raise property taxes as needed to repay GO bonds, as is specifically allowed under Proposition 13. Alternatively, a local agency could fund a sewage treatment plant by selling revenue bonds secured by the revenues from the monthly sewer fees paid by citizens. Governments typically pay higher interest rates when they borrow through revenue bonds rather than general obligation bonds.

Additionally, California law authorizes local agencies to issue bonds for the purpose of making loans to entities other than state or local governments are commonly referred to as "conduit bonds," and state or local governments which issue these bonds are commonly referred to as "conduit issuers." A conduit issuer in a conduit bond financing typically issues the bonds and loans the bond proceeds to a conduit borrower. A conduit borrower is generally responsible for the payment of debt service on the conduit bond issue and is usually contractually obligated to maintain the tax-exempt status of the bonds.

Conduit revenue bond financing is a method by which the public subsidizes a private development project. A public entity acts as the "issuer" of the bonds so the interest payments on the bonds will be tax-exempt to the bondholders under the income tax code. Because the bondholders will not be taxed on the interest, they are willing to accept a lower return on their investment, and the cost of borrowing is lower. The bond proceeds are transferred to a private developer, which is responsible for making the payments to the bondholders. The public entity issuing the bonds acts purely as a "conduit" – it does not receive the bond proceeds or pay back the bondholders. But the tax code looks to the form of the transaction, not its substance, so the interest on the bonds is still tax-exempt to the bondholders. The public thereby subsidizes the private development project by foregoing the tax revenues that would otherwise be paid by the bondholders.

CDIAC. The California Debt and Investment Advisory Commission (CDIAC) provides information, education, and technical assistance on debt issuance and public fund investments to public agencies. The Commission, which operates as a part of the State Treasurer’s Office, has nine members, including the State Treasurer, the Governor or the Director of Finance, the State Controller, two local government finance officials, two Assembly Members, and two Senators.

CDIAC collects, maintains, and provides comprehensive information on all state and local debt authorization and issuance, and serves as a statistical clearinghouse for all state and local debt issues. State law requires CDIAC to make this information readily available upon request by any public official or any member of the public. State and local government debt issuers must submit several types of reports containing information about debt issuance to CDIAC, specifically:

• Any state or local government that proposes to issue debt must submit a report of proposed debt issuance at least 30 days before the debt issue is sold. CDIAC may require information that it considers appropriate to be submitted in the report of proposed debt issuance.
• Any state or local government debt issuer must submit a report of final sale not more than 21 days after the sale of the debt. The report of final sale must be accompanied by a copy of the final official statement for the issue or if there is no official statement, by other specified documents. State law allows CDIAC information that it considers appropriate to be submitted in the report of final sale.
• All local governments issuing Mello-Roos Community Facilities District bonds must provide a fiscal status report containing specified information to CDIAC by October 30 of every year until the bonds have been retired.
• All joint powers authorities issuing bonds pursuant to the Marks-Roos Bond Pooling Act must provide a fiscal status report containing specified information to CDIAC by October 30 of every year until the final maturity of the bonds.

The information that CDIAC collects from reports submitted by bond issuers helps policymakers and members of the public monitor and assess the results of state and local debt issuance. However, the information that CDIAC collected was not sufficient to determine whether bond issuers are managing and spending bond proceeds properly. In response, the Legislature approved SB 1029 (Hertzberg, 2016) to help ensure that bond proceeds are spent for their intended purposes and to make bond proceeds’ disposition more transparent to the public.

Task Force. Following the controversy in 2015, when news reports revealed that approximately $1.3 million in bond proceeds held by the Association for Bay Area Governments’ Finance Authority were missing, State Treasurer John Chiang created a Task Force on Bond Accountability. The Task force developed best practice guidelines for how bond proceeds should be managed to reduce the risk of fraud, waste, and abuse, and to identify strategies to increase transparency and oversight of the use of bond funds.

Comments

Purpose of the bill. According to the author, “The public cannot readily evaluate whether bond financing is a prudent investment choice if they do not completely understand the cost of long-term borrowing and the dimensions of the obligation being undertaken. SB 450 would present financial data in a form similar to that required by federal law for mortgage loans. Bonds are not free money. Although taxpayers may know the principal amount borrowed by the local entity, they may not have a full picture as to annual costs of borrowing, the costs associated with bond transactions, and the total amount that will be paid by taxpayers over lifetime of the bond.”

