BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                    AB 1198


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          Date of Hearing:  May 20, 2015


                        ASSEMBLY COMMITTEE ON APPROPRIATIONS


                                 Jimmy Gomez, Chair


          AB  
          1198 (Dababneh) - As Amended May 6, 2015


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          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  








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          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.









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          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  








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            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. 











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          Analysis Prepared by:Misty Feusahrens / APPR. / (916)  
          319-2081