BILL ANALYSIS Ó
AB 1979
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Date of Hearing: April 30, 2014
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
AB 1979 (Nazarian) - As Introduced: February 19, 2014
Policy Committee: EducationVote:7-0
Urgency: No State Mandated Local Program:
No Reimbursable: No
SUMMARY
This bill expands the definition of "project" under the
California School Finance Authority (CSFA) Act to include the
reimbursement for the costs of acquisition, construction,
expansion, remodeling, renovation, improvement, furnishing, or
equipping of an educational facility to be financed or
refinanced.
FISCAL EFFECT
1)Ongoing cost savings, primarily to charter schools, assuming
the Attorney General's Office (AG) resumes issuer's opinions
on bond sales. Rates charged by the AG are $170 per hour
while outside counsel can charge up to $500 an hour. CSFA has
sought outside counsel for at least one bond transaction and
there are currently five pending transactions that could be
subject to increased fees. Savings to each borrower vary
depending on the size of the bond but can range from $2,000 to
$70,000.
Unlike traditional school districts and community colleges,
charter schools are not able to issue general obligation bonds
on their own. CSFA has issued $279.6 million in bonds for 120
charter school facilities. Charter schools make bond payments
through an intercept process whereby the State Controller
intercepts or redirects state funds allocated to charter
schools.
COMMENTS
1)Purpose. The CSFA, established under the Treasurer's office,
serves as a conduit to secure financing for working capital
AB 1979
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and facilities projects for school districts, charter schools
and community college districts. The Treasurer's office is
sponsoring this bill to clarify CSFA's authority to provide
reimbursement of costs prior to issuance of a bond.
2)Background. As borrowers begin a bond sale to fund a capitol
project, the governing board of the entity adopts a resolution
that starts the clock on the project. Most financings issued
through CSFA utilize this resolution to begin work on projects
in advance of bonds closing with the expectation that costs
will be reimbursed once the sale of bonds takes place.
When bonds are issued, the AG, who serves as legal counsel to
CSFA, provides an issuer's opinion to protect the CSFA in the
bond sale. The AG opined last year that statute does not
expressly provide authority to reimburse borrowers for costs
incurred prior to issuance of the bond. In light of the AG's
opinion, the AG stopped providing legal opinions on bonds, and
the Treasurer's office has retained outside counsel. This has
resulted in higher costs to the borrowers due to much higher
fees charged by outside counsel.
The authority to provide reimbursement is consistent with the
authority provided to other boards, commissions and
authorities under the Treasurer's Office, such as the
California Health Facilities Financing Authority, the
California Educational Facilities Authority, and the
California Pollution Control Authority.
Analysis Prepared by : Misty Feusahrens / APPR. / (916)
319-2081