Mandate? The Legislative Counsel’s Office says that SB 450 would impose a state-mandated local program because it imposes new duties upon local agencies. The California Constitution generally requires the state government to reimburse the costs of new or expanded state mandated local programs. However, on June 3, 2014, California voters approved Proposition 42, which amended the California Constitution to require local agencies to comply with the California Public Records Act and local open meetings laws, the Brown Act. Proposition 42 also requires local agencies to comply with any subsequent statutory enactment amending either the Brown or Public Records Acts that contain specified findings that the newly enacted statute furthers specified constitutional provisions guaranteeing public access to public agency meetings and records. SB 450 contains legislative findings that the bill furthers the purpose of Section 3 of Article I of the California Constitution. As a result, SB 450 disclaims the state’s responsibility for reimbursing local governments’ costs of complying with the bill’s requirements.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: Yes

SUPPORT: (Verified 5/2/17)

California State Treasurer, John Chiang (source)
California Association of County Treasurers and Tax Collectors
California Taxpayers Association

OPPOSITION: (Verified 5/2/17)

None received

Prepared by: Jimmy MacDonald / GOV. & F. / (916) 651-4119

5/3/17 16:20:22

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SENATE COMMITTEE ON GOVERNANCE AND FINANCE

Senator Mike McGuire, Chair

2017 - 2018 Regular

Public bodies: bonds: public notice

Requires all public bodies to obtain and disclose specific information before authorizing the issuance of bonds.

Background

Bonds. California’s local agencies, and in some cases nonprofit and public corporations, are authorized to issue a variety of types of bonds to fund a wide range of infrastructure projects, including assessment bonds, general obligation (GO) bonds, revenue bonds, Mark-Roos bonds, Mello-Roos bonds, conduit bonds, pension obligation bonds, among others. Each type of bond has different requirements for issuance and provides funding for different types of infrastructure development and maintenance. Some types of bonds must be approved by 2/3 of voters like GO bonds (except for school bonds, which require a 55% majority) while others can be issued with majority voter approval.

Each bond type has different restrictions and is secured by a specific revenue source. For example, local governments raise property taxes as needed to repay GO bonds, as is specifically allowed under Proposition 13. Alternatively, a local agency could fund a sewage treatment plant by selling revenue bonds secured by the revenues from the monthly sewer fees paid by citizens. Governments typically pay higher interest rates when they borrow through revenue bonds rather than general obligation bonds.

Additionally, California law authorizes local agencies to issue bonds for the purpose of making loans to entities other than state or local governments are commonly referred to as "conduit bonds," and state or local governments which issue these bonds are commonly referred to as "conduit issuers." A conduit issuer in a conduit bond financing typically issues the bonds and loans the bond proceeds to a conduit borrower. A conduit borrower is generally responsible for the payment of debt service on the conduit bond issue and is usually contractually obligated to maintain the tax-exempt status of the bonds.

Conduit revenue bond financing is a method by which the public subsidizes a private development project. A public entity acts as the "issuer" of the bonds so the interest payments on the bonds will be tax-exempt to the bondholders under the income tax code. Because the bondholders will not be taxed on the interest, they are willing to accept a lower return on their investment, and the cost of borrowing is lower. The bond proceeds are transferred to a private developer, which is responsible for making the payments to the bondholders. The public entity issuing the bonds acts purely as a "conduit" – it does not receive the bond proceeds or pay back the bondholders. But the tax code looks to the form of the transaction, not its substance, so the interest on the bonds is still tax-exempt to the bondholders. The public thereby subsidizes the private development project by foregoing the tax revenues that would otherwise be paid by the bondholders.

CDIAC. The California Debt and Investment Advisory Commission (CDIAC) provides information, education, and technical assistance on debt issuance and public fund investments to public agencies. The Commission, which operates as a part of the State Treasurer’s Office, has nine members, including the State Treasurer, the Governor or the Director of Finance, the State Controller, two local government finance officials, two Assembly Members, and two Senators.

CDIAC collects, maintains, and provides comprehensive information on all state and local debt authorization and issuance, and serves as a statistical clearinghouse for all state and local debt issues. State law requires CDIAC to make this information readily available upon request by any public official or any member of the public. State and local government debt issuers must submit several types of reports containing information about debt issuance to CDIAC, specifically:

• Any state or local government that proposes to issue debt must submit a report of proposed debt issuance at least 30 days before the debt issue is sold. CDIAC may require information that it considers appropriate to be submitted in the report of proposed debt issuance.
• Any state or local government debt issuer must submit a report of final sale not more than 21 days after the sale of the debt. The report of final sale must be accompanied by a copy of the final official statement for the issue or if there is no official statement, by other specified documents. State law allows CDIAC information that it considers appropriate to be submitted in the report of final sale.
• All local governments issuing Mello-Roos Community Facilities District bonds must provide a fiscal status report containing specified information to CDIAC by October 30 of every year until the bonds have been retired.
• All joint powers authorities issuing bonds pursuant to the Marks-Roos Bond Pooling Act must provide a fiscal status report containing specified information to CDIAC by October 30 of every year until the final maturity of the bonds.

