BILL ANALYSIS �
SENATE COMMITTEE ON EDUCATION
Alan Lowenthal, Chair
2011-2012 Regular Session
BILL NO: AB 794
AUTHOR: Wieckowski
AMENDED: September 2, 2011
FISCAL COMM: No HEARING DATE: May 16, 2012
URGENCY: No CONSULTANT:Kathleen Chavira
NOTE : This bill has been referred to the Committees on
Education and Governance and Finance. A "do pass" motion
should include referral to the Committee on Governance and
Finance.
SUBJECT : Interest payments on bond anticipation notes.
SUMMARY
This bill provides that a lawfully enacted tax levied to
pay principal of and interest on bonds includes a property
tax authorized and levied by a resolution of the governing
board to pay the interest on bond anticipation notes (BANs)
issued in anticipation of the sale of those bonds, and
additionally authorizes the use of any premiums received on
the sale of the bonds to be used to pay the interest on the
BANs.
BACKGROUND
Current law authorizes the governing board of a school
district or community college district, in anticipation of
the sale of bonds which have been authorized pursuant to
current law, to issue notes on a negotiated or
competitive-bid basis, maturing within five years (bond
anticipation notes, or BANs). Current law also authorizes
renewal of the note for such bonds for a period not to
exceed five years. Current law provides that the proceeds
from the BANs can only be used for authorized purposes of
the bonds or to repay outstanding BANs. The total amount of
notes or renewals issued and outstanding is prohibited from
exceeding the total amount of the unsold bonds. Current law
also provides that the interest on the BANs be paid from
the proceeds of the sale of bonds or from a tax lawfully
levied to pay principal of and interest on the bonds.
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(Education Code � 15150)
ANALYSIS
This bill :
1) Provides that the interest payments on BANS issued by
a school district or community college district may
be:
a) Paid for with any premium received
on the sale of bonds in anticipation of which the
BANs were issued.
b) Paid from a property tax levied
for that purpose if the tax is authorized by
resolution of the governing board.
2) Declares that the property tax levied by an
authorizing resolution of the board for payment of
interest on the BANs is a tax authorized by law for
payment of the bonds in anticipation of which the
notes were issued.
3) Makes other technical changes.
STAFF COMMENTS
1) Bond anticipation notes ? Bond anticipation notes
(BANs) are smaller short-term bonds issued by
governments and corporations with the knowledge that
the proceeds of a larger future issue will cover the
anticipation notes. The issuing bodies use these
notes as short-term financing. Current law provides
that the governing board of a school district or
community college district, in anticipation of the
sale of authorized bonds, may issue BANs with a
maturity of up to five years. If the sale of bonds
does not occur prior to maturity of the BANs, the
fiscal officer of a district is required to issue
renewal notes to pay back the BANs. The maturity date
of the renewal may be for no more than five years.
Ultimately, the BANs are intended to be paid from the
proceeds of the sale of authorized bonds.
2) Need for the bill . According to the author, counties
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have interpreted existing law regarding the authority
to levy a property tax to pay the interest on BANs in
different ways. Some counties have strictly
interpreted the language to prohibit any tax levy to
pay interest on BANs. Others have interpreted the law
to allow the payment of interest on BANs with any
surplus realized from taxes levied to pay debt service
on previously issued bonds, or from taxes levied to
pay off bonds that will eventually be issued by the
school district (i.e. taxes levied to pay the interest
on BANs issued in anticipation of bonds authorized and
to eventually be sold by the school district).
For districts that adopt the more restrictive
interpretation, higher overall repayment costs can
result, as interest on the BANs continues to accrue
until the underlying bonds are sold to repay the
notes, or districts opt to use financing structures
such as capital appreciation bonds (CABs), which are
sold at a deeply discounted price with deferral of
interim interest payments until the bonds mature, at
which point both principal and interest are paid and
total interest payments are significantly greater.
3) Double referral - education policy versus tax policy .
The authority provided for in this bill would provide
a lower cost alternative for districts to repay the
interest on BANs issued in anticipation of authorized
bonds being sold. It is unclear whether the provisions
of this bill clarify or provide a new authority for
repaying the interest on BANS by authorizing a
property tax to be levied through a board resolution,
or allowing the use of premiums from the sale of bonds
for this purpose. Policy issues regarding revenue
mechanisms and taxes are more appropriately addressed
by the Governance and Finance Committee. This bill
has been double-referred and if passed by this
committee, will subsequently be considered in the
Governance and Finance Committee.
4) Related legislation . SB 1205 (Wyland) prohibits a
school district or community college district from
issuing bonds at a discount exceeding 5%, as
specified, in essence restricting districts' ability
to issue capital appreciation bonds (CABs). Although
SB 1205 was scheduled to be heard by the Senate
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Governance and Finance Committee on May 9, 2012, the
hearing was cancelled at the request of the author.
SUPPORT
None received on this version.
OPPOSITION
None received on this version.