California local governments will face new disclosure requirements to issue bonds

California local governments will face new disclosure requirements to issue bonds

Publication October 16, 2017

California Senate Bill 450 (Hertzberg) (“SB 450”), signed by the Governor on October 9, 2017, will require local governments to disclose certain estimated financial information before authorizing the issuance of bonds.  SB 450 will take effect on January 1, 2018.

Under SB 450, before the issuance of bonds is authorized, a governing body of a public body1 (a “Public Entity”) must obtain and disclose good faith estimates of the following:

(i) the true interest cost of the bonds;

(ii) the finance charge of the bonds;

(iii) the amount of proceeds received by the Public Entity from the sale of the bonds; and

(iv) the total debt service on the bonds.

Changes to prior law

Prior to SB 450, California law authorized the governing body of a Public Entity (a “Governing Board”) to authorize bonds pursuant to a resolution or an indenture or similar agreement. SB 450 will require that, prior to the authorization of the issuance of bonds with a term of greater than 13 months (which includes the great majority of bonds issued by Public Entities), a Governing Board obtain and disclose specific information regarding the bonds to be issued in a meeting open to the public. Generally, the most convenient place would be at the same meeting held to adopt the resolution or ordinance authorizing the bond issuance, in the staff report or agenda item.

Additionally, the new information to be obtained and disclosed must be a good faith estimate from an underwriter, financial advisor, or private lender. 

If a Public Entity is issuing bonds as a conduit issuer on behalf of a third party borrower (the “Borrower”), the Borrower must (i) provide the good faith estimates (prepared by an underwriter or financial advisor) to its own governing board or officials with the authority to obligate the Borrower in connection with the bonds, and then (ii) subsequently provide the good faith estimates to the Public Entity’s Governing Board, before the Governing Board authorizes the issuance of the bonds.

State entities are exempt from SB 450.  “State Entity,” for purposes of SB 450, means any state agency, department, bureau, board, or commission of any kind.

Specific information to be disclosed

SB 450 specifically describes the information that the good faith estimates must include as follows:

(1) The true interest cost of the bonds, which means 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) 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 Entity for sale of the bonds less the finance charge of the bonds described in (2) above, and any reserves or capitalized interest paid or funded with proceeds of the bonds.

(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 described in (2) above not paid with the proceeds of the bonds. The total payment amount must be calculated to the final maturity of the bonds.

Timing; non-compliance implications

A Public Entity planning to authorize the issuance of bonds after January 1, 2018, should take early steps to obtain the good faith estimates required by SB 450 prior to action by its Governing Board.

SB 450 explicitly states that any failure to comply with its requirements will not affect the validity of the bonds or the authorization of the bonds by the Public Entity.


1“Public body” includes, among other entities, a county, city, city and county, public district, public authority, public corporation, nonprofit corporation or other statutorily constituted public entity which is authorized to issue bonds.

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