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
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|ASSEMBLY: | |May 31, 2011 |SENATE: |26-7 |(August 29, 2012) |
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(vote not relevant)
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|COMMITTEE VOTE: |6-0 |(August 30, 2012) |RECOMMENDATION: |concur |
|(ED.) | | | | |
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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.
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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
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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
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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.
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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