BILL NUMBER: AB 855 CHAPTERED 09/27/99 CHAPTER 492 FILED WITH SECRETARY OF STATE SEPTEMBER 27, 1999 APPROVED BY GOVERNOR SEPTEMBER 27, 1999 PASSED THE ASSEMBLY AUGUST 30, 1999 PASSED THE SENATE AUGUST 26, 1999 AMENDED IN SENATE AUGUST 24, 1999 AMENDED IN SENATE AUGUST 16, 1999 AMENDED IN SENATE JUNE 29, 1999 AMENDED IN SENATE JUNE 17, 1999 AMENDED IN ASSEMBLY APRIL 6, 1999 INTRODUCED BY Assembly Member Cardenas (Principal coauthor: Assembly Member Runner) (Coauthors: Senators Escutia, Hughes, and Solis) FEBRUARY 24, 1999 An act to amend Sections 8277.5 and 8277.6 of the Education Code, relating to child care and development services. LEGISLATIVE COUNSEL'S DIGEST AB 855, Cardenas. Child care and development programs. (1) Existing law establishes the Child Care and Development Services Loan Guaranty Fund and the Child Care and Development Facilities Direct Loan Fund in the State Treasury which are continuously appropriated funds, to be used for the purpose of guaranteeing and providing loans for the purchase, development, construction, expansion, or improvement of licensed child care and development facilities. Under existing law, facilities eligible for loan guaranty programs include, among others, full-day and part-day child care and development facilities and family day care homes serving more than 6 children. This bill would instead provide that facilities eligible for loan guaranty programs include licensed full-day and part-day child care and development facilities and family day care homes. (2) Existing law sets forth the purposes for which loans and loan guarantees for improvements may be used. This bill would also authorize loans and loan guarantees for improvements to be used for the expansion or preservation of existing child care operations and would require the Department of Housing and Community Development to determine whether the improvements are necessary. (3) Existing law provides priority for loan guarantees and direct loans to facilities that serve households with incomes not exceeding 75% of the local median income. This bill would define a "lower income" family for the purposes of providing program priorities as a family with an adjusted monthly income that is at or below 75% of the state median income. (4) Existing law places certain restrictions on loan guarantees and direct loans to family child care homes serving more than 6 children and requires a family child care home provider to provide evidence from the community care licensing division that the repairs, renovations, or additions are required to maintain the license or obtain a license for more than 6 children. This bill would delete these provisions. (5) Existing law requires the Department of Housing and Community Development to adopt regulations for serving family day care homes efficiently including making loans available from the Child Care and Development Facilities Direct Loan Fund to local microenterprise loan funds and other lenders who may relend the funds to eligible family day care home providers. This bill would provide that a loan to a family day care home provider shall not be subject to a 50% investment restriction. (6) Under existing law, the interest rate of a loan may vary based on the ability of the borrower to repay the loan, but is required to be reasonable and designed to obtain prompt and full repayment of the loan by the borrower. This bill would instead require the interest rate for a direct loan to be set at the time of application, fixed for the term of the loan, and set at a rate equivalent to the Surplus Money Investment Fund rate in effect on December 31 of the preceding calendar year. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Section 8277.5 of the Education Code is amended to read: 8277.5. (a) For purposes of this section "department" means the Department of Housing and Community Development. (b) Subject to appropriation in the annual Budget Act, the Child Care and Development Facilities Loan Guaranty Fund and the Child Care and Development Facilities Direct Loan Fund are hereby established in the State Treasury. The Superintendent of Public Instruction may transfer state funds appropriated for child care facilities enhancement and the proceeds derived from any future sales of tax-exempt child care and development facilities bonds into these funds. (c) Notwithstanding Section 13340 of the Government Code, all moneys in the Child Care and Development Facilities Loan Guaranty Fund and the Child Care and Development Facilities Direct Loan Fund, including any interest on loans made from the fund, or loan repayments to the fund, are hereby continuously appropriated to the department for carrying out the purposes of this section and Section 8277.6, respectively. Any loan repayment or interest resulting from investment or deposit of moneys in these funds shall be deposited in the applicable fund, notwithstanding Section 16305.7 of the Government Code. Moneys in the funds shall not be subject to transfer to any other fund pursuant to Part 2 (commencing with Section 16300) of Division 4 of Title 2 of the Government Code, except