BILL ANALYSIS                                                                                                                                                                                                    Ó



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          Date of Hearing:   March 18, 2014

                       ASSEMBLY COMMITTEE ON HIGHER EDUCATION
                                 Das Williams, Chair
               AB 1668 (Wieckowski) - As Introduced:  February 12, 2014
           
          SUBJECT  :   Educational facilities: California Educational  
          Facilities Authority.

           SUMMARY  :   Defines the term "bond" as it relates to the  
          California Educational Facilities Authority (CEFA); specifies  
          CEFA has the power to, receive and accept from any source,  
          loans, contributions, or grants for, in aid of, the acquisition,  
          construction, financing or refinancing of a project, in money,  
          property, labor or other things of value; authorizes CEFA to  
          issue notes and bonds for any corporate purpose and bond  
          anticipation notes in anticipation of the sale of the bonds;  
          provides that any provision CEFA may include in a trust  
          agreement or resolution providing for the issuances of bonds, as  
          specified, may also be included in a bond and the provision  
          shall have the same effect; allows CEFA to have options as to  
          where they inscribe statements on their issued bonds; requires  
          all funds received by CEFA to be deemed to be trust funds to be  
          held and applied as specified, whether as proceeds from selling  
          or incurring bonds as revenues; states this measure is urgency  
          measure to take effect immediately; and, makes numerous  
          clarifying and technical changes to existing law.  Specifically,  
           this bill  :  

          1)Defines the term "bond" to mean bonds, notes, debentures,  
            securities, or other evidences of indebtedness of the CEFA.

          2)Authorizes CEFA to receive and accept, from any source, loans,  
            contributions, or grants for, or in aid of, the acquisition,  
            construction, financing or refinancing of a project, or any  
            portion of a project, in money, property, labor, or other  
            things of value.

          3)Authorizes CEFA to issue notes and bonds for corporate  
            purposes and bond anticipation notes in anticipation of the  
            sale of bonds; and, specifies that negotiable bonds and notes  
            shall be and be deemed to be, for all purposes, negotiable  
            instruments, notwithstanding the fact that the negotiable  
            bonds or notes may be payable from a special fund subject only  
            to the provisions of the bonds or notes for registration.








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          4)Specifies that any provision CEFA may include in a trust  
            agreement of or resolution providing for the issuance of bonds  
            may also be included in a bond and the provision shall have  
            the same effect.

          5)Allows that the mandated statement CEFA must inscribe on all  
            their issued bonds no longer shall be solely contained on the  
            face of the bond.

          6)Requires that all funds received by CEFA whether as proceeds  
            from selling or incurring bonds, or as revenue, shall be  
            deemed to be trust funds to be held and applied solely as  
            specified.

          7)States this measure is an urgency measure and, in order to  
            prevent the loss of additional revenue, must go into effect  
            immediately.

          8)Makes numerous technical and clarifying changes to current  
            law.

           EXISTING LAW  establishes CEFA to provide higher education  
          institutions, including private colleges, with additional means  
          for specified construction projects (Education Code § 94110 et  
          sec.).

           FISCAL EFFECT  :   Unknown

           COMMENTS  :    Background  .  CEFA, which is housed in the State  
          Treasurer's Office, was created in 1973 for the purpose of  
          issuing revenue bonds to assist private non-profit postsecondary  
          education institutions in the expansion and construction of  
          educational facilities, in order to expand educational  
          opportunities in California.  Because it is authorized to issue  
          tax-exempt bonds, CEFA may provide more favorable financing to  
          such private institutions than might otherwise be obtainable.   
          The law specifically provides that bonds issued by CEFA shall  
          not be a debt, liability, or claim on the faith and credit or  
          the taxing power of the State of California or any of its  
          political subdivisions. The full faith and credit of the  
          participating institution is normally pledged to the payment of  
          the bonds.  The CEFA authority consists of 1) the Director of  
          Finance, 2) the Controller, 3) the Treasurer, who serves as  
          chairperson, and 4) two members appointed by the Governor for  








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          four year terms, as specified.  

           Direct or private placement loans  .  According to the sponsor,  
          State Treasure Bill Lockyer, direct or private placement loans  
          are becoming more common for financing and refinancing higher  
          educational facilities; however, the economic downturn in  
          2008-2009 reduced the availability of low cost financing avenues  
          that many colleges and universities received through the  
          municipal bond market.  Subsequently, these institutions are now  
          issuing debt in the form of direct loans with private banks  
          (often referred to as private or direct placement loans).  These  
          loans provide many of the same benefits to a borrower as issuing  
          a bond, but with lower transaction costs because of avoided  
          costs such as underwriter services, or bond insurance fees.   
          Without these associated costs, private or direct placement  
          loans are an attractive option for many colleges and  
          universities seeking to access low cost financing for the  
          construction of educational facilities.

           Need for the bill  .  CEFA does not have statutory authority to  
          issue direct or private placement loans.  As a result, according  
          to the author's office, CEFA has had to turn away business from  
          several private, non-profit colleges and universities.   
          According to the State Treasurer's Office, having to turn away  
          eight borrowers that were interested in CEFA assistance to  
          transact a private placement loan cost CEFA approximately 1.2  
          million dollars in lost revenue.  

          The author states, "AB 1668 would give CEFA statutory authority  
          for the issuance of direct or private placement loans.  This  
          will enable CEFA to meet the needs of its borrowers in the  
          evolving field of tax-exempt financing."

           Expansion of CEFA financing eligibility  .  In recent history,  
          this committee has heard and passed several bills which have  
          expanded eligibility for CEFA financing, including the  
          following:

          1)AB 1163 (Brownley, Chapter 281, Statutes of 2011), which  
            changed the definition of a "participating private college" or  
            "participating college" to allow CEFA to act as a conduit  
            issuer of tax exempt bonds for private religious colleges, as  
            specified. 

          2)SB 280 (Scott, Chapter 345, Statutes of 2007), which modified  








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            the definition of "participating college" to maintain the  
            eligibility of research organizations that did not grant  
            degrees for CEFA financing, if they had received CEFA  
            financing in the past.

          3)AB 947 (Liu, Chapter 191, Statutes of 2005), which expanded  
            the definition of a "private college," for purposes of CEFA  
            financing eligibility, to include nonprofit affiliates, as  
            specified, of nonprofit private or independent degree-granting  
            accredited colleges.

          4)SB 1624 (Romero, Chapter 1081, Statutes of 2002), which  
            authorized the California Educational Facilities Authority  
            (CEFA) to finance the construction of faculty and staff  
            housing owned by private colleges, as specified, and  
            authorized CEFA to use up to $2 million of its fund balance,  
            on a one-time basis, to provide grants to private colleges to  
            support academic assistance programs to middle and high school  
            pupils attending schools in low-income areas with low college  
            going rates, as specified. 

          5)AB 1611 (Keeley, Chapter 569, Statutes of 2001), which  
            authorized the CEFA to enter into agreements with nonprofit  
            entities to finance construction costs for student, faculty,  
            and staff housing near the campuses of the University of  
            California, the Hastings College of Law, the California State  
            University, the California Community Colleges, or  
            participating private colleges.

           REGISTERED SUPPORT / OPPOSITION :   

           Support 
           
          Association of Independent California Colleges and Universities 
          California State Treasurer, Bill Lockyer (sponsor)

           Opposition 
           
          None on file.
           

          Analysis Prepared by  :    Jeanice Warden / HIGHER ED. / (916)  
          319-3960 










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