BILL ANALYSIS Ó
SENATE HUMAN
SERVICES COMMITTEE
Senator Leland Y. Yee, Chair
BILL NO: AB 835
A
AUTHOR: Muratsuchi
B
VERSION: March 14, 2013
HEARING DATE: June 25, 2013
8
FISCAL: Yes
3
5
CONSULTANT: Tepring Piquado
SUBJECT
Child care: facilities: loans
SUMMARY
This bill permits the Department of Housing and Community
Development (HCD) to amend loan terms that have been
provided through the Child Care and Development Facilities
Direct Loan Fund, and guaranteed by the Child Care and
Development Facilities Loan Guaranty Fund.
ABSTRACT
Existing law:
1) Requires the Community Care Licensing Division of
the Department of Social Services (DSS) to regulate
child care licensees. (HSC § 1596.816 (a))
2) Establishes the Child Care and Development Services
Act, which among other things, creates that the Child
Care and Development Facilities Loan Guaranty Fund
(hereafter, the "Loan Guaranty Fund") and the CCDF
Direct Loan Fund (hereafter, the "Direct Loan Fund")
(combined, the "Funds"). (EDC § 8200 et seq.; EDC §
8277.5 (b) )
Continued---
STAFF ANALYSIS OF ASSEMBLY BILL 835 (Maratsuchi) Page
2
3) Abolished the Funds. (EDC § 8277.65)
4) Specifies the abolishment of the Funds does not
terminate any of the following rights, obligations, or
authorities, or any provision necessary to carry out
those rights, obligations, or authorities including,
the repayment of loans due and payable to HCD or the
relevant financial company, among other things as
specified. (EDC § 8277.65)
5) Requires moneys deposited in the Loan Guaranty Fund
be used for the purpose of guaranteeing private sector
loans to sole proprietorships, partnerships,
proprietary and nonprofit corporations, and local
public agencies for the purchase, development,
construction, expansion, or improvement of licensed
child care and development facilities, and for the
purpose of administering the guarantees of these
loans. (EDC § 8277.5 (d) (1))
6) Prohibits loan guarantees and direct loans for
family child care homes to be made for the purpose of
purchasing a home or any real property. (EDC § 8277.6
(d))
7) Requires moneys deposited in the Direct Loan Fund
be used for the purpose of making subordinated loans.
(EDC § 8277.5 (e) (1))
8) Requires Direct Loan Funds be used directly or
through a public or private entity approved by HCD to
sole proprietorships, partnerships, proprietary and
nonprofit corporations, and local public agencies for
the purchase, development, construction, expansion, or
improvement of licensed child care and development
facilities, and for the purpose of administering these
loans. (EDC § 8277.5 (e) (1))
9) Specifies that the Direct Loan Funds terms may vary
based on the ability of the borrower to repay the
loan, but shall be reasonable and designed to obtain
prompt and full repayment of the loan by the borrower,
among other terms as specified. (EDC § 8277.5 (e) (3))
10) Requires HCD to administer the Funds. (EDC § 8277.6
STAFF ANALYSIS OF ASSEMBLY BILL 835 (Maratsuchi) Page
3
(b))
11) Requires HCD to adopt regulations and establish
priorities, forms, policies and procedures, as
specified. (EDC § 8277.6 (g))
12) Establishes regulations, referred to as the "Child
Care Facilities Financing Program," or "CCFFP." (25
CCR § 8250 et seq.)
This bill:
1) Permits the HCD, with the agreement of the
borrower, to amend the terms of a loan entered into
pursuant to Section 8277.5 or 8277.6
FISCAL IMPACT
An Assembly Appropriations Committee analysis indicates
that there are no significant costs associated with this
legislation.
BACKGROUND AND DISCUSSION
Purpose of the bill
As described by the author, in 2002, the Harbor City Boys &
Girls Club of the South Bay entered into a loan agreement
for $1.4 million dollars through the CCFFP. The loan
enabled the Boys and Girls Club to build an 11,000
square-foot child care and development facility that
includes a gymnasium, computer lab, game room, and
administrative offices. The facility opened in 2003.
According to the author, The Boys and Girls Club had
difficulty staying current with their loan payments due to
poor management. The author notes that the Board of
Trustees hired a new Executive Director with the intent
that the new Executive Director would renegotiate the terms
of the loan, but HCD but does not have the statutory
authority to modify loan agreements.
According to the author, as a matter of practicality, AB
835 gives HCD statutory authority to renegotiate the terms
of the loans so that it can effectively manage loans issued
through the CCFFP.
STAFF ANALYSIS OF ASSEMBLY BILL 835 (Maratsuchi) Page
4
Child Care Facilities
The Community Care Licensing Division of DSS regulates
child care licensees and monitors Family Child Care Homes
and Child Care Centers in an effort to ensure that they
provide a safe and healthy environment for children who are
in day care. Child Care Centers are usually located in a
commercial building. Non-medical care and supervision is
provided for infant to school-age children in a group
setting for periods of less than 24 hours. There are
approximately 15,000 state-licensed child care centers in
California.
