The California Debt and Investment Advisory Commission (CDIAC) was created in 1981 to provide educational and technical assistance on public debt, investments and economic development financing to, principally, local public agencies. CDIAC is commonly known as the clearinghouse for public debt issuance information, and offers approximately a dozen debt issuance and public finance seminars per year. CDIAC is funded mainly through a fee charged to lead underwriters and purchasers.

About CDIAC (CDIAC website)

The California Debt Advisory Commission was created by statute in 1981 to provide educational and technical assistance on public debt, investments and economic development financing to local public agencies. At that time, state policymakers were concerned about the financial difficulties facing local agencies, which were not only adjusting to the impacts of the landmark tax limitation measure, Proposition 13, but also coping with historically high interest rates in the municipal marketplace. Moreover, the defaults of New York City on its municipal debt obligations in the mid-1970s served as a warning of the consequences of ignoring growing fiscal pressures. It became clear that California public agencies could benefit from the collection of better information on municipal debt issuance and profit from technical assistance that could be provided by a centralized state entity. Thus, the CDAC was created.

The Technical Advisory Committee, made up of financial experts who serve without compensation, was established in 1983 to assist the commission by providing advice on a wide range of issues.

The commission upgraded its chief officer’s title from executive secretary to executive director in 1991 and changed its name to the California Debt and Investment Advisory Commission in 1996 when its mission was statutorily expanded to cover public investments. It was also given oversight of local investment practices and the responsibility of developing an education program—along with various professional associations—for state and local officials involved in the investment of public funds.

About CDIAC (CDIAC website)

Passion in Public Finance: the Debate over Competitive vs. Negotiated Underwriting (by Charmette Bonpua, AllBusiness.com)

Local Investment Reporting Mandate (Legislative Analyst’s Office)

Assembly Bill 943

CDIAC provides education, information and technical assistance to local public agencies on public fund investments and debt issuance. It is the state’s clearing house for debt issuance information. The  commission publishes a monthly newsletter,  maintains contact with the municipal debt industry to improve the market for public debt,  provides technical assistance to state and local governments to reduce issuance costs and protect the issuers’ credit, undertakes or commissions studies on methods to reduce issuance costs and improve credit ratings, recommends legislative changes to improve the sale and payment of debt and assists state financing authorities and commissions in carrying out their responsibilities.

The nine-member commission is chaired by the state treasurer and includes the governor (or the finance director), the controller, two local government finance officers, two members of the Assembly and two state senators. It oversees a 20-member staff and the Technical Assistance Committee of volunteer financial experts. Day-to-day operations are run by the executive director.

The commission’s activities generally fall into three categories: data collection, policy research and technical assistance.

Data Collection

The commission maintains a debt issuance database of information on public debt issued in California since 1982, which it uses as a basis for the statistics and analysis contained in its reports. The database is comprehensive and includes the sale date, name of insurer, type of sale, principal amount, type of debt instrument, source of repayment, purpose of the financing, rating of the issue and members of the financing team. State and local governments are required by law to provide the information to the commission, which handles 2,500 to 4,000 debt issuance reports a year.

Policy Research

One of the commission’s roles is to enhance the market for, and marketability of, California’s public debt. To that end, the commission maintains contact with participants in the municipal debt industry, undertakes or commissions studies of various aspects of the market in order to provide guidance to state and local debt issuers, and recommends legislative changes in matters affecting public debt issuers. The Policy Research Unit contributes by tapping information from CDIAC’s debt issuance database, municipal industry experts, public and private finance groups, periodicals and journals, and other existing resources. The research staff works with the executive director, commission members and the Technical Assistance Committee to determine what areas of interest to conduct research and analysis. Their findings and recommendations appear as issue briefs, technical reports and articles for the Debt Line monthly newsletter.

Technical Assistance

CDIAC’s technical assistance program has three components: educational seminars it hosts; conferences, symposia and seminars it co-hosts with private industry and statewide associations; and  responding to an annual 2,000 inquiries for information. The commission’s seminars are held around the state and introduce public officials who are new to the field of public finance to the debt issuance and investment process; strengthen that knowledge for those already with experience; and inform them of any new developments in the field.  

CDIAC is funded almost entirely through a fee charged to lead underwriters and purchasers of debt. The commission is authorized to charge a fee of up to $5,000 per public debt issuance. Proceeds are deposited in the CDIAC Fund, which maintains a surplus. As the issuance of debt has declined in recent years, so has the size of the CDIAC Fund.

