BILL ANALYSIS Ó AB 794 Page 1 ( Without Reference to File ) CONCURRENCE IN SENATE AMENDMENTS AB 794 (Wieckowski) As Amended August 24, 2012 Majority vote ---------------------------------------------------------------------- |ASSEMBLY: | |May 31, 2011 |SENATE: |26-7 |(August 29, 2012) | ---------------------------------------------------------------------- (vote not relevant) ------------------------------------------------------------------------ |COMMITTEE VOTE: |6-0 |(August 30, 2012) |RECOMMENDATION: |concur | |(ED.) | | | | | ------------------------------------------------------------------------ Original Committee Reference: NAT. RES. SUMMARY : Revises the methods through which the interest of bond anticipation notes (BANs) may be paid. Authorizes, rather than requires, the interest on BANs to be paid from proceeds of the sale of bonds in anticipation of which the BANs are issued. Authorizes the interest of the BANs to be paid from a property tax levied for that purpose under the following conditions: 1)A resolution of the governing board of a school district or community college district authorizes the levying of the tax. Specifies that the tax for payment of the interest on the BANs is a tax authorized by law for payment of the bonds in anticipation of which the BANs are issued. 2)The principal amount of the BANs does not exceed the remaining principal amount of authorized but unissued bonds. 3)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 any of the limitations set forth in Education Code Section 15268 or 15270, as applicable. The Senate amendments delete the Assembly version of this bill, and instead insert the language described in the summary above. AB 794 Page 2 EXISTING LAW : 1)Authorizes a governing board of a school district or a community college district to, when it deems that it is in the best interests of the district, issue notes, on a negotiated or competitive-bid basis, maturing within a five year period, in anticipation of the sale of bonds. Requires the proceeds from the sale of the notes to be used only for authorized purposes of the bonds or to repay outstanding notes. 2)Requires all notes issued and any renewal to be payable at a fixed time not more than five years from the date of the original issuance of the note. Specifies that if the sale of the bonds does not occur prior to the maturity of the notes issued in anticipation of the sale, the fiscal officer of the school district or community college district, in order to meet the notes then maturing, shall issue renewal notes. 3)Requires every note and any renewal of the notes to be payable from the proceeds of the sale of bonds or of any renewal of notes or from other funds of the school district or community college district lawfully available for the purpose of repaying the notes, including state grants. 4)Specifies that interest on the notes shall be payable from proceeds of the sale of bonds, or from the tax lawfully levied to pay principal of and interest on the bonds. 5)Specifies that the total amount of bonds issued, for bonds passed pursuant to Article XIIIA of the California Constitution, shall not exceed 1.25% of the taxable property of elementary and high school districts, and the tax rate levy may not exceed $30 per $100,000 of assessed valuation. 6)Specifies that the total amount of bonds issued, for bonds passed pursuant to Article XIIIA of the California Constitution, shall not exceed 2.5% of the taxable property of unified school districts and community college districts, and the tax rate levy may not exceed $60 per $100,000 assessed valuation for unified school districts and $25 per $100,000 assessed valuation for community college districts. AS PASSED BY THE ASSEMBLY , this bill imposed civil liability against a covered electronic waste (CEW) recycler or collector who makes a false statement or representation for purposes of AB 794 Page 3 compliance with the Electronic Waste Recycling Act, codified regulations that describe the type of CEW that may receive payment under the Act, and codified regulations authorizing the Department of Resources Recycling and Recovery to conduct reviews and audits related to the operations of CEW recyclers and collectors. FISCAL EFFECT : Unknown. This bill is keyed non-fiscal by the Legislative Counsel. COMMENTS : This bill makes changes to the process through which interest on BANs are paid. School facilities are funded predominantly by local general obligation (G.O.) bonds, along with state bond funds, and other local funds, such as developer's fees. A BAN is a short-term debt that is commonly used by local government entities, such as water districts or utility districts. School districts and community college districts are authorized to use BANs to fund facility projects prior to and in anticipation of the sale of local G.O. bonds. Districts may issue BANs as interim financing if, for example, the sale of a G.O. bond is not timely (e.g., the assessed valuation is low and will not yield the amount of revenues a district needs). BANs may be authorized for no more than five years and have lower interest rates and payments than G.O. bonds. Proceeds from the sale of the G.O. bonds are used to repay the BANs. Existing law also authorizes the interest of BANs to be paid from the "tax lawfully levied to pay principal of and interest on the bond." According to the author, this last clause has led to multiple interpretations. While some county governments, charged with levying taxes, do allow taxes to be collected for this purpose, others interpret the provision to mean authorization to use taxes already collected, which limits the ability to use this revenue source if the taxes collected are already committed for other use and the BAN is issued after taxes are collected. Others have concluded that taxes are not allowed to be used to pay interest of BANs, even though the statute references the tax used to pay the principal and interest of a bond. The confusion has limited the ability of some districts to make interest payments on a semi-annual basis - versus waiting until the maturity of a BAN - which results in higher costs for a district. This is because BANs that pay at maturity have higher interest rates and when accrued over time, lead to higher total interest costs. If a tax approved by voters to pay a G.O. bond can be used to make ongoing payments (prior to the issuance of the G.O. bond), the overall interest AB 794 Page 4 costs for school facility projects will likely be lower than the accrued interest to pay the BAN at maturity. This bill makes several changes to the provisions governing how interest of BANs may be paid. This bill authorizes, rather than requires, interest of BANs to be paid from proceeds from the sale of G.O. bonds. This bill also clarifies that the tax authorized by voters to pay for the issuance of a G.O. bond may be used to pay the interest of BANs, but establishes conditions through which this is allowable. This bill requires a local school governing board or community college district to adopt a resolution authorizing the tax. In order to ensure that BAN issuances are not exceeding bond authority authorized by voters and the caps governing Proposition 39 bonds, the bill prohibits the principal amount of the BANs from exceeding the amount of any bonds that have been passed by voters but have not been issued (sold). The bill further specifies that the amount of the BANs may only be issued if the tax rate levied does not exceed the cap on bonded indebtedness and the tax rate levy limit. Bonds approved with a 55% vote are governed by Proposition 39 of 2000, which, among others, limits the amount of taxes that can be levied for every $100,000 in assessed valuation (property value) to $60 for a unified school district, $30 for an elementary or high school district and $25 for a community college district. Existing law, passed as a companion to Proposition 39, also limits the bonded indebtedness of districts issuing Proposition 39 bonds to 1.25% of taxable assessed valuation for high school and elementary school districts and 2.5% for unified school districts and community college districts. Data provided by the State Treasurer's Office shows 94 BANs issued by kindergarten through grade 12 and community college districts over the last five years, 15 of which were to refund previously issued BANs. The data also shows property and special tax revenues as the source of payment for only 10 out of the 94 BANs. Bond proceeds and other sources constituted the remaining payment sources. A BAN is a useful tool during a housing downturn, by allowing a district to take advantage of lower construction costs and proceeding with a school facility project while waiting for improvement of the housing market before selling a G.O. bond. The California Public Securities Association, the sponsor of the bill, states, "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. AB 794 Page 5 This is because not having the ability to levy a tax for payment of interest on BANs necessitates issuing the BANs with sufficient original issue premium to provide the source of interest payments to investors in the form of 'capitalized' interest (which result 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." Analysis Prepared by : Sophia Kwong Kim / ED. / (916) 319-2087 FN: 0005860