Housing and Community Development (HCD)
HCD administers more than 20 programs that award loans and
grants for a variety of projects including:
a. the construction, acquisition,
rehabilitation and preservation of affordable
rental and ownership housing,
b. homeless shelters and transitional
housing,
c. public facilities and infrastructure,
and
d. the development of jobs for lower income
workers.
With rare exceptions, these loans and grants are not made
to individuals, but to local public agencies, nonprofit and
for-profit housing developers, and service providers.
The Direct Loan and Guarantee Funds (the "Funds") were
originally administered under the jurisdiction of the
California Technology, Trade, and Commerce Agency (TTCA).
But In 2003, AB 1757 eliminated the agency and transfer
specified duties of that agency to other state agencies.
HCD began to administer the Funds, and establish
regulations for implementing and managing the Funds.
Direct Loan Fund
As part of the Thompson-Maddy-Ducheny-Ashburn
Welfare-to-Work Act of 1997, the Legislature established
the Child Care and Development Facilities Loan Guaranty
Fund and the Child Care and Development Facilities Direct
STAFF ANALYSIS OF ASSEMBLY BILL 835 (Maratsuchi) Page
5
Loan Fund (the Funds). Funds were available for eligible
facilities including licensed full-day and part-day child
care and development facilities, licensed large family day
care homes, and licensed small family day care homes.
Loans were available for the purchase, development,
construction, expansion, or improvement of licensed child
care and development facilities and were not to exceed 75
percent of the total amount of investment and not for the
purpose of purchasing a home or any real property.
Outstanding Direct Loans
As of 2013, according to the HCD, there are thirteen
outstanding loans. Eight are currently in repayment and
four have defaulted, with two of them entering into
bankruptcy status. HCD states that no additional loans will
be made pursuant to the Child Care Facilities Financing
Program.
Loan Terms
The terms of the Direct Loan Funds specified in statute
include:
a. the term of a loan made pursuant to these Funds may
not exceed 30 years;
b. security for the loan may include a deed of trust,
personal guarantees of shareholders and partners in
the case of proprietary borrowers, or other reasonably
available collateral;
c. these liens may be subordinated to other liens
d. the payment provisions, late charges, and other
terms may vary based on the ability of the borrower to
repay the loan, but shall be reasonable and designed
to obtain prompt and full repayment of the loan by the
borrower;
e. a direct loan shall bear simple interest at the
rate of 3 percent per annum on the unpaid principal
balance;
f. reasonable loan fees and points may be charged to
applicants and borrowers, as described in regulations
adopted by the department;
g. the department may permit a loan to be assumed by
an otherwise qualified borrower who agrees to continue
to provide child care for the balance of the original
STAFF ANALYSIS OF ASSEMBLY BILL 835 (Maratsuchi) Page
6
term of the loan. (EDC § 8277.5 (e) (3))
Subordinate loans
Statutorily, Direct Loan Funds were to be used for the
purpose of making subordinated loans. Subordinate loans are
those that are behind other recorded liens. Lenders making
loans that are in second or third position on a borrower's
recorded deed information have subordinate loans. Since
these loans and their collateral are recorded behind
primary loans and security, the senior liens -- first loans
-- must be paid off before any subordinate liens can be
addressed. According to HCD, the two Direct Loans in
default are both senior loans at this time.
Prior legislation
AB 1757 (Committee on Budget) Chapter 229, Statutes of 2003
eliminated the Technology, Trade and Commerce Agency
effective January 1, 2004.
COMMENTS
Staff notes that HCD was not the original department given
authority to make and administer the Funds. These loans
have since been acquired by the department and are uniquely
suited to be modified by the department, however, HCD does
not have the authority to do so. Thus, staff recommends the
following amendments to provide HCD with the authority to
modify terms of these loans under certain conditions of
hardship and under statutory constrictions.
SECTION 1. Section 8277.63 is added to the Education Code,
to read:
8277.63. The Department of Housing and Community
Development, with the agreement of the borrower, may amend
the terms of a loan entered into pursuant to Section 8277.5
or 8277.6.
8277.63. (a) For purposes of this section "department"
means the Department of Housing and Community Development.
(b) Upon request from a borrower, the department may, in
its discretion, modify the terms of a loan entered into
STAFF ANALYSIS OF ASSEMBLY BILL 835 (Maratsuchi) Page
7
pursuant to Section 8277.5 or 8277.6, if the department
determines that the borrower has demonstrated hardship. Any
modification approved by the department shall comply with
all of the following provisions:
i. The principal amount of the loan
shall not increase,
ii. The principal amount of the loan
shall not decrease below the current appraised
value of the property as provided by a licensed
or certified appraiser,
iii. The monthly payment due from the
borrower shall decrease.
(c) The department may agree to allow a modified loan
described in (b) to become subordinate to another loan,
under terms and conditions as it deems reasonable.
PRIOR VOTES
Assembly Floor: 56 - 15
Assembly Appropriations: 13 - 4
Assembly Human Services: 5 - 0
POSITIONS
Support: Boys & Girls Club of the South Bay
Oppose: None received
-- END --