BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 794|
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THIRD READING
Bill No: AB 794
Author: Wieckowski (D)
Amended: 6/19/12 in Senate
Vote: 21
SENATE VOTES PRIOR TO 9/2/11 NOT RELEVANT
SENATE EDUCATION COMMITTEE : 6-0, 5/16/12
AYES: Lowenthal, Hancock, Liu, Price, Simitian, Vargas
NO VOTE RECORDED: Runner, Alquist, Blakeslee, Huff,
Vacancy
SENATE GOVERNANCE & FINANCE COMMITTEE : 6-2, 6/13/12
AYES: Wolk, Dutton, DeSaulnier, Hernandez, Kehoe, Liu
NOES: Fuller, La Malfa
ASSEMBLY FLOOR : Not relevant
SUBJECT : Local education facility bonds: anticipation
notes
SOURCE : California Public Securities Association
DIGEST : This bill, instead of allowing the interest on
the school bond anticipation notes to be paid from the tax
levied to pay the principal of and interest on the bonds,
allows the interest on the notes to be paid from a property
tax levied for that purpose if authorized by a resolution
of the governing board of the school district or community
college district and provides that this tax is authorized
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by law. This bill also allows the premium received on the
sale of the bonds to be used to pay the interest on the
notes.
ANALYSIS : Existing law authorizes the governing board of
a school or community college district to order an election
and submit to the electors of the district the question
whether the bonds of the district shall be issued and sold
for the purpose of raising money for various facilities
purposes, for refunding bonds, or for the purchase of
schoolbuses. Existing law limits the total amount of bonds
that a school or community college district may issue to
1.25 percent of the taxable property of the school or
community college district.
Existing law also authorizes the governing board of a
school district or community college district to issue bond
anticipation notes. Existing law requires a bond
anticipation note to be payable not more than five years
from the date of the original issuance of the note.
Existing law allows the interest on the notes to be payable
from the proceeds of the sale of bonds or from the tax
levied to pay principal of and interest on the bonds.
This bill, instead of allowing the interest on the notes to
be paid from the tax levied to pay the principal of and
interest on the bonds, allows the interest on the notes to
be paid from a property tax levied for that purpose if
authorized by a resolution of the governing board of the
school district or community college district and provides
that this tax is authorized by law. The bill also allows
the premium received on the sale of the bonds to be used to
pay the interest on the notes.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 6/19/12)
California Public Securities Association (source)
Coalition for Adequate School Housing - California
ARGUMENTS IN SUPPORT : The bill's sponsor, the California
Public Securities Association, indicates that Education
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Code Section 15150(d) is ambiguous because on the one hand,
it clearly indicates that interest on Bond Anticipation
Notes (BANs) can be paid from proceeds of a tax levy, but
on the other hand it indicates that the tax levy from which
the BANS is payable consists of the "tax lawfully levied to
pay principal of and interest on the bonds." They believe
this quoted language is problematic because the reference
to "the bonds" is not clear. Some counties have taken the
position that the term "the bonds" in Section 15150(d)
refers to bonds that the district has previously issued -
in other words, if a district has previously issued its
general obligation bonds and subsequently issues BANs, a
tax may be levied to pay debt service on the previously
issued bonds and if such a t ax creates a surplus, such
surplus can be used to pay interest on the BANs. One
problem with this interpretation is that if a school has
not previously issued its general obligation bonds, it is
effectively prohibited from levying a tax to pay the BANs.
Another problem with this interpretation is that the
provisions of the Education Code that authorize the levy
of taxes to pay bonds indicated that such taxes are to be
used to pay principal and interest on such bonds (see
Education Code 15251-such taxes "shall be used for the
payment of the principal and interest of the bonds and for
no other purpose").
"Another possible interpretation of the term 'the bonds' in
Section 15150 (d) is that it refers to bonds that the
district will eventually issue to pay off the BANs. This
interpretation suffers the same problem discussed above
under Education Code Section 15251, and also raises
problems under Education Code Sections 15250 and 15252
which generally indicate that property taxes are only
supposed to be levied to pay debt service coming due on
bonds in the year in which the taxes are levied. The most
restrictive interpretation is that the reference to "the
bonds" in Section 15150(d) simply does not allow a tax to
be levied to pay interest on the BANs. This view has been
adopted by a number of counties in response to the interest
ambiguity in Section 15050(d). Unfortunately, this
interpretation completely defeats the clear intent in
Section 15150(d) that interest on BANs can be paid from a
tax levy of some sort. The ambiguity of Education Code
Section 15150(d) and the decision by several counties to
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prohibit the levy of a tax for the payment of interest on
BANs results in higher overall repayment costs for BANs or
the bonds that are used to pay off the BANs. This is
because not having the ability to levy a tax for payment of
interest on BANs necessities issuing the BANs with
sufficient original issue premium to provide the source of
interest payments to investors in the form of 'capitalized'
interest (which results in higher borrowing costs), or
issuing the BANs as capital appreciation bonds which are
payable at maturity at a higher interest cost than if the
BANs were issued instead as current interest bonds which
have semi-annual interest payments that require a tax
levy."
PQ:m 6/19/12 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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