the Surplus Money Investment Fund. (d) (1) Moneys deposited in the Child Care and Development Facilities Loan Guaranty Fund shall be used for the purpose of guaranteeing private sector loans to sole proprietorships, partnerships, proprietary and nonprofit corporations, and local public agencies for the purchase, development, construction, expansion, or improvement of licensed child care and development facilities, and for the purpose of administering the guarantees of these loans. The loan guarantees shall be made by the department or by a public or private entity approved by the department, in accordance with the priorities established by the department, as described in Section 8277.6. The full faith and credit of the State of California is not pledged to the Child Care and Development Facilities Loan Guaranty Fund and the state is not liable for loan defaults that exceed the amount of funds deposited with the Child Care and Development Facilities Loan Guaranty Fund. (2) A loan guarantee made pursuant to this section may not exceed 80 percent of the principal and interest amount of a private sector loan guaranteed by the fund and shall be used only to guarantee a private sector loan for the purchase, development, construction, expansion, or improvement of facilities described in Section 8277.6 and for related equipment and fixtures, but shall not be used primarily to refinance an existing loan or for working capital, supplies, or inventory. A loan guarantee for improvements shall be limited to those improvements necessary, as determined by the department, for any of the following purposes: (A) To obtain, maintain, renew, expand, or revise a child care license. (B) To make necessary health and safety improvements. (C) To make seismic improvements. (D) To provide access for disabled children. (E) To expand upon or preserve existing child care operations. (3) The aggregate amount of outstanding loan guarantees shall not exceed four times the amount in the Child Care and Development Facilities Loan Guaranty Fund. (4) A loan guarantee made pursuant to this section shall be for the term of the loan or 20 years, whichever is less. Security for the guaranteed loan may include a deed of trust, personal guarantees of shareholders and partners in the case of proprietary borrowers, or other reasonably available collateral. These liens may be subordinated to other liens. Default provisions and other terms shall be reasonable and designed to obtain prompt and full repayment of the guaranteed loan by the borrower. Reasonable loan guarantee fees and points may be charged to applicants and borrowers by any public or private entity approved by the department, as described in regulations adopted by the department. (5) A loan guarantee made pursuant to this section shall only be granted if the applicant agrees to provide child care in a facility for a period of 20 years or the term of the guaranteed loan, whichever is less. (6) A loan guarantee made pursuant to this section terminates 120 days after the lender's receipt of notice that the recipient has either ceased making payments or providing child care in the facility for which the loan was made, or both, unless the lender takes action to accelerate the loan. If a family day care provider ceases to operate, but retains its three-year license, the provider shall give notice to the department and the lending institution of its intention to resume offering child care services for the term of its license, or shall provide notice of its intention to cease providing child care services. The Child Care and Development Facilities Loan Guaranty Fund is not liable for a default occurring after the loan guarantee has ended. (e) (1) Moneys deposited in the Child Care and Development Facilities Direct Loan Fund shall be used for the purpose of making subordinated loans directly or through a public or private entity approved by the department to sole proprietorships, partnerships, proprietary and nonprofit corporations, and local public agencies for the purchase, development, construction, expansion, or improvement of licensed child care and development facilities, and for the purpose of administering these loans. Loans shall be made in accordance with the priorities established by the department as set forth in Section 8277.6. The full faith and credit of the State of California is not pledged to the Child Care and Development Facilities Direct Loan Fund and the state is not liable for loan defaults that exceed the amount of funds deposited in the Child Care and Development Facilities Direct Loan Fund. (2) A loan made pursuant to this section may not exceed 50 percent of the total amount of investment for the purchase, development, expansion, or improvement of eligible child care and development facilities as described in Section 8277.6 and for related equipment and fixtures, but may not be used primarily to refinance an existing loan, for working capital, for supplies, or for inventory. A loan made pursuant to this section may not exceed 20 percent of the total amount of investment if the same facility is