BILL ANALYSIS Ó
AB 1198
Page 1
Date of Hearing: May 20, 2015
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Jimmy Gomez, Chair
AB
1198 (Dababneh) - As Amended May 6, 2015
-----------------------------------------------------------------
|Policy |Education |Vote:|7 - 0 |
|Committee: | | | |
| | | | |
| | | | |
|-------------+-------------------------------+-----+-------------|
| | | | |
| | | | |
| | | | |
|-------------+-------------------------------+-----+-------------|
| | | | |
| | | | |
| | | | |
-----------------------------------------------------------------
Urgency: No State Mandated Local Program: NoReimbursable: No
SUMMARY:
This bill creates the California Credit Enhancement Program
(CCEP), administered by the California School Finance Authority
(CSFA), for the purposes of establishing a fund to be used to
insure facility bonds issued by the authority to achieve lower
AB 1198
Page 2
cost alternatives for school facilities financing. Specifically,
this bill:
1)Creates the California Credit Enhancement Account within the
existing CSFA Fund. Requires CSFA to deposit funds and fees
identified for the CCEP in this account. Authorizes CSFA to
designate and hold separately one or more subaccounts.
Specifies nothing shall be construed to require the authority
to deposit, or the Legislature to appropriate, funds for the
purposes of the CCEP.
2)Authorizes the CSFA to leverage its funding for the CCEP so
the amount of credit insurance provided by the program exceeds
the amount of funds on deposit in the California Credit
Enhancement Account.
3)Requires CSFA to adopt regulations to implement the CCEP and
specifies they may consult with subject matter experts in the
development of the regulations.
4)Specifies bond insurance, credit enhancement, or other
guarantees issued under this program shall not be deemed to
constitute a debt or liability of the state and shall not be
deemed to be a pledge of the faith and credit of the state
other than the authority. Bond insurance, credit enhancement,
or other guarantees of the authority shall be payable solely
from funds available in the California Credit Enhancement
Account. Further, requires a statement on its face that
neither the State of California nor the authority is obligated
to pay the principal or interest of the bonds covered by the
CCEP.
AB 1198
Page 3
FISCAL EFFECT:
No direct state costs. Cost pressures on the California School
Finance Authority Fund absent sufficient funds on deposit in the
new California Credit Enhancement Account. CSFA will also have
upfront administrative costs to promulgate regulations and
create the new California Credit Enhancement Program (CCEP);
however, CSFA is currently supported through fee revenue.
COMMENTS:
1)Background. The CSFA was established as a conduit to secure
financing for working capital and facilities projects for
school districts, charter schools and community college
districts. The CSFA operates under the Treasurer's Office.
According to the Treasurer's Office, because school districts
and community colleges are able to issue general obligation
bonds on their own, the CSFA has provided financing mostly to
charter schools. Over the last four years, CSFA has issued
$279.6 million bonds for 120 charter school facilities.
Charter schools are the obligor and make bond payments through
an intercept process whereby the State Controller intercepts
or redirects state funds allocated to charter schools to make
bond payments. According to the CSFA, bonds are typically
sold to large institutional investors, with interest rates
ranging between 4.19% to 7.58% over the last four years.
2)Purpose. According to the sponsor, the California Charter
Schools Association Advocates, the purpose of this bill is to
AB 1198
Page 4
establish an account within the CSFA that can be used as
credit insurance or credit enhancement. The credit insurance
is used to back the bonds CSFA issues on behalf of charter
schools. If a charter school defaults on bond payments, the
account set up by this bill will be used to pay the debt.
According to the sponsor, having a source to guarantee bonds
will hopefully lead to lower interest rates for the
construction or renovation of charter school facilities.
According to the author, the CCEP would be funded from
multiple sources, both public and private, including fees from
charter schools; potentially one-time appropriation of Prop 98
funds, upon appropriation in the Budget; funds from private
not-for-profit foundations and organizations for the purposes
of funding the social impact bonds; any federal fund dollars
received by the state for the program's purposes; and monies
from past charter school bond transaction fees. Nothing in
the bill requires the use of state funding to support this
program.
This program is modeled after similar programs in Texas and
Colorado. The Texas Credit Enhancement Program (TCEP) received
a $10 million federal grant to establish a credit enhancement
program for charter schools. Colorado has the "Moral
Obligation Program." According to the Colorado Department of
Treasury Web site, "This program enhances the credit of a
"qualified charter school." A qualified charter school is one
that has obtained an investment grade credit rating on a
"stand-alone" basis. The enhancement enables these qualified
schools to obtain even more favorable financing terms on their
capital construction bonds. The program is funded from a
separate source of monies from which the Treasury would make
bond payments in the case of a default by a charter school.
AB 1198
Page 5
Analysis Prepared by:Misty Feusahrens / APPR. / (916)
319-2081