About 41% of CDIAC’s $2.9 million budget goes to salaries and wages for its authorized positions; about 54% goes to personal services to fund its staff benefits. About 94% of its funds come from the CDIAC Fund and about 6% comes from reimbursements. The commission relies on the State Treasurer’s office for administrative assistance.

3-Year Budget (pdf)

CDIAC Fee Structure June 20, 2011 (CDIAC website)

Recovery Act of 2009

It is an article of faith among conservatives in the country that the 2009 economic stimulus package supported by President Obama and Democrats was an abject failure. Its goal was to ultimately generate jobs for 3.6 million Americans, lower the unemployment rate two points, boost consumer spending in the economy and drag the country out of recession. When the country’s unemployment stubbornly hovered over 9% many of the American people polled agreed with conservatives that the program had been a waste of money. A lot of money: $787 billion.

Economists generally disagree with that assessment. The independent Congressional Budget Office estimated that up to 3.6 million jobs were generated and that the unemployment rate would have been much higher without the stimulus.

California’s cut was $85 billion, with $50 billion being made available over an 18-month period as incentives for state and local governments to issue bonds to pay for infrastructure, education and other projects. ($35 billion were tax benefits.) CDIAC played a major role in educating local and state entities on how best to access and utilize the money and then guided them through the process.

A vast array of taxable and tax-exempt investments received major support from the federal government including: renewable and conservation energy bonds; and bonds for school construction, renovation, equipment purchase, developing course materials and training teachers. Build America Bonds essentially allowed California to finance any capital expenditures for which they could otherwise issue tax-exempt bonds, but the federal government subsidized the transactions by allowing either a 35% reimbursement of interest paid or a 35% tax credit to investors.

The American Recovery and Reinvestment of Act of 2009 (CDIAC and the California Infrastructure and Economic Development Bank) (pdf)

How the Stimulus Is Changing America (by Michael Grunwald, Time Magazine)

CBO Report: Obama Stimulus Hurt Economy (by Stephen Dinan, Washington Times)

An Appetite for Raising Revenues

Congress stalemated throughout 2009-2011 over the issue of whether to increase revenues, principally through raising taxes. Democrats were willing to balance program cuts with revenues, while Republicans held to a read-my-lips no-new-taxes policy. The battle for the hearts, minds and pocketbooks of Americans narrowed much of the focus in political arenas to debates over the amount of debt being accrued and the size of government deficits (as opposed to methods of government stimulus and raising revenues).

But at least one indicator in 2010 pointed to a willingness by voters to consider added revenues as part of public policy. A report by the California Debt and Investment Advisory Commission said that voters in November 2010 passed 59% of the 195 tax and general obligation bond proposals put before them. In fact, the majority of those that passed needed a two-thirds majority or 55% voter approval to pass.

Scott Graves at California Budget Project summarized the results: “One of the key sticking points in the 2011-12 state budget debate is whether to ask California voters to extend, for a few more years, temporary taxes enacted in 2009 that expire this year. Despite some regional differences, results from the November 2010 ballot suggest that voters are more willing to support revenues to help close the state’s remaining $9.6 billion budget gap than the debate playing out in the state Capitol would suggest.”

Voters approved 73.1% of the general obligation bonds on local ballots. Most of that money went to education construction projects.

New Report Shows Strong Support for Local Tax Measures (by Scott Graves, California Budget Project)

Results of the 2010 Election (CDIAC) (pdf)

Competitive vs. Negotiated Sale

The method of sale of public debt has long been a debate in the municipal debt issuer world. Underwriters, financial advisors, market regulators, finance officers, elected officials, academicians and the media—everyone, it seems, has his or her own opinion as to which method of sale is best suited to meet the needs of public agencies. At stake are hundreds of millions of dollars in borrowing costs paid by public debt issuers every year. The CDIAC sought to end the debate. In 1991, the CDIAC decided to take a closer look at the competitive verse negotiated underwriting debate. The commission conducted what was expected to be a three-month study that ended taking more than 11 months to complete. The product of this effort was Issue Brief #1: Competitive Versus Negotiated Sale of Debt, released by the commission in September 1992, which more or less states the advantages and disadvantages of each method, concluding that issuers should “evaluate the method of sale for every issue” and “avoid becoming too comfortable with a particular approach.”

