BILL ANALYSIS
AB 932
Page 1
Date of Hearing: April 15, 2009
ASSEMBLY COMMITTEE ON EDUCATION
Julia Brownley, Chair
AB 932 (Torlakson) - As Amended: April 13, 2009
SUBJECT : Child Care Facilities Revolving Fund
SUMMARY : Broadens the types of projects eligible for funds from
the Child Care Facilities Revolving Fund (CCFRF) and requires
the California Department of Education (CDE) to utilize the
expertise of the child care financial intermediary program to
administer the CCFRF. Specifically, this bill :
1)Strikes the purpose of the CCFRF as the following: to provide
funding for the renovation, repair, or improvement of an
existing building to make the building suitable for licensure
for child care and development services and for the purchase
of new relocatable child care facilities for lease to school
districts and contracting agencies that provide child care and
development services; and instead specifies that the CCFRF is
to make loans for the purchase, site development,
construction, expansion, renovation, repair, or improvement of
licensed child care and development facilities, and for the
purpose of loan administration.
2)Authorizes the Superintendent of Public Instruction (SPI) to
transfer federal funds in addition to state funds into this
fund.
3)Strikes the provision requiring school districts and
contracting agencies using facilities made available by the
use of these funds to be charged a leasing fee, either at a
fair market value for those facilities or at an amount
sufficient to amortize the cost of purchase and relocation,
whichever amount is lower, over a 10-year period. Strikes the
provision that upon full repayment of the purchase and
relocation costs, title shall transfer from the State of
California to the school district or contracting agency.
4)Specifies that the SPI shall deposit all revenue derived from
the repayment of loans and from the lease payments from funds
allocated prior to January 1, 2010 into the CCFRF.
5)Requires the CDE to utilize the capital financing expertise of
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the child care financial intermediary program, pursuant to
Education Code sections 8279.4, 8279.5, and 8279.6, to
administer the CCFRF.
6)Requires the CDE to adopt regulations to establish priorities,
forms, policies, and procedures for implementing and managing
the CCFRF.
7)Requires the financial intermediary to provide capital
financing and facility development expertise and assistance to
the CCFRF process, including support of the CCFRF in
delivering capital for child day care facilities, which
includes facilities on nonpublic school property.
8)Strikes obsolete references to regional resource centers,
Department of Housing and Community Development and the
California Infrastructure and Economic Development Bank in the
financial intermediary provisions.
EXISTING LAW :
1)Establishes the CCFRF in the State Treasury to provide funding
for the renovation, repair, or improvement of an existing
building to make the building suitable for licensure for child
care and development services and for the purchase of new
relocatable child care facilities for lease to school
districts and contracting agencies that provide child care and
development services.
2)Requires the SPI to contract with a nonprofit organization to
serve as a financial intermediary. Requires the nonprofit to
have staff who have expertise in financing and capital
expansion, are knowledgeable about the child care field, and
have the ability to develop and implement a plan to increase
the availability of financing to renovate, expand, and
construct child day care facilities, both in day care centers
and family day care homes.
FISCAL EFFECT : Unknown
COMMENTS : Background on CCFRF . The CCFRF, established by AB
1578 (Migden), Chapter 299, Statutes of 1997, is administered by
the CDE to provide funding for the lease-purchase of new
relocatable buildings to eligible school districts and
contracting agencies that provide child care and development
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services, and for the renovation, repair, or improvement of an
existing building to make the building suitable for licensure
for child care and development services. Local educational
agencies (LEAs) and child care agencies that contract with the
state to provide state-funded child care services may apply for
up to $210,000 for each single, freestanding relocatable
building and up to $70,000 maximum for each additional module
added to the basic building. Funds can be used for building
expenses, architect and inspection fees, site development, and
site improvement costs. All funds advanced from the program are
repaid by the applicant agency over ten years, with no interest.
The CCFRF received an initial General Fund appropriation of $25
million in 1997-98. The funding source in subsequent years came
from both the transfer of unencumbered and the reappropriation
of unused child care and development program monies. In the
beginning of the 2007-08 fiscal year, the CCFRF had an available
fund balance of $80.8 million, but budget actions diverted
almost $60 million to other programs and left approximately $22
million available for funding. Twenty-one applications were
submitted and funded at $5.8 million in FY 2007-08.
According to the CDE, since the inception of the program, 617
applications have been approved for funding, providing potential
capacity for 24,490 children. LEAs comprise the majority of the
participants in the CCFRF, while private child care providers
comprise 30.7% of the total. The largest group to be served
through CCFRF is preschool children. The most frequently cited
reason for request of funds was child care program expansion,
followed by replacement of facilities for health and safety
reasons.
Purpose of the bill. The author states, "Unfortunately, the
Revolving Fund has been underutilized for the past several years
due to the complex and specialized expertise required to make
loans for development projects, other than relocatable buildings
primarily on public school sites. Child care and development
contractors operate care and education programs in all different
types of facilities. By enhancing the capital financing capacity
of the Revolving Fund, the program will be better equipped to
meet the facility development needs of eligible borrowers.
There will also be enhanced capacity and support for low-income
child care providers to access financing. Additionally, the
Financial Intermediary will increase the efficiency and
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effectiveness of existing state resources and provide more
opportunities to leverage public and private capital.
