BILL ANALYSIS Ó
AB 1858
Page 1
Date of Hearing: May 9, 2012
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 1858 (Alejo) - As Introduced: February 22, 2012
Policy Committee: Education
Vote:6-4
Urgency: No State Mandated Local Program:
No Reimbursable: No
SUMMARY
This bill reduces the interest rate for the emergency loan
obtained by the South Monterey County Joint Union High School
District (SMCJUHSD) in 2009 from 5.44% to 1%. Further requires
the new interest rate to apply to repayments made on or after
July 1, 2011.
FISCAL EFFECT
1)Annual GF/98 costs of $445,000 ($7 million GF/98 total over
the life of the loan) to the state to reduce SMCJUHSD's
emergency loan interest rate from 5.44% to 1%, as specified.
This cost will be an expenditure of the Proposition 98
guarantee. As such, additional revenue would need to be
provided to pay it or other programmatic reductions will need
to be made to meet this obligation.
Since the I-Bank has already sold lease revenue bonds to
finance the district's loan, the annual debt service payment
($1.245 million) has been established based on the 5.44%
interest rate. If the interest rate is lowered, the district
will have a lower debt service payment ($800,000), but the
California Infrastructure and Economic Development Bank's
(I-Bank) financing of the loan must be repaid at the rate the
bonds were sold (5.44%). As such, the state via the I-Bank is
responsible for ensuring the full debt service payment is
made.
2)SMCJUHSD received an emergency loan of approximately $13
million at an interest rate of 5.44%. Under these terms, the
district is required to make a $1.25 million annual debt
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service payment to the I-Bank. According to the Legislative
Analyst Office (LAO), this amount represents approximately 9%
of SMCJUHSD's unrestricted general purpose revenue in 2010-11.
According to the State Department of Education (SDE), the
district made a debt service payment of $362,572 in February
2012 and it is expected to make another payment of $882,572 in
August 2012. After the August 2012 payment is made, the
school district will have an outstanding loan balance of $13.6
million.
COMMENTS
1)Purpose . According to the author, "At 5.44%, the interest
rate on the I-Bank loan is substantially higher than the rate
paid by every other district under state control. With the
Ýfunds saved from the lower interest rate], the school
district will be better equipped to hire new teachers, offer
new courses, and purchase new classroom materials."
2)Background . AB 1554 (Keene), Chapter 263, Statutes of 2004,
established a new process for issuing emergency loans to
insolvent school districts for the purpose of eliminating
GF/98 exposure in providing a direct loan. Specifically,
Chapter 263 required districts to obtain lease revenue bond
financing from the I-Bank. This financing is over a 20-year
period at an interest rate typically higher than the rate
provided under the Pooled Money Investment Account (PMIA).
Under this process, the State Controller withholds (or
intercepts) the required amount of the district's general
apportionment funding to insure lease payments are made in
amounts determined by the I-Bank. The intercept is considered
a "senior" lien to any other payment or apportionment.
Prior to Chapter 263, when school districts were deemed
insolvent, they came to the state for an emergency loan (i.e.,
an advance on future apportionments) with a statutory rate
usually equivalent to the PMIA rate at the time. The state
provided this loan directly from the GF (specifically, it was
a GF/98 expenditure). The reason for establishing the
emergency loan process through the I-Bank was to remove the GF
as the source of providing on-going, long-term loans to
insolvent school districts.
SB 130 (Denham), Chapter 20, Statutes of 2009, appropriated $5
million from the GF/98 to the Superintendent of Public
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Instruction (SPI) for apportionment to the King City Joint
Union High School District (now SMCJUHSD) for the purpose of
an emergency loan. Chapter 20 further authorized financing
(up to $13 million) via a lease-backed bond through the
I-Bank. While the school district did receive a GF/98
one-time advance apportionment, the bill required this advance
to be repaid within one year to the GF via the sale of bonds
from the I-Bank and it was repaid.
3)Has the Legislature lowered interest rates for emergency loans
before ? Yes, under special circumstances. In addition to
establishing the I-Bank process for emergency loans, AB 1554
(Keene), Chapter 263, Statutes of 2004, established new
interest rates based on the PMIA rate for three districts who
had already received emergency loans (West Contra Costa
Unified School District, Oakland Unified School District and
Vallejo Unified School District). At the time, it was decided
these districts' interest rate would be lowered because their
loans were being moved from an apportionment by the GF/98 to
the I-Bank issuing bonds for this purpose.
Also, Chapter 263 contained specific language stating "It is
the intent of the Legislature that the financing cost
subsidies (i.e., the lower interest rate based on PMIA) funded
in this section not be deemed precedent?, as these districts
requested loans prior to the enactment of this article."
Upon the enactment of Chapter 263, all future emergency loans
were required to be financed through bonds issued by the
I-Bank. From its establishment, SMCUHSD's emergency loan was
financed via the I-Bank process.
4)Related legislation .
a) AB 1898 (Alejo), beginning January 1, 2013, changes the
financing mechanism for emergency loans made to school
districts from the I-Bank to the PMIA, as specified. This
bill is pending in this committee.
b) SB 1240 (Canella), pending in the Senate Appropriations
Committee, also proposes to reduce the interest rate for
SMCJUHSD from 5.44% to 1%, but this change will only be
operative if the district passes a local parcel tax by
January 1, 2015.
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c) SB 477 (Wright), pending in Assembly Education
Committee, appropriates $12.9 million from the GF/98 as an
emergency apportionment (loan) for the Inglewood Unified
School District and requires the district to enter into a
lease financing agreement with the I-Bank for the purpose
of financing the emergency apportionment.
Analysis Prepared by : Kimberly Rodriguez / APPR. / (916)
319-2081