Competitive Versus Negotiated Sale of Deb (pdf)

Passion in Public Finance: the Debate over Competitive vs. Negotiated Underwriting (by Charmette Bonpua, AllBusiness.com)

Does It Make any Difference Anymore? Competitive Verses Negotiated Municipal Bond Issuance (by William Simonsen and Mark D. Robbins, Public Administration Review)

Marks-Roos

In 1978 Californians enacted Proposition 13, which limited the ability of local public agencies to increase property taxes based on a property’s assessed value. This change in law, combined with sharp cuts in federal aid to state and local governments, severely limited local government’s ability to fund public infrastructure. The Marks-Roos Bond Pooling Act was thus created to provide a flexible alternative method of financing needed improvements, along with the benefit of reduced borrowing costs through the use of bond pools.

The act authorizes Joint Powers Authorities (JPA) to issue bonds and loan money to local agencies with considerable flexibility to structure loan agreements that conform to the statutory and constitutional debt limitations faced by local agencies. Financing powers authorized in the act may be exercised only by JPAs, giving rise to a new type of JPA, the Public Financing Authority, which was formed solely for executing Marks-Roos bond offerings. But out of this flexibility arose abusive practices and Marks-Roos was amended several times. After careful examination of Marks-Roos in 1995, the CDIAC published a report in which State Treasurer Matt Fong recommended the Legislature “provide for better enforcement of existing Marks-Roos law, echoing the recommendation put forth in the “Report of the Interagency Municipal Securities Task Force.”

The Report of the Interagency Municipal Securities Task Force was the result of a two-year investigation conducted by a task force appointed by Fong, in response to the rising rate of defaults on land-based bonds. The central recommendation of the task-force report was the creation of a Municipal Bond Law Enforcement program to remedy the lack of enforcement of the state’s existing municipal-bond laws. Specifically, the task force recommended that the Legislature “direct the Department of Justice to initiate a program to review municipal bond offerings, focusing primarily on Marks-Roos bond and other types of debt with a high potential for abuse.”

A Review of the Marks-Roos Local Bond Pooling Act of 1985 (pdf)

Recommended Changes to the Marks-Roos Local Bond Pooling Act of 1985 (pdf)

Report of the Interagency Municipal Securities Task Force (pdf)

Municipal Bankruptcy and CDIAC

In March 2009, amid the global economic meltdown that threatened sovereign nations and the worldwide financial system, a federal bankruptcy judge ruled that the City of Vallejo, California, could nullify labor contracts as part of an agreement to balance its books, although he encouraged the San Francisco suburb to strive mightily for another solution. 

In an effort to slow a feared rush to bankruptcy protection by cash-strapped cities, Assembly Bill 155 was introduced in the state Legislature. The hotly contested bill, which would have required cities to receive approval from the Debt and Investment Advisory Commission before declaring bankruptcy, failed to win legislative approval. But in 2011, a watered down version of the bill, Assembly Bill 506, did pass. It removed the CDIAC as a mandatory way station en route to bankruptcy court and made it just an option for municipalities that were being encouraged to seek third-party mediation. Municipalities must submit to a neutral financial review before they seek Chapter 9 bankruptcy protection unless they provide evidence that they are in a state of fiscal emergency.

Although the legislative debate was put on the back burner, the issue of municipal bankruptcy still simmers.

Assembly Bill 155 (pdf)

Assembly Bill 155 (Bill analysis)

Assembly Bill 155 (TotalCapitol)

Dave Cox Asks for Municipal Bankruptcy Bill Back in Committee (by Dan Walters, Sacramento Bee)

Uncertainty Lingers After the Ruling in Vallejo Bankruptcy Case (by Ed Mendel, Capitol Weekly)

Toil and Trouble: The Capitol Seethes as the Deadline Looms (by John Howard and Anthony York, Capitol Weekly)

State Law Would Prohibit L.A. From Going Bankrupt (by Dennis Romero, LA Weekly)

Unions, Local Officials Square Off Over Bankruptcy Bill (by Anthony York, Capitol Weekly)

Commending Courage (by Torey Van Oot, The Sacramento Bee)

Local Government Bankruptcy Bill Comes Back to Capitol (by Anthony York, The Los Angeles Times)

Brown Signs Bill to Limit Municipalities in California From Bankruptcies (by James Nash, Bloomberg News)

Assembly Bill 506

Bankruptcy Bill Signed by Governor (CDIAC’s Debt Line: A Synopsis of Current Events in Public Finance)

Proponents of Legislation

Labor groups, fearing that cities would use the temporary economic crisis as an excuse to  walk away from contracts signed in good faith, strongly supported the original bill, AB 155. States and local governments across the country are abrogating contracts and heavily pressuring unions to return to the bargaining table. The bankruptcy proceeding was already leading to pressure for a renegotiation of existing contracts.

