BILL ANALYSIS SENATE LOCAL GOVERNMENT COMMITTEE Senator Richard K. Rainey, Chairman BILL NO: AB 1511 HEARING: 7/14/99 AUTHOR: Florez FISCAL: No VERSION: 7/7/99 CONSULTANT: Detwiler MARKS-ROOS ACT BONDS {u Background and Existing Law u} The Joint Exercise of Powers Act allows two or more public agencies to exercise their common powers by signing joint powers agreements. Sometimes an agreement creates a joint powers authority (JPA). The Marks-Roos Local Bond Pooling Act allows public agencies to use JPAs to finance infrastructure. These JPAs issue Marks-Roos Act bonds and loan the capital to local agencies for public works, for working capital, and for insurance programs. A review of the Marks-Roos Act by then State Treasurer Matt Fong identified abuses of the Act by "roving JPAs" that finance public works for private development projects located outside the boundaries of the local governments that created the JPA. Fong sponsored legislation 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 (SB 147, Kopp, 1998). One response to the 1998 bill is the creation of private mutual water companies by developers and then joining roving JPAs as the local member agency. Mutual water companies are private cooperatives formed by landowners to run local water systems. A mutual water company can enter a joint powers agreement with public agencies to jointly exercise their common powers (AB 2014, Cortese, 1994). Another perceived abuse was the payment of fees to cities that created these roving JPAs. Fong's report noted three laws already ban excessive fees (SB 2447, McCorquodale, 1990; SB 1275, Killea, 1995; AB 1197, Takasugi, 1997). State law now explicitly prohibits paying fees to JPAs or AB 1511 -- 7/7/99 -- Page 2 their members if they exceed the costs of issuing and administering the bonds. However, Fong's report said that the 1997 bill did not deter the payment of fees to members of roving JPAs, "the practice has in fact increased." AB 1511 -- 7/7/99 -- Page 3 {u Proposed Law u} Assembly Bill 1511 prohibits a joint powers agreement that includes a mutual water company from being construed to create a separate public agency. AB 1511 prohibits a joint powers agreement from being construed to include a mutual water company as a "public agency" that can form a joint powers agency or a "local agency" under the Marks-Roos Act. The bill says that these provisions are declaratory of existing law. AB 1511 prohibits the proceeds of Marks-Roos Act bonds from being paid to a local agency for any purpose other than those listed in existing law or for the reimbursement of the local agency's direct and actual costs for administering the bond issue. Under the bill, the bond trustee can pay the local agency's reimbursement claims only if there are verified receipts for the local agency's legitimate administrative costs. {u Comments u} 1. {u Battling the Hydra u} . The 1985 Marks-Roos Act not only created a statutory way for local officials to lower the costs of financing public works by pooling their bonds, it also spawned a whole school of reform bills. As the Fong report chronicles, the Legislature has passed several bills intended to stop what it perceived as abuses of the Marks-Roos Act. Like the Hydra of Greek mythology that grew two more heads for each one that was cut off, each reform attempt has prompted new permutations in bond pooling. The 1998 Kopp bill was supposed to stop roving JPAs but now JPAs are adding mutual water companies as members. Bills in 1990, 1995, and 1997 were supposed to stop the practice of paying inflated administrative fees to cities that created roving JPAs but the fees continue. AB 1511 stops these ingenious attempts to circumvent earlier reforms. 2. {u Wait for the Attorney General u} ? The Stanislaus County District Attorney is concerned about small cities that form roving JPAs and then receive administrative fees in return for issuing bonds to fund private developments in distant counties. When some roving JPAs started adding private AB 1511 -- 7/7/99 -- Page 4 mutual water companies, the D.A. asked the Attorney General for a formal legal opinion. The D.A. asked, "May a mutual water company enter into a joint powers agreement for the purpose of issuing Marks-Roos bonds for a project in its jurisdiction?" Received in March 1999, the question may take the Attorney General some months to answer. The Committee may wish to consider if the Legislature should wait for the AG's opinion before it acts on AB 1511. 3. {u Belt and suspenders u} . The Fong report concluded that the Legislature's three earlier attempts to stop local agencies from receiving excessive fees for issuing Marks-Roos Act bonds had not succeeded. AB 1511 is the fourth bill to restrict that practice. In June, the State Treasurer and the Attorney General challenged a $15 million Marks-Roos Act bond issue by a roving JPA that included a mutual water company. Other officials questioned the payment of administrative fees. If the State Treasurer and the Attorney General enforce the existing laws, maybe new bills aren't needed. 4. {u Legislative history u} . When it passed the Assembly, AB 1511 dealt with water districts' implementation of Proposition 218. The July 7 amendments removed the bill's earlier contents of the bill and substituted the Marks-Roos Act provisions. 5. {u Related bill u} . In June, the Committee passed SB 1314 (Peace) which permits roving JPAs to issue more Marks-Roos Act bonds to pay for additional public works that benefit phased development projects that have final land use approvals. {u Assembly Actions u} Not relevant to the July 7, 1999 version of the bill. {u Support and Opposition u} (7/8/) {u Support u} : Unknown. {u Opposition u} : Unknown. {u u}