BILL ANALYSIS Ó
-----------------------------------------------------------------
|SENATE RULES COMMITTEE | AB 1198|
|Office of Senate Floor Analyses | |
|(916) 651-1520 Fax: (916) | |
|327-4478 | |
-----------------------------------------------------------------
THIRD READING
Bill No: AB 1198
Author: Dababneh (D)
Amended: 8/18/15 in Senate
Vote: 21
SENATE EDUCATION COMMITTEE: 9-0, 7/15/15
AYES: Liu, Runner, Block, Hancock, Leyva, Mendoza, Monning,
Pan, Vidak
ASSEMBLY FLOOR: 76-0, 5/26/15 (Consent) - See last page for
vote
SUBJECT: School facilities: California School Finance
Authority: California Credit Enhancement Program
SOURCE: California Charter Schools Association
DIGEST: 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 through public-private partnerships.
ANALYSIS:
Existing law:
1) Establishes the CSFA Act, and makes findings and
declarations regarding the interest of the state and its
people for the state to reconstruct, remodel or replace
AB 1198
Page 2
existing school buildings that do not meet structural safety
requirements; acquire new school sites and buildings for
school districts, charter schools and community college
districts; and assist school districts and community college
districts by providing access to financing for working
capital and capital improvements. (Education Code § 17170 and
§ 17171)
2) Establishes the CSFA, comprised of the Treasurer or his/her
designee, who serves as the Chairperson; the director of the
Department of Finance or his/her designee; and the
Superintendent of Public Instruction or his/her designee.
(EC § 17172 and § 17174)
3) Specifies the powers and authorities of the CSFA, including
the authority to issue revenue bonds to provide funds for the
financing or refinancing of a single, a series or several
projects, or financing of working capital for a single party
or several participating parties. Expresses the intent of
the Legislature to provide financing only for projects
demonstrated by the participating party to be financially
feasible, and specifies that revenue bonds are not and shall
not be deemed to constitute a debt or liability of the state,
obligate the state to pay the principal or interest, or
obligate the state to levy or pledge any form of taxation or
make any appropriation for their payment. (EC § 17180, §
17183 and § 17185)
This bill:
1) Makes various findings and declarations regarding charter
school facilities and the programs administered by the CSFA,
as specified.
2) Establishes the CCEP within the CSFA to establish a fund to
be used to insure facility bonds issued by the CSFA in order
to achieve lower cost alternatives for public school
facilities financing.
AB 1198
Page 3
3) Authorizes the CSFA to leverage its funding for the CCEP so
the amount of credit insurance provided pursuant to the
program exceeds the amount of funds on deposit in the
California Credit Enhancement Account, as proposed to be
established by this bill within the existing CSFA Funds.
4) Requires the 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 that
nothing shall be construed to require the CSFA to deposit, or
the Legislature to appropriate, funds for the purposes of the
CCEP.
5) Requires CSFA to adopt regulations to implement the CCEP and
specifies that they may consult with subject matter experts
in the development of the regulations, including eligibility
criteria for participating public schools, e.g., financial
performance, organizational and governance criteria,
parameters and procedures for the provision of credit
enhancement to eligible financing transactions, and the
application process and fee schedule.
6) Provides that a public school that is fiscally sound and
that has a good credit rating may participate in the CCEP.
7) Requires the regulations to include a definition of
"default" for purposes of the CCEP, and procedures so that,
in the event of a default, funds from the California Credit
Enhancement Account are paid out only after all other sources
of payment and credit enhancement to an eligible financing
transaction are exhausted.
8) Requires the regulations to create options, in the event of
a default, to ensure that the first priority of the facility
is for the continued use of school purposes. These options
may include, but not be limited to, the re-let or sale of the
facility to another public school or a mechanism whereby the
state has a right of first refusal to purchase the facility
AB 1198
Page 4
instead of it being sold in a foreclosure sale.
9) Specifies that 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.
10)Requires that each bond insurance policy, credit enhancement
instrument, or other guarantee of the CSFA issued under the
CCEP shall include a statement on its face that neither the
State of California nor the CSFA is obligated to pay the
principal or interest of the bonds covered by the CCEP.
11)Provides that the issue of bond insurance, credit
enhancement, or other guarantees shall not directly,
indirectly, or contingently obligate the state or any
political subdivision thereof, to levy or pledge any form of
taxation, or make any appropriation for their payment.
Comments
Need for the bill. The author's office indicates that "the
biggest challenge currently faced by charter schools is finding
a suitable facility and funding for that facility. Charter
public schools typically do not receive local funding through
bonds, as traditional public schools do, and must pay for their
facility out of their general operating expenses, taking money
out of the classroom to pay for that classroom. As a result,
many charter schools turn to private financing and bond
transactions in order to pay for a long-term facilities
solution." According to the bill's sponsor, the California
Charter Schools Association, the purpose of this bill is to
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
AB 1198
Page 5
a charter school defaults on bond payments, the account set up
by this bill will be used to pay the debt. The sponsor
indicates that having a source to guarantee bonds will hopefully
lead to lower interest rates for the construction or renovation
of charter school facilities.
Charter school facilities. 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, O'Connell, Chapter 892, Statutes of 2001). 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. Given the continuing
growth in charter school enrollment combined with limited
options for charters to finance their facilities, this bill
could provide an additional means to help address their facility
needs.
California School Finance Authority. 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,
AB 1198
Page 6
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.
Other states. The program proposed by this bill is modeled
after similar programs in Texas and Colorado. The Texas Credit
Enhancement Program received a $10 million federal grant to
establish a credit enhancement program for charter schools to
finance the acquisition, construction, repair, or renovation of
charter school facilities. As part of this program, debt
service reserve funds are held in the State treasury solely to
provide security for repayment of the bonds. The funds are not
provided directly to the approved charter schools for
construction. 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.
FISCAL EFFECT: Appropriation: Yes Fiscal
Com.:YesLocal: No
According to the Senate Appropriations Committee:
CSFA indicates a need for one position and $160,000 to support
AB 1198
Page 7
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
schools as they may obtain better financing terms due to
insured school facility bonds through the CCEP.
SUPPORT: (Verified8/12/16)
California Charter Schools Association (source)
OPPOSITION: (Verified8/12/16)
None received
ASSEMBLY FLOOR: 76-0, 5/26/15
AYES: Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bonilla,
Bonta, Brough, Brown, Burke, Calderon, Campos, Chang, Chau,
Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd,
Eggman, Frazier, Beth Gaines, Gallagher, Cristina Garcia,
Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray,
Grove, Hadley, Roger Hernández, Holden, Irwin, Jones,
Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low,
Maienschein, Mayes, McCarty, Medina, Melendez, Mullin,
Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Perea,
Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago,
Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber,
Wilk, Williams, Wood, Atkins
NO VOTE RECORDED: Bloom, Chávez, Harper, Mathis
AB 1198
Page 8
Prepared by:Lenin DelCastillo / ED. / (916) 651-4105
8/18/16 15:42:34
**** END ****