BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
AB 1198 (Dababneh) - School facilities: California School
Finance Authority: California Credit Enhancement Program
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|Version: May 6, 2015 |Policy Vote: ED. 9 - 0 |
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|Urgency: No |Mandate: No |
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|Hearing Date: August 24, 2015 |Consultant: Jillian Kissee |
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This bill meets the criteria for referral to the Suspense File.
Bill
Summary: This bill establishes the California Credit
Enhancement Program (CCEP) within the California School Finance
Authority (CSFA) to provide lower cost alternatives for public
school facilities financing.
Fiscal
Impact:
CSFA indicates a need for one position and $160,000 to support
start-up activities, including developing regulations and
administering the CCEP until enough revenue is generated from
fees to support the program. (General Fund)
Unknown, likely significant cost pressure at least in the
millions to support the program. Without an identified
funding source, this bill puts pressure on the state to
provide funding. (General Fund)
To the extent adequate funding is provided at the state level,
there could be potential savings to participating charter
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schools as they may obtain better financing terms due to
insured school facility bonds through the CCEP.
Background: Existing law establishes the California School Finance
Authority Fund to be administered by the CSFA. The CSFA may
pledge any or all of the moneys in the fund as security for
payment of the principal of, and interest on, any particular
issuance of bonds. (EC 17181)
Unlike traditional public school districts, charter schools are
unable to fund facilities with general obligation bonds approved
by local voters. A majority of charter schools lease their
facilities and pay the associated costs from their operating
budgets, with roughly half of them receiving grants from the
Charter School Facility Grant Program (SB 740). This program
provides funding for charter schools in non-district facilities
that have a specified percentage of students qualifying for free
or reduced-price meals at their school or in the surrounding
school attendance area. Eligible schools receive funding for
lease payments, building improvements, and maintenance.
A majority of the remaining charter schools that do not lease
private facilities occupy space provided by school districts.
Proposition 39, approved by voters in November 2000, requires a
school district to provide a charter school having a projected
daily attendance of at least 80 or more students from that
district with "reasonably equivalent" facilities to accommodate
the charter school's needs. A school district can provide a
charter school with existing facilities or use discretionary
funds or other revenues, such as local school bond funds, to
meet this requirement. A small percentage of charter schools
have constructed their own facilities.
Proposed Law:
This bill establishes the CCEP to insure facility bonds issued
by CSFA to provide lower cost alternatives for public school
facilities financing. This bill also establishes the California
Credit Enhancement Account (Account) within the CSFA.
This bill requires the CSFA to adopt regulations to implement
this bill. The regulations must include various components,
including: (1) eligibility criteria for participating public
schools, in which a public school that is fiscally sound and
that has a good credit rating may participate in the CCEP; (2)
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parameters and procedures for credit enhancement to eligible
financing transactions; (3) the application process and fee
schedule; (4) a definition of "default" so that funds from the
Account are paid out only after all other sources of payment and
credit enhancement to an eligible financing transaction are
exhausted; (5) options, in the event of a default, to ensure
that the first priority of the facility is the continued use for
public school purposes; and (6) the structure and guidelines for
investing in the CCEP.
The CSFA is required to deposit funds identified for the CCEP in
the Account. The CSFA may deposit fees collected from
participants in the Account, in addition to the funds authorized
to be collected pursuant to the California School Finance
Authority Fund.
This bill specifies that the CCEP must not be deemed to
constitute a debt or liability of the state, and must not be
deemed to be a pledge of the faith and credit of the state,
other than the CSFA. Bond insurance, credit enhancement, or
other guarantees of the authority must be payable solely from
funds available in the Account. Issuance of bond insurance,
credit enhancement, or other guarantees must not directly,
indirectly, or contingently obligate the state, to levy or
pledge any form of taxation, or make any appropriation for their
payment.
Staff
Comments: According to the CSFA, in 2010 it administered the
federally-funded Credit Enhancement for Charter School
Facilities Program. The grant award of $8.3 million was awarded
to 38 charter schools. This program funded debt service reserve
accounts for eligible charter schools to reduce borrowing costs
by the amount of the reserve account and associated interest.
Though this program successfully reduced charter school
borrowing costs, it did not increase the overall credit quality
of the financing, which appears to be the intent of the proposed
CCEP. If adequate funding is provided, which is difficult to
determine at this time, it may be possible that the CCEP could
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help reduce the overall bond financing amount and therefore
further reducing charter school borrowing costs.
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