BILL ANALYSIS Ó
SENATE COMMITTEE ON EDUCATION
Senator Carol Liu, Chair
2015 - 2016 Regular
Bill No: AB 882
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|Author: |Wilk |
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|Version: |May 20, 2015 Hearing |
| |Date: June 17, 2015 |
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|Urgency: |No |Fiscal: |No |
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|Consultant:|Kathleen Chavira |
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Subject: School bonds: term of bonds: furnishing and
equipping classrooms
NOTE: This bill has been referred to the Committee on
Education and the Committee on Governance and Finance. A "do
pass" motion should include referral to the Committee on
Governance and Finance.
SUMMARY
This bill prohibits the term of a bond used for purposes of
furnishing and equipping classrooms, including but not limited
to purchasing electronic equipment, from exceeding 120 percent
of the average reasonably expected economic life of the
furnishings and equipment.
BACKGROUND
Current law, under the Education Code authorizes school
districts and community college districts to issue bonds with a
maximum interest rate of 8 percent and a maximum maturity of 25
years. (Education Code § 15100, § 15140-15150)
Existing law also authorizes any city, county, city and county,
school district, community college district, or special district
to issue general obligation bonds, secured by the levy of ad
valorem taxes, and establishes a process for such issuances
under the Government Code. Among other things, the Government
code authorizes the issuance of bonds with a maximum interest
rate of 12 percent and a maximum maturity of 40 years.
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(Government Code § 53506-53509-5, § 53531)
ANALYSIS
This bill:
1)Modifies Education Code provisions establishing the authority to
issue bonds for a maximum of 25 years to prohibit the term of
a bond used for purposes of furnishing and equipping
classrooms, including but not limited to purchasing electronic
equipment, from exceeding 120 percent of the average
reasonably expected economic life of the furnishings and
equipment.
2)Modifies Government Code provisions establishing the authority to
issue bonds for a maximum of 40 years to prohibit the term of
a bond used for purposes of furnishing and equipping
classrooms, including but not limited to purchasing electronic
equipment, from exceeding 120 percent of the average
reasonably expected economic life of the furnishings and
equipment.
STAFF COMMENTS
1)Need for the bill? The author is concerned that bonds for
buildings are not differentiated from bonds for furnishing and
equipping facilities, which may include electronic equipment.
It appears that the author is concerned that, with the passage
of Proposition 39 in 2000 and the ability of school and
community college districts to gain approval of general
obligation bonds with a 55 percent vote, the potential for
districts to use long term bonds for purchases of furniture
and equipment with short term life-spans has increased. In
particular the author cites concerns about the use of these
funds to purchase portable electronic technology such as iPads
or tablets. This bill would require the term of the bond to
more directly align with the economic life span of the
furniture and equipment it is used to purchase, and
establishes a standard for making this determination based
upon some elements of federal law.
2)Related Legislative Counsel Opinion. Proposition 39 specifically
required the use of bonds authorized under its provisions "for
the construction, reconstruction, rehabilitation, or
replacement of school facilities, including the furnishing and
AB 882 (Wilk) Page 3
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equipping of school facilities." Amid concerns about the use
of these bond funds for the purchase of portable technology
equipment by school districts, Legislative Counsel was asked
to opine whether a school district could use bond proceeds to
purchase portable technological devices, such as laptops and
electronic tablets. In an April 2014 written confirmation of
its oral opinion (#1330160), Legislative Counsel notes that
while portable electronic devices such as the iPads were not
in existence when Proposition 39 was passed, they are evolved
from desktop computers and as such, they believe a court would
construe Proposition 39 to authorize the purchase of portable
electronic devices, as long as they were intended for use in a
manner closely connected to classroom instruction at a school
facility. In summary, it is Legislative Counsel's opinion that
Proposition 39 proceeds may be used to purchase portable
technological devices, such as laptops and electronic tablets,
for use in a manner that is similar to the use of desktop
computers and that is closely connected to classroom
instruction at a school facility.
3)Beyond federal law requirements. Federal law establishes various
definitions for the purpose of meeting Internal Revenue
Service requirements for tax exempt government bond issuances.
Among these are conditions which must be met regarding the
term of the bonds issued. Federal regulations generally
require that portions of an issue used to finance or refinance
capital projects must have a "weighted average maturity" that
does not exceed 120 percent of the average reasonably expected
economic life of the financed capital projects. The
provisions of this bill are therefore similar, but not
identical to the federal tax code provisions.
According to community college and school districts, bond
programs are typically issued for a variety of purposes all at
once, with varying maturities over the life of the program and
with a mix of short-term and long-term issuances. As
currently drafted it is unclear what effect the inclusion of
furniture and equipment as a component of a bond issuance
would have on a district's overall bond program. Because the
bill goes beyond the federal law requirements, the bill may
have the unintended consequence of requiring the structuring
of long-term obligation bond programs in a manner that
increases the costs of bond issuances to the taxpayer.
Additionally, it is unclear whether such a statutory
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restriction is necessary since at least one school district
reports that it has balanced the need to acquire technology
assets with shorter life spans, and the interest of taxpayers,
by issuing bonds with maturities of 1 to 3 years for the
acquisition of technology.
Since federal law already requires the alignment of the term
and the economic life of furniture and equipment, and no
examples of school districts failing to comply with these
requirements were provided to the committee, it is unclear
whether the provisions of this bill are necessary. However,
if it is the desire of the committee to implement a state
standard for the use of bond funds to purchase furniture and
equipment, staff recommends the bill be amended on 2 and on
page 4 to strike:
the term of a bond used for the purposes of furnishing and
equipping classrooms, including, but not limited to,
purchasing electronic equipment, shall not exceed 120 percent
of the average reasonably expected economic life of the
furnishings and equipment.
And to instead insert:
"bond issues used to finance projects that include the
furnishing and equipping of classrooms, including, but not
limited to purchasing electronic equipment, shall have a
weighted average maturity that does not exceed 120 percent of
the average reasonably expected economic life of the financed
project."
SUPPORT
None received.
OPPOSITION
Coalition for Adequate School Housing
Community College Facility Coalition
San Diego Unified School District
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