also utilizing a loan guarantee pursuant to subdivision (c). Investment for purposes of this paragraph means the total cost paid or incurred by the applicant in constructing, renovating, or acquiring a facility. A loan for improvements shall be limited to those improvements necessary, as determined by the department, for any of the following purposes: (A) To obtain, maintain, renew, expand, or revise a child care license. (B) To make necessary health and safety improvements. (C) To make seismic improvements. (D) To provide access for disabled children. (E) To expand upon or preserve existing child care operations. (3) The term of a loan made pursuant to this section may not exceed 20 years. Security for the loan may include a deed of trust, personal guarantees of shareholders and partners in the case of proprietary borrowers, or other reasonably available collateral. These liens may be subordinated to other liens. The payment provisions, late charges, and other terms may vary based on the ability of the borrower to repay the loan, but shall be reasonable and designed to obtain prompt and full repayment of the loan by the borrower. The interest rate for a direct loan shall be set at the time of application, fixed for the term of the loan, and set at a rate equivalent to the Surplus Money Investment Fund rate in effect on December 31 of the preceding calendar year. Reasonable loan fees and points may be charged to applicants and borrowers, as described in regulations adopted by the department. (f) Funds appropriated for the purposes of this section and Section 8277.6 shall be made from funds that are not designated as meeting the state's minimum funding obligation under Section 8 of Article XVI of the California Constitution. SEC. 2. Section 8277.6 of the Education Code is amended to read: 8277.6. (a) For purposes of this section "department" means the Department of Housing and Community Development. (b) The department shall administer the Child Care and Development Facilities Loan Guaranty Fund and the Child Care and Development Facilities Direct Loan Fund. The department may administer the funds directly, through interagency agreements with other state agencies, through contracts with public or private entities, or through any combination thereof. If the department determines that a public or private entity is capable of making child care and development facilities loans or loan guarantees, the department may delegate the authority to review and approve those loans or guarantees to the public or private entity. The department is authorized to enter into an interagency agreement with the Trade and Commerce Agency to carry out the purposes of this section and Section 8277.5 by utilizing the services of small business financial development corporations established pursuant to Chapter 1 (commencing with Section 14000) of Part 5 of Division 3 of the Corporations Code. Toward this end, the department is authorized to transfer funds from the Child Care and Development Facilities Direct Loan Fund to the California Economic Development Grant and Loan Fund established by Section 15327 of the Government Code and to transfer funds from the Child Care and Development Facilities Loan Guaranty Fund to the Small Business Expansion Fund established by Section 14030 of the Corporations Code. Those funds shall be deposited into a Child Care Direct Loan Fund Account and a Child Care Loan Guaranty Fund Account hereby established in the respective funds. Notwithstanding anything to the contrary in Chapter 1 (commencing with Section 15310) of Part 6.7 of Division 3 of Title 2 of the Government Code and Chapter 1 (commencing with Section 14000) of Part 5 of Division 3 of the Corporations Code, the funds in these accounts shall be administered in compliance with the requirements of this section and Section 8277.5. (c) Eligible applicants for the loan guaranty program and the direct loan program shall include, but not be limited to, sole proprietorships, partnerships, proprietary and nonprofit corporations, and local public agencies that are responsible for contracting with or providing licensed child care and development services. Eligible facilities shall include licensed full-day and part-day child care and development facilities and family day care homes serving more than six children. (d) Loan guarantees and direct loans for family child care homes shall not be made for the purpose of purchasing a home or any real property. (e) The State Department of Education shall provide input regarding program priorities that shall be considered in the funding of applications by the department. These priorities shall include, but are not limited to, the following: (1) Geographic priorities based on the extent of need for child care and development supply-building efforts in different parts of the state. (A) Not less than 30 percent of the loan guarantee and direct loan obligations shall benefit providers located in rural areas, as defined in subparagraph (B). If the amount of qualified applications from rural providers is insufficient to satisfy this requirement, the