BILL ANALYSIS
SENATE LOCAL GOVERNMENT COMMITTEE
Senator Richard K. Rainey, Chairman
BILL NO: SB207 HEARING: 4/7/99
AUTHOR:Peace FISCAL: No
AMENDED:3/25/99 CONSULTANT: Detwiler
LIMITS ON MARKS-ROOS ACT BONDS
Background and Existing Law
The Marks-Roos Local Bond Pooling Act allows public
agencies to use joint powers authorities (JPAs) to finance
infrastructure. Called public finance authorities (PFAs),
these agencies can issue Marks-Roos Act bonds and loan the
capital to local agencies for public works, for working
capital, and for insurance programs. PFAs can structure
loans to local agencies as leases or installment sales
contracts. PFAs can sell Marks-Roos Act bonds and then use
the capital to buy other local agencies' bonds. In short,
the Marks-Roos Act created another (but indirect) way for
local officials to borrow money for public works.
One perceived abuse was the use of "roving JPAs" that
financed public works for private development projects
located outside the boundaries of the local governments
that created the JPA. The State Treasurer argued "studies
have shown that having a responsible local agency 'on top
of things' is the most important factor in successfully
working out a troubled bond issue."
The Treasurer sponsored the 1998 bill banning roving JPAs.
The Marks-Roos Act now prohibits a JPA from issuing
Marks-Roos Act bonds unless the authority: (1) expects that
the public works will be within a member agency's
boundaries, and (2) a member agency in whose boundaries the
public works will be located holds a noticed public hearing
and finds that the project is of "significant public
benefit" to that agency's citizens, based on four statutory
criteria. This ban does not apply to undergrounding public
utilities; electricity generation and transmission; water,
recycled water, and wastewater facilities; public schools;
and toll roads (SB 147, Kopp, 1998).
Proposed Law
Senate Bill 207 permits a joint powers authority that is
unable to issue Marks-Roos Act bonds because of last year's
legislation to issue bonds if it makes three findings:
The authority was "duly formed" before January 1, 1999.
The authority issued bonds before January 1, 1999, for
public capital improvements to benefit a development
project.
The proposed bonds are needed for additional public
capital improvements to benefit the same development
project.
Comments
1. Phased projects . Last year's bill protected local
agencies, investors, and the general public by requiring
better oversight of Marks-Roos Act bonds. But some say
that the Legislature overreacted by prohibiting public
finance authorities from using Marks-Roos Act bonds to pay
for public works for phased development projects. Some
PFAs had already issued bonds for the first phase of
extra-jurisdictional projects and last year's bill prevents
them from financing the projects' later phases. SB 207
creates a "transition rule" that permits some PFAs to issue
more Marks-Roos Act bonds to pay for more public works in
multi-phased development projects.
2. Roving JPAs . Of the 462 Marks-Roos Act bond issues, 38
(8%) financed extra-jurisdictional projects. Of those 38
bond issues, 22 (58%) involved the same bond underwriter,
Pacific Genesis Group, Inc. In one 1998 example involving
Pacific Genesis, the City of San Joaquin (Fresno County)
and the City's own economic development corporation created
the Sierra Nevada PFA and used the Marks-Roos Act to issue
$10.5 million in revenue notes to refinance a development
project and buy open space in Los Angeles County. The
Committee may wish to consider whether the Legislature
should allow local officials in small towns to resume their
practice of funding millions of dollars of public works for
projects that are hundreds of miles away.
3. Who's in, who's out ? The three conditions in SB 207
limit the number of PFAs that can resume funding
extra-jurisdictional public works. First , the PFA must
have been "duly formed" before January 1, 1999. Some PFAs
can't meet this condition because their members aren't
public agencies. A 1996 informal Attorney General's
opinion concluded that an Indian tribe is not a local
agency within the meaning of the Marks-Roos Act. A 1998
AG's opinion held that a PFA may not be established by a
city and the city's own nonprofit public benefit
corporation. Other PFAs which contain organizations that
are not public agencies won't meet the bill's first test.
Second , the PFA must have issued bonds before January 1,
1999, for public improvements to benefit a development
project. State records track the PFAs that meet this
requirement. Third , the new bonds must be needed for
additional public works. It isn't enough for a PFA to
issue bonds to refund its earlier bonds for public works it
already funded; the new bonds must pay for more public
works. Further, the public works must benefit the same
development project, restricting the bonds to phased
developments.
4. Sufficient conditions ? The Committee may wish to
consider if the three conditions in SB 207 are sufficient
to avoid recreating the situations that led to the passage
of last year's legislation. Should the Legislature give
PFAs just a one or two-year window to issue more bonds for
extra-jurisdictional projects? Should a PFA obtain the
consent of the city or county in which the
extra-jurisdictional project is located before it can issue
more Marks-Roos Act bonds? Should a PFA obtain the State
Treasurer's consent before it resumes bonding for
extra-jurisdictional projects?
5. What it's not . The policy issue raised by SB 207 is
whether the state government should allow some PFAs to
resume funding extra-jurisdictional projects because they
involve multiple phases. Nevertheless, some critics may
raise other issues that are not the subject of this year's
bill. The Committee may hear about: (1) excessive
"administrative fees" paid to local officials for financing
extra-jurisdictional projects, (2) the settlement
agreement, including a desist-and-refrain order, signed in
mid-February between Pacific Genesis and the State
Department of Corporations, (3) whether PFAs can finance
projects for "associate members," and (4) two indictments
by state and local officials for dealings associated with
Marks-Roos Act bonds. Although intriguing, those issues
fall outside the policy issue raised by SB 207.
6. Legislative history . As introduced, SB 207 would have
repealed last year's legislation. Instead of repealing the
existing law, the March 25 amendments take another approach
by listing three conditions under which PFAs can resume
funding extra-jurisdictional public works for development
projects.
Support and Opposition (4/1/)
Support : Pacific Genesis Group, Inc., California Building
Industry Association, California Business Properties
Association, Pacific Golf Community Development LLC,
California-Nevada Conference of Operating Engineers,
California State Council of Laborers, Sacramento County,
League of California Cities, City of Waterford;
Motschiedler Michaelides & Wishon, two individuals.
Opposition : Stanislaus County District
Attorney.