BILL ANALYSIS �
AB 1576
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Date of Hearing: April 25, 2012
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 1576 (Huber) - As Amended: April 11, 2012
Policy Committee: Education
Vote:7-2
Urgency: No State Mandated Local Program:
No Reimbursable: No
SUMMARY
This bill authorizes county boards of education (CBEs) to loan
charter schools money.
Specifically, this bill:
1)Authorizes CBEs to lend any charter school in the state money,
regardless if they have a direct supervisory role or are
located within their county.
2)Requires money borrowed by the CBE for these purposes to be
paid solely from the funds of the charter school and not
constitute a debt or liability of the CBEs. Further specifies
the state is not liable for this debt.
3)Requires the county superintendent of schools (CSS), prior to
the CBE making the loan, to do all of the following:
a) Advise the chartering authority of the charter school
and the county office of education (COE) in which the
school is located, that the charter school has requested a
loan.
b) Allow the chartering authority and the COE to provide
input regarding the advisability of making the loan.
c) Solicit a recommendation from a recognized authority on
school district financial management who is not an employee
of the COE about the advisability of making the loan.
Further requires the recommendation to consider the
financial condition of the charter school, the level of
risk assumed by the COE, and the potential impact on the
COE if the charter school is unable to repay the loan.
d) Disclose the input of the COE and the authority on
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school district financial management (referenced above) at
a regularly scheduled meeting of the CBE.
e) Determine whether to concur with the intent of the CBE
to make the loan.
4)Requires moneys borrowed by a charter school to be used solely
to meet the short-term, working capital operational needs of
the charter school and not for capital acquisitions.
FISCAL EFFECT
1)To the extent this measure leads to short-term loans issued to
charter schools by CBEs, there is a potential for charter
schools to default on these loans. This default could lead to
GF/98 cost pressure, potentially in excess of $150,000.
2)Potential GF/98 cash savings, likely in excess of $150,000, to
the state due to investment earnings and/or savings from not
exempting charter schools from deferral payments.
COMMENTS
1)Background . A charter school is a public school that may
provide instruction in any of grades K-12. It is usually
created or organized by a group of teachers, parents and or
community leaders. For-profit and non-profit corporations may
also establish charter schools. A charter school may be
authorized by an existing local public school board, CBE, or
the State Board of Education. Specific goals and operating
procedures for the charter school are detailed in an agreement
(charter) between the sponsoring board and charter organizers.
A charter school is generally exempt from most laws governing
school districts, except where specifically noted in the law.
According to the State Department of Education (SDE), there
were 919 charter schools with an enrollment of 375,358 pupils
in 2010-11.
Existing law authorizes a CSS, with approval by the CBE, to
make temporary money transfers to any school district that
does not have sufficient funds to meet its current operating
expenses. A transfer cannot exceed 85% of the amount of money
which will accrue to the school district during the fiscal
year (FY).
Statute also authorizes a CSS, with approval by the CBE, to
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make temporary money transfers to any school district that
does not have sufficient money to meet its current operating
expenses in amounts it deems necessary. Any amount
transferred by the CSS to a school district is required to be
repaid prior to June 30 of the current FY, as specified.
Likewise, current law authorizes a CSS, with approval by the
CBE, to make an apportionment to a school district conditional
upon repayment by the district during the next FY, as
specified.
2)Purpose . According to the Legislative Analyst Office (LAO)
report entitled: To Defer or Not Defer? An Analysis of The
Effects of K-12 Payment Deferrals, the state currently defers
approximately $9.4 billion in K-12 apportionment payments or
21% of the total K-12 program funding.
The LAO report also states: "By deferring payments, the state
shifts the burden of fronting cash onto school districts,
along with potential borrowing costs. To access cash,
districts can use existing budget reserves or special funds
(although drawing down reserves also results in a loss of
earned interest). If internal resources are insufficient,
districts can try to borrow from private lenders, the COE, or
the County Treasurer. If districts borrow from other agencies,
they are responsible for covering all transaction and interest
costs. The current interest rates are at historically low
rates, so the costs of borrowing has not been particularly
burdensome for districts."
Current law does not afford charter schools with the option to
borrow from COEs or the county treasurer. In certain
instances, some charter schools are able to borrow through
affiliated school districts. For example, a school district
that borrows money via a Tax and Revenue Anticipation Note
(TRAN) may include a charter school's funding needs in the
amount of TRAN it seeks. Most school districts, however, do
not extend this offer to charter schools because of liability
and increased transitional costs.
According to the author, "Charter schools are very limited in
their ability to access low-cost borrowing. The private
options for borrowing are prohibitively expensive and take
much needed dollars from the classroom to pay for interest
charges to outside financing groups- spending more on interest
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means fewer tax dollars actually being used for educating our
children. AB 1576 seeks to allow CSS, at their discretion, to
provide charter schools access to lower cost loans in a manner
similar to the access they are currently authorized to provide
school districts."
