BILL ANALYSIS �
AB 1576
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Date of Hearing: March 21, 2012
ASSEMBLY COMMITTEE ON EDUCATION
Julia Brownley, Chair
AB 1576 (Huber) - As Amended: March 13, 2012
SUBJECT : Charter schools: loans
SUMMARY : Authorizes county boards of education to loan moneys
to charter schools. Specifically, this bill :
1)Authorizes county boards of education, subject to the
concurrence of the county superintendent of schools, to loan
moneys to a charter school for which the board has a
supervisory responsibility or with which it has a contractual
relationship for the purpose of such loans, whether or not the
school is within the county.
2)Provides that, if a county board of education borrows money
for the purpose of making a loan to a charter school, the loan
shall be repaid solely from the funds of the charter school
and shall not constitute a debt or liability of the county
office of education (COE) or the State of California.
3)Requires the county board of education, prior to making a loan
to a charter school, to advise the charter school's authorizer
and the COE in which the school is located that a loan has
been requested and shall allow the authorizer and county
office to provide input regarding the advisability of making
the loan.
4)Requires the county superintendent of schools to also solicit
a recommendation from bond counsel about the advisability of
making the loan.
5)Provides that monies borrowed from charter schools pursuant to
the provisions of this bill may be expended only to meet the
short term working capital operational needs of the charter
school, and shall not be used for capital acquisitions.
EXISTING LAW authorizes a county superintendent of schools, with
the approval of the county board, to make temporary transfers to
any school district that does not have sufficient funds to its
credit to meet current operating expenses. Such transfers
cannot exceed 85% of the amount of money accruing to the school
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district at the time of the transfer and must be repaid by June
30 of the fiscal year in which the transfer is made. Existing
law also authorizes a county superintendent, with board
approval, to make an apportionment to a school district
conditional upon repayment during the next fiscal year. This
bill does not impose similar restrictions on the loans that a
COE could extend to charter schools.
FISCAL EFFECT : This bill is keyed non-fiscal; however, the
Assembly Appropriations Committee has requested this bill be
referred to them. If this bill is passed by the Assembly
Education Committee, it will be referred to the Committee on
Appropriations to consider the fiscal implications.
COMMENTS : This bill authorizes a board of education, with the
concurrence of the county superintendent of schools, to extend a
loan to any charter school in the state. Prior to making the
loan, the county superintendent of schools must notify and allow
input from the charter school's authorizer and the COE in which
the charter school is located regarding the advisability of the
loan. He or she must also solicit a recommendation from any
bond counsel regarding the advisability of the loan. The bill
prohibits charter schools from using these borrowed monies to
make capital acquisitions.
According to the sponsor, Dr. Vicki Barber, El Dorado County
Superintendent of Schools, this bill is needed to level the
playing field for charter schools by giving them an alternative
to the private market for their borrowing needs. The sponsor
argues that counties need the authority to extend loans to
charter schools not within their jurisdiction, because other
counties may be unable or unwilling to do so.
Background . With the increased use of inter- and intra-year
deferrals, charter schools-like school districts and COEs-have a
heightened need to borrow funds on a short term basis to manage
their cash flow. School districts can use internal borrowing,
borrowing from the county treasury, or Tax and Revenue
Anticipation Notes (TRANs) to meet their cash needs. Charter
schools typically have smaller cash reserves and cannot issue
TRANs on their own. This causes many of them to go to the
higher cost private market for their loans.
Is this bill needed ? Current law allows charter schools, as
well as school districts, to request a waiver from deferrals, if
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borrowing is not an option and if the deferral would cause the
school to cease operations. According to the California
Department of Education, 186 charter schools have received
waivers in the current fiscal year. Every charter school that
requested a waiver received one. The sponsor argues that some
charter schools may be reluctant to request a waiver, because
doing so could send a signal to their authorizing agencies that
their financial status is weak.
Charter schools that do not request waivers may need to borrow
in order to meet cash flow needs. While charter schools cannot
issue TRANs, school districts can include them in their own
TRANs, and some do. However, because charter schools are often
considered to be less credit-worthy than school districts,
including a charter school in a district TRAN can increase the
interest rate, making it more expensive for the district. This
can discourage school districts from including charter schools
in their TRANs.
Alternatively, charter schools can engage in short term
borrowing through the California School Finance Authority
(CSFA). Few charter schools have used this source of financing,
although the CSFA reports that it has the ability to serve more.
In addition, CSFA reports that it has the ability to establish
a statewide pool of charter school borrowers. This would have
the added benefit of spreading fixed costs (such as the cost of
bond counsel) among all of the members of the pool, thereby
further reducing the total cost of borrowing for individual
charter schools.
The committee may wish to consider whether the CSFA would be a
better source of borrowing for charter schools than COEs.
The committee may also wish to consider whether this authority
should be extended to all COEs or whether a COE should first
demonstrate it has the financial capacity and legal expertise to
provide this service. This would minimize the possibility of
COEs overextending themselves and getting into financial
distress. One approach may be to require COEs to apply for and
receive approval from one or more state agencies before they can
extend loans to charter schools.
Does this bill achieve its objective ? The bill provides that,
if a COE borrows moneys and then re-loans some or all of those
moneys to a charter school, the debt shall be repayable solely
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from the funds of the charter school and shall not constitute a
debt or liability of either the COE or the State of California.
In other words, the original lender would be extending a loan to
an entity that is under no obligation to repay. It may not be
reasonable to expect that many lenders would agree to such
terms, or agree to them at a competitive rate of interest. If
that turns out to be the case, then the bill's objective would
not be achieved.
If a COE extends a loan to a charter school from its own funds,
and the charter school defaults, then the COE bears the loss.
If that loss results in or contributes to financial insolvency
for the COE, then the state would need to provide an emergency
loan to the COE.
Committee Amendments : Staff recommends that the process for
determining the advisability of making a loan to a charter
school be strengthened by:
1)Requiring the county superintendent of schools to solicit a
recommendation from a recognized authority on school district
financial management who is not an employee of the COE
instead of bond counsel, because the expertise of bond counsel
does not include financial management.
2)Specifying that the recommendation of the financial management
expert consider the financial condition of the charter school,
the level of risk that would be assumed by the COE, and the
potential impact on the COE if the charter school is unable to
repay the loan.
3)Requiring that the recommendation of the financial management
expert and the input from the COE in which the charter school
is located and the chartering authority of the school be
disclosed at a regularly scheduled meeting of the county board
of education.
Related legislation. The Governor has proposed budget trailer
bill language to help charter schools meet their cash flow
needs. Specifically, the proposed language:
1) Authorizes charter schools to apply directly for a
waiver from deferrals, instead of applying through the
chartering authority.
2) Requires county boards of supervisors to order county
treasurers to make temporary transfers to charter schools
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that do not have sufficient funds to meet current expenses.
(Current law requires such transfers to school districts.)
3) Authorizes county superintendents of schools, with the
approval of the county board of education, to make
temporary transfers to charter schools that do not have
sufficient funds to meet current expenses. (Current law
authorizes such transfers to school districts.)
REGISTERED SUPPORT / OPPOSITION :
Support
Dr. Vicki Barber, El Dorado County Superintendent of Schools
(Sponsor)
California Charter Schools Association Advocates
San Bernardino County Office of Education
San Diego County Office of Education
Opposition
None on file.
Analysis Prepared by : Rick Pratt / ED. / (916) 319-2087