The California Federation of Labor argued that municipal bankruptcy devastates whole communities. Property values decline, the business climate is wrecked, retirees are left in limbo and vendors can’t rely on timely payments. The threat of municipal bankruptcy roils bond markets, resulting in higher interest rates and greater costs for taxpayers financing infrastructure projects like roads and schools. California is one of only 11 states that give blanket authorization for municipal bankruptcies without any standards. Thirty-nine states either prohibit municipal bankruptcies or require cities to meet certain criteria before filing. California legislators were not trying to ban municipal bankruptcies with AB 155; they were simply creating an oversight structure to prevent frivolous, ill-conceived and ideologically motivated bankruptcies.  

Labor wasn’t the only party wary of municipal bankruptcies. A municipal bankruptcy, depending on its size, could have a spillover effect on credit ratings and borrowing costs for the state and other cities. The author of the kinder, gentler AB 506 warned that the state has a vested interest in protecting taxpayers from ill-advised bankruptcy and “in the absence of clear standards or oversight, local elected officials considering bankruptcy and the communities impacted by such a bankruptcy have little guidance about whether [the bankruptcy] is merited or necessary.”  

Preventing Abuse of Municipal Bankruptcy (California Labor Federation)

Protection from Municipal Bankruptcy (California Labor Federation)

Bill Introduced to Protect Bankruptcy Access for Financially Devastated Municipalities (California Professional Firefighters)

Opponents of Legislation

Opponents of both bills say they undermine the principle benefits of federal bankruptcy protection: the automatic stay of financial obligations and time to allow a debtor some “breathing space” to formulate a debt readjustment plan. Opponents also argue that the bill is an intrusion on local governments’ autonomy and right to seek legal protection from creditors.

The original bill, AB 155, placed obstacles in the way of reaching bankruptcy court that would have, in effect, short-circuited the legal system. A bankruptcy court can reject a local entity’s petition for a Chapter 9 filing for a number of reasons. The entity must be insolvent, have a plan for adjusting its debts and must attempt to negotiate in good faith with its creditors. Opponents say the system doesn’t need a third party to vet the merits of an entity’s plea for protections and that any legislation which impedes the use of the court denies the use of a fundamental legal right. 

AB 155 was opposed by the California State Association of Counties, the Regional Council of Rural Counties, the Urban Counties Caucus, the League of California Cities, and the California Special Districts Association. The Special Districts Association argued that its members had no interest in disputing labor contracts and that they had utilized Chapter 9, sparingly, in the past to gain protections from creditors while they developed a plan for adjusting debt.

As local and state government entities grapple with budget deficits, plans that incorporate shared responsibility will also look to reducing significant labor and pension costs. Opponents of the legislation argue that arbitrarily removing perfectly legal mechanisms for exploring all solutions to a problem is shortsighted.

AB 155: This Bill Could be Your Worst Nightmare (by Jean Kinney Hurst, California State Association of Counties legislative representative for revenue and taxation)

Unions Forcing Cities to Pay for Services They Can’t Afford (by Justin Smith, Sacramento Press)

Local Efforts Succeed on AB 506 – Municipal Bankruptcy (California Special Districts Association)

Municipal Bankruptcy Bill Skips Policy Process Moves to Senate Floor (League of California Cities)

New Bill, Same Old Tactics: Third Attempt at a Municipal Bankruptcy Bill, AB 506 (California City News)

Union Anti-Bankruptcy Bill Rises Again (by Katy Grimes, Cal Watchdog)

Hugo Lopez, 2010 (interim)

John Decker, 2007-2010

Jane W. Thompson, 2005-2006

Lisa Marie Harris, 2001-2005

Hugo López, 1999-2000

Peter W. Schaafsma, 1995-1998

Steve Juarez, 1990-1995

Harriet Kiyan, 1989 (executive secretary)

Carole L. Perry, 1988 (executive secretary)

Theresa Molinari,  1985-1987  (executive secretary)

Melinda Carter Luedtke, 1983-1984 (executive secretary)

Larry Margolis, 1982 (executive secretary)