BILL ANALYSIS �
AB 794
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 794 (Wieckowski)
As Amended August 24, 2012
Majority vote
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|ASSEMBLY: | |(May 31, 2011) |SENATE: |26-7 |(August 29, |
| | | | | |2012) |
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(vote not relevant)
Original Committee Reference: NAT. RES.
SUMMARY : Revises the methods through which the interest of bond
anticipation notes (BANs) may be paid. Authorizes, rather than
requires, the interest on BANs to be paid from proceeds of the
sale of bonds in anticipation of which the BANs are issued.
Authorizes the interest of the BANs to be paid from a property
tax levied for that purpose under the following conditions:
1)A resolution of the governing board of a school district or
community college district authorizes the levying of the tax.
Specifies that the tax for payment of the interest on the BANs
is a tax authorized by law for payment of the bonds in
anticipation of which the BANs are issued.
2)The principal amount of the BANs does not exceed the remaining
principal amount of authorized but unissued bonds.
3)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 any of the limitations
set forth in Education Code Section 15268 or 15270, as
applicable.
The Senate amendments delete the Assembly version of this bill,
and instead insert the language described in the summary above.
EXISTING LAW :
1)Authorizes a governing board of a school district or a
community college district to, when it deems that it is in the
best interests of the district, issue notes, on a negotiated
or competitive-bid basis, maturing within a five year period,
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in anticipation of the sale of bonds. Requires the proceeds
from the sale of the notes to be used only for authorized
purposes of the bonds or to repay outstanding notes.
2)Requires all notes issued and any renewal to be payable at a
fixed time not more than five years from the date of the
original issuance of the note. Specifies that if the sale of
the bonds does not occur prior to the maturity of the notes
issued in anticipation of the sale, the fiscal officer of the
school district or community college district, in order to
meet the notes then maturing, shall issue renewal notes.
3)Requires every note and any renewal of the notes to be payable
from the proceeds of the sale of bonds or of any renewal of
notes or from other funds of the school district or community
college district lawfully available for the purpose of
repaying the notes, including state grants.
4)Specifies that interest on the notes shall be payable from
proceeds of the sale of bonds, or from the tax lawfully levied
to pay principal of and interest on the bonds.
5)Specifies that the total amount of bonds issued, for bonds
passed pursuant to Article XIIIA of the California
Constitution, shall not exceed 1.25% of the taxable property
of elementary and high school districts, and the tax rate levy
may not exceed $30 per $100,000 of assessed valuation.
6)Specifies that the total amount of bonds issued, for bonds
passed pursuant to Article XIIIA of the California
Constitution, shall not exceed 2.5% of the taxable property of
unified school districts and community college districts, and
the tax rate levy may not exceed $60 per $100,000 assessed
valuation for unified school districts and $25 per $100,000
assessed valuation for community college districts.
AS PASSED BY THE ASSEMBLY , this bill imposed civil liability
against a covered electronic waste (CEW) recycler or collector
who makes a false statement or representation for purposes of
compliance with the Electronic Waste Recycling Act, codified
regulations that describe the type of CEW that may receive
payment under the Act, and codified regulations authorizing the
Department of Resources Recycling and Recovery to conduct
reviews and audits related to the operations of CEW recyclers
and collectors.
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FISCAL EFFECT : Unknown. This bill is keyed non-fiscal by the
Legislative Counsel.
COMMENTS : This bill makes changes to the process through which
interest on BANs are paid.
School facilities are funded predominantly by local general
obligation (G.O.) bonds, along with state bond funds, and other
local funds, such as developer's fees. A BAN is a short-term
debt that is commonly used by local government entities, such as
water districts or utility districts. School districts and
community college districts are authorized to use BANs to fund
facility projects prior to and in anticipation of the sale of
local G.O. bonds. Districts may issue BANs as interim financing
if, for example, the sale of a G.O. bond is not timely (e.g.,
the assessed valuation is low and will not yield the amount of
revenues a district needs). BANs may be authorized for no more
than five years and have lower interest rates and payments than
G.O. bonds.
Proceeds from the sale of the G.O. bonds are used to repay the
BANs. Existing law also authorizes the interest of BANs to be
paid from the "tax lawfully levied to pay principal of and
interest on the bond." According to the author, this last
clause has led to multiple interpretations. While some county
governments, charged with levying taxes, do allow taxes to be
collected for this purpose, others interpret the provision to
mean authorization to use taxes already collected, which limits
the ability to use this revenue source if the taxes collected
are already committed for other use and the BAN is issued after
taxes are collected. Others have concluded that taxes are not
allowed to be used to pay interest of BANs, even though the
statute references the tax used to pay the principal and
interest of a bond. The confusion has limited the ability of
some districts to make interest payments on a semi-annual basis
- versus waiting until the maturity of a BAN - which results in
higher costs for a district. This is because BANs that pay at
maturity have higher interest rates and when accrued over time,
lead to higher total interest costs. If a tax approved by
voters to pay a G.O. bond can be used to make ongoing payments
(prior to the issuance of the G.O. bond), the overall interest
costs for school facility projects will likely be lower than the
accrued interest to pay the BAN at maturity.
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This bill makes several changes to the provisions governing how
interest of BANs may be paid. This bill authorizes, rather than
requires, interest of BANs to be paid from proceeds from the
sale of G.O. bonds. This bill also clarifies that the tax
authorized by voters to pay for the issuance of a G.O. bond may
be used to pay the interest of BANs, but establishes conditions
through which this is allowable. This bill requires a local
school governing board or community college district to adopt a
resolution authorizing the tax. In order to ensure that BAN
issuances are not exceeding bond authority authorized by voters
and the caps governing Proposition 39 bonds, the bill prohibits
the principal amount of the BANs from exceeding the amount of
any bonds that have been passed by voters but have not been
issued (sold). The bill further specifies that the amount of
the BANs may only be issued if the tax rate levied does not
exceed the cap on bonded indebtedness and the tax rate levy
limit. Bonds approved with a 55% vote are governed by
Proposition 39 of 2000, which, among others, limits the amount
of taxes that can be levied for every $100,000 in assessed
valuation (property value) to $60 for a unified school district,
$30 for an elementary or high school district and $25 for a
community college district. Existing law, passed as a companion
to Proposition 39, also limits the bonded indebtedness of
districts issuing Proposition 39 bonds to 1.25% of taxable
assessed valuation for high school and elementary school
districts and 2.5% for unified school districts and community
college districts.
Data provided by the State Treasurer's Office shows 94 BANs
issued by kindergarten through grade 12 and community college
districts over the last five years, 15 of which were to refund
previously issued BANs. The data also shows property and
special tax revenues as the source of payment for only 10 out of
the 94 BANs. Bond proceeds and other sources constituted the
remaining payment sources. A BAN is a useful tool during a
housing downturn, by allowing a district to take advantage of
lower construction costs and proceeding with a school facility
project while waiting for improvement of the housing market
before selling a G.O. bond.
The California Public Securities Association, the sponsor of the
bill, states, "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
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pay off the BANs. This is because not having the ability to
levy a tax for payment of interest on BANs necessitates issuing
the BANs with sufficient original issue premium to provide the
source of interest payments to investors in the form of
'capitalized' interest (which result 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."
This bill was substantially amended in the Senate and has not
been heard in an Assembly policy committee.
Analysis Prepared by : Sophia Kwong Kim / ED. / (916) 319-2087
FN: 0005694