This bill will mitigate the underutilization of the Revolving
Fund and address the facilities needs of child care and
development contractors."
The Low Income Investment Fund, a co-sponsor of the bill,
states, "Administration of the CCFRF consists of 1) determining
eligibility of applying agencies, and 2) advancing funds to
approved program participants. Capital financing expertise is
limited for the CCFRF therefore loans are not underwritten to
ensure repayment and projects are not evaluated to determine
feasibility. In the 10 years the CCFRF has been operating 561
loans were made totaling $75.9 million. These figures are very
commendable considering the limited staff resources allocated to
the program. However, the limited staff resources and lack of
regulations have taken its toll on the CCFRF. It has not
achieved its full potential and though it has deployed a
commendable amount of capital, the program is continually
undersubscribed resulting in upwards of $100 million of unspent
funds transferred from the CCFRF for other purposes, none of
which will allow for recycling these funds back to the CCFRF to
support quality facilities like the program was intended."
Public Counsel report . A December 2007 report on the CCFRF by
the Public Counsel, a nonprofit law firm based in Los Angeles,
found that child care providers are often in need of expert
assistance on real estate and capital finance matters. However,
CDE's Child Development Division's area of expertise in
administering child care programs and cannot easily absorb
entirely the function of lending capital for child care
facilities. The report identifies other state facility loan
programs, including the Department of Housing and Community
Development's former child care facilities financing program and
existing multi-family housing program that can be used as a
model for administering the CCFRF. The report recommends
adopting effective regulations and thorough risk evaluation and
underwriting procedures, providing pre- and post-loan technical
support, and ensuring appropriate security documents and
covenants, as ways to ensure well-performing loans.
This bill makes several changes to the CCFRF as follows:
1)Expands the program from a lease-purchase of relocatable
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buildings to a loan program for any type of facility
(including construction of a brick and mortar building) and
authorizes funds to be used for loan administration.
2)Deletes parameters of the program, including the requirement
to amortize the cost of purchase and relocation of the
relocatables over a 10-year period and the requirement that
upon full repayment of the purchase and relocation costs,
title shall transfer from the State of California to the
school district or contracting agency. The bill instead
requires the CDE to adopt regulations to establish priorities,
forms, policies, and procedures for implementing the program
and managing the CCFRF.
This bill also requires the CDE to utilize the capital financing
expertise of the child care financial intermediary program to
administer the CCFRF and requires the financial intermediary
program to provide capital financing and facility development
expertise and assistance to the CCFRF process.
Background on the financial intermediary . The financial
intermediary is established by AB 2778 (Jackson), Chapter 548,
Statutes of 2000 with the intent to provide child care providers
with technical assistance and information on funding
availabilities to renovate, expand and construct child care
facilities. The bill requires the SPI to contract with a
nonprofit with expertise in financing and capital expansion and
have staff knowledgeable about the child care field. The
nonprofit selected by the SPI is required to undertake
activities designed to increase funds available from the private
and public sectors for the financing of child care facilities.
The SPI contracts with The Building Child Care Project, which
maintains an Internet Web site which "provides a centralized
clearinghouse of information and services to increase the
California child care sector's understanding of the facilities
development process and access to facility development
resources." The Web site has links to other resources and
publications relating to child care and child care facilities,
including starting or expanding child care centers and financial
resources. Concerns have been expressed that the existing
nonprofit financial intermediary is not as proactive in working
with child care providers as envisioned by AB 2778.
Issues of concern . Does the CDE's Child Development Division
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have the resources to administer a bigger loan program that may
involve construction of new facilities? Is linking the CCFRF to
the financial intermediary program sufficient in garnering
technical expertise to administer the CCFRF if there is concern
over its current ability to fulfill all the duties specified in
law? The author may wish to consider revamping the program and
perhaps requiring the CDE school facilities planning division or
the State Treasurer's office, which administers other loan
programs (e.g., charter schools facilities), to administer the
program.
This bill deletes parameters of the program, including the
structure of lease payments and the transfer of title. Staff
recommends reinstating provisions in law that outline general
parameters, including the requirement to transfer title to the
LEA or private child care provider when the loan is repaid.
Arguments in Support . The sponsor of the bill, the Low Income
Investment Fund, states, "The American Recovery and Reinvestment
Act is investing more than $470 million to increase child care
and early education services for more than 52,000 of
California's children. Unfortunately, no new funding is
available to support facilities to house the additional
services. California's existing child care facilities programs
play a critical role in addressing the current and emerging
facilities. The Child Care Facilities Revolving fund (Revolving
Fund) was established to provide capital financing to child care
and development contractors. The Department of Education has
identified facilities as a key reason for unspent child care and
preschool operating funding. California currently has a waiting
list of approximately 204,000 young children, who are eligible
but unable to access child care and early education services.
The goal of the Revolving Fund is to ensure child care and
development contractors have access to affordable capital for
the development of quality, healthy facilities for California's
low-income children."
REGISTERED SUPPORT / OPPOSITION :
Support
California Child Development Administrators Association
(co-sponsor)
Child Development Policy Institute
Children Now
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Low Income Investment Fund (co-sponsor)
Preschool California
Professional Association for Childhood Education
Public Counsel
Opposition
None on file
Analysis Prepared by : Sophia Kwong Kim / ED. / (916) 319-2087