The California Debt and Investment Advisory Commission (CDIAC) was created in 1981 with the passage of Chapter 1088, Statutes of 1981 (AB 1192, Costa). This legislation established CDIAC as the State’s clearinghouse for public debt issuance information and required it to assist state and local agencies with the monitoring, issuance, and management of public financings. To meet its statutory responsibilities, CDIAC divides its functions into four units: Data Collection and Analysis, Policy Research, Education and Outreach, and Administration.
Since 1984, CDIAC has provided information, education, and technical assistance on debt issuance and public funds investing to state and local public agency officials and other public finance professionals. As a cornerstone of its educational program, CDIAC commissioned Orrick, Herrington & Sutcliffe LLP to write an introduction to California public debt. Orrick worked with CDIAC to develop the California Debt Issuance Primer (Primer), which has served as the goto reference guide for public finance professionals, policy makers, and students on California debt since 1988.
The Primer has undergone subsequent revisions, including those done by Orrick in 1990 and 1998 and by CDIAC staff in 2006. But these updates have failed to keep pace with transformations in the market and the needs of a new generation of public finance professionals. To address these concerns CDIAC, again in partnership with Orrick, Herrington & Sutcliffe LLP, has created the California Debt Financing Guide (Guide)—a completely new educational tool and reference for California public agencies and service providers.
The Primer has undergone subsequent revisions, including those done by Orrick in 1990 and 1998 and by CDIAC staff in 2006. But these updates have failed to keep pace with transformations in the market and the needs of a new generation of public finance professionals. To address these concerns CDIAC, again in partnership with Orrick, Herrington & Sutcliffe LLP, has created the California Debt Financing Guide (Guide)—a completely new educational tool and reference for California public agencies and service providers.
What Information Does the Guide Include?
Public agencies have a number of options when financing capital improvements and managing their cash flow, including relying on existing resources or operational surpluses. In some cases and under certain conditions, debt financing is both the most economical and sensible means of financing both short-term and long-term purposes. But there are business, economic, legal, and practical concerns to be affirmatively considered and addressed in any decision to use debt financing.
The Introduction addresses the five principal responsibilities of public agencies choosing debt financing:
i.1 Understand Your Public Agency; i.2 Decide Whether Debt Financing Is Appropriate For Your Agency; i.3 Apply the Appropriate Analysis to the Decision to Use Debt Financing; i.4 Lead the Process of Issuing Your Debt; i.5 Manage Your Debt After It Is Issued. The discussion of each of these points serves as an introduction to the process of debt financing. The Introduction, as a result, is the starting point for those unfamiliar with debt financing by public agencies as well as those seeking to better understand the scope of the process and obligations that fall on public agencies using debt financing. If you are an elected or appointed official, public agency staff new to debt financing, or member of the public seeking to understand how public agencies finance projects or how and why your agency has taken a particular approach to financing a project with debt, you are encouraged to start with the Introduction before moving on to the remainder of the Guide.
The Guide provides readers an understanding of the “legal and regulatory” requirements of debt financing in California. It begins in Chapter 1 with a discussion of the Constitutional and statutory authority given to public agencies to issue debt and to receive revenues needed to repay the debt and restrictions of that authority. Chapter 2 addresses the structural features of debt, including the source of revenues for repayment, security, and the term and interest rate mode. Chapter 3 provides a new approach to identifying debt “types” by categorizing them according to the security and source of repayment, interest rate mode (fixed- or variable-rate), and tax treatment. Chapter 4 covers the federal tax law requirements for issuing tax-exempt debt. Chapter 5 discusses the process of selling public debt to investors. Chapter 6 focuses on federal securities laws administered by the Securities and Exchange Commission as well as rulemaking by the Municipal Securities Rulemaking Board. Chapter 7 covers the additional requirements issuers of public debt must meet, including reports to CDIAC and the California Environmental Quality Act. Chapter 8 explains the on-going administrative responsibilities of issuers to investors, regulators, and the public. Chapter 9 introduces the options public agencies have to invest bond proceeds and the limitations they must adhere to when investing these funds.
The Guide also includes six appendices. Appendix A is a listing of state laws pertaining to the use of debt by California public agencies. Appendix B takes an in-depth look at one financing common to the California bond market: K-12 school financing. Appendix C is a listing of additional resources and reference materials. Appendix D is a discussion of the process public agencies must take when seeking bankruptcy protection under the Chapter 9 of the U.S. Bankruptcy Code. Appendix E is a glossary of terms. Appendix F is a subject index.
How To Use the Guide?
For those seeking an introduction to debt financing or an overview of the obligations of public agencies, the Introduction is suggested reading. Chapters 1 through 9 can be read in their entirety or used to research specific questions readers might have. Readers may pursue additional study using the Appendices and following links to materials outside of the Guide. The Guide is offered as an interactive electronic application and a PDF - both formats provide access to the educational materials and informational links contained in the Guide.
Acknowledgements
The Guide was produced in collaboration with Orrick, Herrington & Sutcliffe LLP. The Orrick team of attorneys was led by Steve Spitz.
The vision and, therefore, the responsibility for the outcome of the Guide was CDIAC’s, led by Mark B. Campbell, Executive Director. He was supported in this by CDIAC’s excellent staff, including Angel Hernandez, Research Manager, and researchers Joel Tokimitsu, Tara Dunn, and Nova Edwards.
No amount of recognition would provide fair compensation for the support, guidance, and direct contribution of materials and text provided by an advisory committee of public finance professionals. This group included David Brodsly, Managing Director, KNN Public Finance LLC; Dan Deaton, Partner, Nixon Peabody LLP; Steve Heaney, Managing Director, Stifel, Nicolaus & Company, Incorporated; Lakshmi Kommi, Debt Management Director, City of San Diego; and Megan Reilly, Chief Business Officer, Santa Clara Office of Education. Additional support was provided by Heather White, Counsel, Nixon Peabody, LLP. The quality of the materials and the format are the direct result of their insights and thoughtful consideration of this project and process.
The Guide was reviewed by Mark Paxson, Chief Counsel, Office of the California State Treasurer and Tim Schaefer, Deputy State Treasurer, Office of the California State Treasurer. It was edited by Coral Cavanagh, Curalium Consulting.
The Guide was formatted and published under the direction of CDIAC’s graphic designer, Megan Batty.
Expanded Apps, led by Skye Van Raalte-Herzog, developed the final interactive electronic application of the Guide.
Nothing in the Guide should be construed or relied upon as legal or financial advice. The Guide is rather intended to serve as a general introduction to the subjects discussed herein.
Note to Our Readers
The Guide has been published as an interactive electronic application. It is intended to be a “living” document that can be easily maintained and expanded. To help do so CDIAC is asking readers to identify changes and improvements that will further CDIAC’s goal to educate and inform. Please contact CDIAC with your suggestions at CDIAC@treasurer.ca.gov.