excess capacity reserved for rural providers may be made available to other qualified applications according to the policies and procedures of the department. The remaining 70 percent of funds shall be available to rural or urban areas and other priorities in accordance with this subdivision. (B) For purposes of subdivision (a), rural communities are defined by any county with fewer than 400 residents per square mile. (2) Age priorities based on the extent of need for child care and development supply-building efforts for children of different age groups. (3) Income priorities shall include families transitioning to work or other lower income families. For purposes of this section, "lower income" shall have the same meaning as "income eligible" as set forth in Section 8263.1. (4) Program priorities based on the extent of facilities needs among specific kinds of providers, including those that contract to administer state and federally funded child care and development programs administered by the State Department of Education, providers who have lost classrooms due to class size reduction or other state or local initiatives, or providers that need to expand to meet the needs of a child care initiative for recipients of aid under Chapter 3 (commencing with Section 11200) of Part 3 of Division 9 of the Welfare and Institutions Code, or any successor program. (f) The program priorities shall reflect input from representatives of diverse sectors of the child care and development field, financial institutions, local planning councils, the Child Development Programs Advisory Committee, and the State Department of Social Services for purposes of identifying communities with high percentages of recipients of aid under Chapter 3 (commencing with Section 11200) of Part 3 of Division 9 of the Welfare and Institutions Code, or any successor program, who need child care to meet work requirements. The department shall assess and report annually, commencing within 12 months of implementation of this section to the Legislature, after consultation with the State Department of Education, on the performance, effectiveness, and fiscal standing of the Child Care and Development Facilities Loan Guaranty Fund and the Child Care and Development Facilities Direct Loan Fund. The report shall include information on the number of defaults, the types of facilities in default, and a review of the adequacy of the set-aside for rural areas specified in paragraph (1) of subdivision (e). (g) The department shall adopt regulations and establish priorities, forms, policies and procedures for implementing and managing the Child Care and Development Facilities Loan Guaranty Fund and the Child Care and Development Facilities Direct Loan Fund and making the loan guarantees and direct loans authorized hereunder consistent with priorities provided by the State Department of Education. To the extent feasible, the department shall use applicant fees and points to cover its administrative costs. The department may utilize an amount of money from the Child Care and Development Facilities Loan Guaranty Fund and the Child Care and Development Facilities Direct Loan Fund, as appropriate, for reasonable administrative costs in any given fiscal year. Unless an appropriation for administrative costs is made in the annual Budget Act that exceeds the following limits, administrative expenditures shall not exceed 3 percent of the amount appropriated to each fund in the Budget Act of 1997. (h) The department shall adopt regulations for serving family day care homes that serve more than six children efficiently and effectively, including, but not limited to, making loans available from the Child Care and Development Facilities Direct Loan Fund to local microenterprise loan funds and other lenders who may relend the funds in appropriate amounts to eligible family day care home providers or by authorizing a specified amount of guarantees of small loans by local microenterprise loan funds and other lenders serving eligible family day care home providers. A loan to a family day care home provider made pursuant to this subdivision shall not be subject to the 50-percent investment restriction contained in paragraph (2) of subdivision (e) of Section 8277.5. (i) The department may adopt regulations for the purposes of this section as emergency regulations in accordance with Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code. For the purposes of the Administrative Procedure Act, including Section 11349.6 of the Government Code, the adoption of the regulations shall be deemed to be an emergency and necessary for the immediate preservation of the public peace, health and safety, or general welfare, notwithstanding subdivision (e) of Section 11346.1 of the Government Code. Notwithstanding subdivision (e) of Section 11346.1, any regulation adopted pursuant to this section shall not remain in effect more than 180 days unless the department complies with all provisions of Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, as required by subdivision (e) of Section 11346.1 of the Government Code.