The information that CDIAC collects from reports submitted by bond issuers helps policymakers and members of the public monitor and assess the results of state and local debt issuance. However, the information that CDIAC collected was not sufficient to determine whether bond issuers are managing and spending bond proceeds properly. In response, the Legislature approved SB 1029 (Hertzberg, 2016) to help ensure that bond proceeds are spent for their intended purposes and to make bond proceeds’ disposition more transparent to the public.

Task Force. Following the controversy in 2015, when news reports revealed that approximately $1.3 million in bond proceeds held by the Association for Bay Area Governments’ Finance Authority were missing, State Treasurer John Chiang created a Task Force on Bond Accountability. The Task force developed best practice guidelines for how bond proceeds should be managed to reduce the risk of fraud, waste, and abuse, and to identify strategies to increase transparency and oversight of the use of bond funds.

To further the efforts of the State Treasurer’s task force and SB 1029, the Treasurer is asking the Legislature to give taxpayers the additional information by requiring local governments to disclose details as to the full long-term cost of borrowing in a public hearing.

Proposed Law

Senate Bill 450 requires that, prior to the authorization to issue bonds with a term greater than 13 months, the governing body of a city, county, special district, public authority, public corporation, nonprofit corporation or any other statutorily constituted public entity that is allowed to issue bonds to obtain and disclose all of the following information in a public meeting:

• The annual percentage rate of the bond, which means the cost of interest expressed as a yearly rate.
• The finance charge of the bond, which means the sum of all charges payable by the debtor, including the interest and transaction costs, expressed in dollar terms.
• The amount financed by the bond, which means the amount of credit provided by the creditor.
• The total payment amount, which means the sum total of all payments the borrower will have made by the time the full balance has been paid and includes all fees and finance charges. The total payment amount must be expressed to the final maturity of the borrowing.

SB 450 requires the above information to be obtained as a good faith estimate from an underwriter, financial advisor, or private lender. The information can also be obtained from a third-party borrower under the following circumstances:

• If the public body issuing bonds is a conduit financing provider issuing bonds on behalf of a third-party borrower, the information must be presented to the third-party borrower as a good faith estimate by an underwriter, financial advisor, or private lender engaged by the third-party borrower.
• If the third-party borrower has a governing board, the information must be presented to the governing board in a manner required by its bylaws. If the third-party borrower does not have a governing board, the information must be provided to the officials of the third-party borrower who have authority to obligate the third-party borrower in connection with the financing.
• The third-party borrower must provide the information to the public body prior to the disclosure of the information.

SB 450 declares that the provisions in the bill further the right of public access to the meetings and writing of local public officials and local agencies relating to the issuance of bonds.

State Revenue Impact

No estimate.

Comments

1. Purpose of the bill. According to the author, “The public cannot readily evaluate whether bond financing is a prudent investment choice if they do not completely understand the cost of long-term borrowing and the dimensions of the obligation being undertaken. SB 450 would present financial data in a form similar to that required by federal law for mortgage loans. Bonds are not free money. Although taxpayers may know the principal amount borrowed by the local entity, they may not have a full picture as to annual costs of borrowing, the costs associated with bond transactions, and the total amount that will be paid by taxpayers over lifetime of the bond.”
   
2. Mandate? The Legislative Counsel’s Office says that SB 450 would impose a state-mandated local program because it imposes new duties upon local agencies. The California Constitution generally requires the state government to reimburse the costs of new or expanded state mandated local programs. However, on June 3, 2014, California voters approved Proposition 42, which amended the California Constitution to require local agencies to comply with the California Public Records Act and local open meetings laws, the Brown Act. Proposition 42 also requires local agencies to comply with any subsequent statutory enactment amending either the Brown or Public Records Acts that contain specified findings that the newly enacted statute furthers specified constitutional provisions guaranteeing public access to public agency meetings and records. SB 450 contains legislative findings that the bill furthers the purpose of Section 3 of Article I of the California Constitution. As a result, SB 450 disclaims the state’s responsibility for reimbursing local governments’ costs of complying with the bill’s requirements.

Support and Opposition

(4/14/17)

Support: California State Treasurer, John Chiang (Sponsor), California Taxpayers Association.

Opposition: Unknown.

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