BILL ANALYSIS �
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|SENATE RULES COMMITTEE | AB 794|
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THIRD READING
Bill No: AB 794
Author: Wieckowski (D)
Amended: 8/24/12 in Senate
Vote: 21
SENATE VOTES PRIOR TO 9/2/11 NOT RELEVANT
SENATE EDUCATION COMMITTEE : 6-0, 5/16/12
AYES: Lowenthal, Hancock, Liu, Price, Simitian, Vargas
NO VOTE RECORDED: Runner, Alquist, Blakeslee, Huff,
Vacancy
SENATE GOVERNANCE & FINANCE COMMITTEE : 6-2, 6/13/12
AYES: Wolk, Dutton, DeSaulnier, Hernandez, Kehoe, Liu
NOES: Fuller, La Malfa
ASSEMBLY FLOOR : Not relevant
SUBJECT : Local education facility bonds: anticipation
notes
SOURCE : California Public Securities Association
DIGEST : This bill, instead of allowing the interest on
the school bond anticipation notes (BAN) to be paid from
the tax levied to pay the principal of and interest on the
bonds, allows the interest on the notes to be paid from a
property tax levied for that purpose if authorized by a
resolution of the governing board of the school district or
community college district if the principal amount of the
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notes does not exceed the remaining principal amount of
authorized but unissued bonds and provides that this tax is
authorized by law. This bill allows the premium received
on the sale of the bonds to be used to pay the interest on
the notes. This bill also provides that the notes may be
issued only if the tax rate levied to pay interest on the
notes would not cause the school district or community
college district to exceed the limitations set forth in
specified existing law.
Senate Floor Amendments of 8/24/12 state that the tax can
only be increased to pay BAN interest when the BAN issue is
less than the amount of authorized, unsold bonds, and the
tax increase necessary to pay the BAN interest does not
exceed tax limitations in existing law.
ANALYSIS : Existing law authorizes the governing board of
a school district or community college district to order an
election and submit to the electors of the district the
question whether the bonds of the district shall be issued
and sold for the purpose of raising money for various
facilities purposes, for refunding bonds, or for the
purchase of schoolbuses. Existing law limits the total
amount of bonds that a school or community college district
may issue to 1.25 percent of the taxable property of the
school or community college district.
Existing law also authorizes the governing board of a
school district or community college district to issue
BANs. Existing law requires a BAN to be payable not more
than five years from the date of the original issuance of
the note. Existing law allows the interest on the notes to
be payable from the proceeds of the sale of bonds or from
the tax levied to pay principal of and interest on the
bonds.
This bill, instead of allowing the interest on the notes to
be paid from the tax levied to pay the principal of and
interest on the bonds, allows the interest on the notes to
be paid from a property tax levied for that purpose if
authorized by a resolution of the governing board of the
school district or community college district if the
principal amount of the notes does not exceed the remaining
principal amount of authorized but unissued bonds and
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provides that this tax is authorized by law. The bill
allows the premium received on the sale of the bonds to be
used to pay the interest on the notes.
This bill also provides that the notes may be issued only
if the tax rate levied to pay interest on the notes would
not cause the school district or community college district
to exceed the limitations set forth in specified existing
law.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 8/27/12)
California Public Securities Association (source)
Coalition for Adequate School Housing - California
ARGUMENTS IN SUPPORT : The bill's sponsor, the California
Public Securities Association, indicates that Education
Code Section 15150(d) is ambiguous because on the one hand,
it clearly indicates that interest on BANs can be paid from
proceeds of a tax levy, but on the other hand it indicates
that the tax levy from which the BANS is payable consists
of the "tax lawfully levied to pay principal of and
interest on the bonds." They believe this quoted language
is problematic because the reference to "the bonds" is not
clear. Some counties have taken the position that the term
"the bonds" in Section 15150(d) refers to bonds that the
district has previously issued - in other words, if a
district has previously issued its general obligation bonds
and subsequently issues BANs, a tax may be levied to pay
debt service on the previously issued bonds and if such a t
ax creates a surplus, such surplus can be used to pay
interest on the BANs. One problem with this interpretation
is that if a school has not previously issued its general
obligation bonds, it is effectively prohibited from levying
a tax to pay the BANs. Another problem with this
interpretation is that the provisions of the Education Code
that authorize the levy of taxes to pay bonds indicated
that such taxes are to be used to pay principal and
interest on such bonds (see Education Code 15251-such taxes
"shall be used for the payment of the principal and
interest of the bonds and for no other purpose").
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"Another possible interpretation of the term 'the bonds' in
Section 15150 (d) is that it refers to bonds that the
district will eventually issue to pay off the BANs. This
interpretation suffers the same problem discussed above
under Education Code Section 15251, and also raises
problems under Education Code Sections 15250 and 15252
which generally indicate that property taxes are only
supposed to be levied to pay debt service coming due on
bonds in the year in which the taxes are levied. The most
restrictive interpretation is that the reference to "the
bonds" in Section 15150(d) simply does not allow a tax to
be levied to pay interest on the BANs. This view has been
adopted by a number of counties in response to the interest
ambiguity in Section 15050(d). Unfortunately, this
interpretation completely defeats the clear intent in
Section 15150(d) that interest on BANs can be paid from a
tax levy of some sort. The ambiguity of Education Code
Section 15150(d) and the decision by several counties to
prohibit the levy of a tax for the payment of interest on
BANs results in higher overall repayment costs for BANs or
the bonds that are used to pay off the BANs. This is
because not having the ability to levy a tax for payment of
interest on BANs necessities issuing the BANs with
sufficient original issue premium to provide the source of
interest payments to investors in the form of 'capitalized'
interest (which results in higher borrowing costs), or
issuing the BANs as capital appreciation bonds which are
payable at maturity at a higher interest cost than if the
BANs were issued instead as current interest bonds which
have semi-annual interest payments that require a tax
levy."
PQ:m 8/27/12 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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