3)AB 1610, Chapter 724, Statutes of 2010, established a waiver
process for an inter-year (across FYs) deferral the state
imposes on school districts and charter schools. Districts and
charter schools can be exempt from the June to July principal
apportionment deferral, if they demonstrate they would be
unable to meet their financial obligations due to the delayed
payments. Applications to receive a waiver must be submitted
to the Department of Finance (DOF) by April 1 and are limited
to a total of $100 million annually. If requests for
exemptions exceed $100 million, the state controller, state
treasurer, and DOF may authorize exemptions totaling up to
$300 million. If requests exceed the amount available,
payments will be made in order based upon the earliest date
and time the complete application was received via e-mail,
fax, or mail.
In 2011, nine school districts and 133 charter schools were
approved for deferral exemptions for the June 2011 principal
apportionment deferral. According to DOF, all applications
submitted were approved with the exception of one school
because their attached cash flow indicated the school was in a
positive cash position throughout the fiscal year.
Applications for exemptions for the June 2012 deferral were
due April 1, 2012. DOF is still processing these applications.
4)SB 82, Chapter 12, Statutes of 2011, established a waiver
process for intra-year (within FYs) deferrals the state
imposes on school districts and charter schools. Chapter 12
requires GF/98 payments to school districts, charter schools,
and county offices of education to be deferred. Specifically,
statute specifies no more than $2.5 billion GF/98 can be
deferred at any given time and only three deferrals can be
made within the FY. Chapter 12 established the following
inter-year deferrals for the 2011-12 FY:
--------------------------------------------------------- a$700 million of the $1.4 billion deferral is paid in this
month.
b$4.5 billion, which is the remaining balance for the July
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2011, August 2011, and October 2011 deferrals, is paid in
this month.
Chapter 12 requires the chartering authority, in
consultation with the CSS, to certify that the deferral of
payments will result in the charter school being unable to
meet its expenditure obligations for the time period during
the deferrals. Statute also requires the chartering
authority to notify the Superintendent of Public Instruction
(SPI) and DOF of this determination on or before June 1,
2011.
Chapter 12 further authorizes a charter school that did not
receive payments for July 2011, August 2011, and October
2011 to seek a hardship waiver to receive scheduled payments
if payments are deferred in March 2012. In order for a
charter school to apply for a waiver, the chartering
authority, in consultation with the CSS, is required to
certify the school cannot meet its expenditure obligations
for the deferral time period. The chartering authority is
also required to notify the SPI and DOF on or before January
5, 2012. According to DOF, 186 charter schools were
approved for an intra-year deferral waiver. DOF approved
approximately $200 million GF/98 in intra-year deferral
waivers from school districts and charter schools.
5) Need for the bill ? Proponents of this measure argue the
state's imposition of both inter-year and intra-year payment
deferrals are causing charter schools to seek financing from
private financial institutions to remain solvent. They
further argue this option is costly and unfair given that
school districts are able to receive funding from CBEs to
mitigate deferral payments.
In 2010 and 2011, the Legislature passed, and the governor
signed, measures to establish waiver exemption processes for
inter-year and intra-year deferral payments to charter
schools. According to DOF, all charter schools inter-year
applications submitted were approved with the exception of
one school because their attached cash flow indicated the
school was in a positive cash position throughout the fiscal
year. All intra-year waivers were approved. DOF is still
reviewing 2012 inter-year waiver applications. If charter
schools are experiencing a hardship in coping with the
deferral payments, the state provides an exemption. As
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such, it is unclear why this bill is necessary.
6) How is "short-term" working capital defined in the bill ?
The bill currently requires moneys borrowed by charter
schools to be expended solely for purposes of meeting the
short-term, working capital operational needs of the charter
school. It does not, however, define short term. Under
this bill, a charter school that is having financial
difficulty for any purpose, not just due to deferral
payments, may seek a loan from a CBE. Charter schools may
be operated by for-profit and non-profit entities. It is
conceivable that under this bill a CBE would be lending
money to a subsidiary of a for-profit or non-profit entity.
The proponents' main argument for this measure has been the
financial hardship deferral payments have created for
charter schools. The committee recommends any authorization
provided to CBEs for the purpose of lending to charter
schools be limited to the hardship of deferral payments.
7) Governor January 2012-13 budget proposal amends existing
law to require county treasurers to loan to charter schools,
authorize county offices of education to loan money to
charter schools, and authorize charter schools to issue
TRANs independently. The proposal to allow county offices
of education to loan money to charter schools mirrors
current statute with regarding to lending school districts
money.
Analysis Prepared by : Kimberly Rodriguez / APPR. / (916)
319-2081