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:  8/24/12 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 (BAN) 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 if the principal amount of the 
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          notes does not exceed the remaining principal amount of 
          authorized but unissued bonds and provides that this tax is 
          authorized by law.  This bill allows the premium received 
          on the sale of the bonds to be used to pay the interest on 
          the notes.  This bill also provides that the notes may be 
          issued only if the tax rate levied to pay interest on the 
          notes would not cause the school district or community 
          college district to exceed the limitations set forth in 
          specified existing law.

           Senate Floor Amendments  of 8/24/12 state that the tax can 
          only be increased to pay BAN interest when the BAN issue is 
          less than the amount of authorized, unsold bonds, and the 
          tax increase necessary to pay the BAN interest does not 
          exceed tax limitations in existing law.

           ANALYSIS  :    Existing law authorizes the governing board of 
          a school district 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 
          BANs.  Existing law requires a BAN 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 if the 
          principal amount of the notes does not exceed the remaining 
          principal amount of authorized but unissued bonds and 

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          provides that this tax is authorized by law.  The bill 
          allows the premium received on the sale of the bonds to be 
          used to pay the interest on the notes.

          This bill also provides that the notes may be issued only 
          if the tax rate levied to pay interest on the notes would 
          not cause the school district or community college district 
          to exceed the limitations set forth in specified existing 
          law.

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  No   
          Local:  No

           SUPPORT  :   (Verified  8/27/12)

          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 
          Code Section 15150(d) is ambiguous because on the one hand, 
          it clearly indicates that interest on 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"). 

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          "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 
          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  8/27/12   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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