BILL ANALYSIS �
SENATE COMMITTEE ON EDUCATION
Alan Lowenthal, Chair
2011-2012 Regular Session
BILL NO: AB 1576
AUTHOR: Huber
AMENDED: May 25, 2012
FISCAL COMM: Yes HEARING DATE: June 20, 2012
URGENCY: No CONSULTANT:Daniel Alvarez
SUBJECT : Charter schools: loans.
SUMMARY
This bill authorizes county boards of education (CBEs) to
loan charter schools money from the proceeds of tax and
revenue anticipation notes (TRANs), subject to the
concurrence of the county superintendent of schools. In
addition, the bill 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.
BACKGROUND
The state has enacted two types of funding deferrals:
inter-year (across fiscal years) and intra-year (within the
fiscal year). Inter-year deferrals defer payments required
to be made in one fiscal year to the subsequent fiscal
year. For example, in 2011-12, the state moved specified
monthly payments for K-12 schools from April 2012 to August
2012 and from March 2012 to August 2012. According to the
Legislative Analyst Office (LAO), in the current year a
total of $10.4 billion in Proposition 98 (K-14) payments
are inter-year deferrals.
Intra-year deferrals defer state payments within a fiscal
year. For example, prior to the enactment of the cash
management legislation in the 2008-09 fiscal year, the
state paid school districts at several points in the year,
with large allocations occurring in July, October, and
March. Legislation enacted in 2009-10 deferred these
payments to later in the same fiscal year, which allows the
state to conduct less internal borrowing for the purposes
of having available cash.
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Current law:
1) Provides county boards of education, school
districts, and community college districts the ability
to temporarily borrow money through the use of
short-term notes (commonly known as tax and revenue
anticipation notes or TRANS), as specified.
(Government Code � 53850 et. seq.)
2) Authorizes a county superintendent of schools
(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. (Education Code � 42621)
3) 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 fiscal year,
as specified. (EC � 42622)
ANALYSIS
This bill authorizes county boards of education (CBEs) to
loan charter schools money from the proceeds of tax and
revenue anticipation notes (TRANs), subject to the
concurrence of the county superintendent of schools. In
addition, the bill 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. More
specifically, this bill:
1) Authorizes CBEs to lend any charter school in the
state money, regardless of whether the charter school
is within or outside the county, or has a contractual
relationship consistent with current law.
2) Requires moneys borrowed by the CBE, for purposes of
making a loan to a charter school, are to be paid
solely from the funds of the charter school and not
constitute a debt or liability of the CBEs or county
superintendent of schools. Further specifies the
state is not liable for any debt or liability for any
loans made.
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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 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.
1) Requires the CBE, as a condition of making a loan to a
charter school, to report to the State Department of
Education (SDE), annually by September 15, the
following information on loans made within the prior
fiscal year:
a) The name of the charter school and county
location.
b) The amount of the loan, including the
interest rate that each charter
received.
c) The total amount of money loaned to charter
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schools by the CBE.
d) The average duration of loans made to
charter schools.
e) The current status of each loan, including
whether or not the
charter school repaid the loan.
2) Requires the SDE, no later than December 1 of each
year to compile the information reported by county
boards of education into one report and submit to the
Legislature, as specified.
3) Requires moneys borrowed by a charter school to be
used solely to meet the short-term, working capital
operational needs of the charter school due to the
deferral of apportionment payments and not for
purposes of making capital acquisitions.
4) Permits a charter school to contract with a county
superintendent of schools or county board of education
for purposes of borrowing moneys in accordance with
this measure.
5) Sunsets the provisions of this measure as of July 1,
2017.
STAFF COMMENTS
1) Need for the bill . According to the author current law
provides school districts financial tools to provide
some short-term borrowing relief. Charter schools
have limited alternatives and must generally go to the
private capital market to borrow at much higher
interest rates. Charter schools, like school districts
may need temporary financial assistance during time of
state and local fiscal crisis. Charter schools do not
have the same territorial or organizational
relationships with county superintendents as do school
districts. Consequently, county superintendents
should be allowed broader authority to provide for
temporary loans in any case when the county
superintendent and board deem it appropriate to make
such a temporary loan. This bill authorizes a county
board of education, with the concurrence of the county
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superintendent of schools, to extend a loan to any
charter school in the state. Loans can be made only
to address cash shortfalls caused by the deferral of
apportionments.
2) Increase reliance on apportionment deferrals may be
good for state cash management, but problematic for
schools. More recently the state has enacted
"intra-year" deferrals that push state funding
obligations to school districts, county offices of
education and charter schools to a point later in the
same fiscal year. Such intra-year deferrals do not
cross fiscal years and thus do not generate a direct
budget savings; intra-year deferrals, however, these
types of deferrals do reduce cash flow pressure on the
state, reducing the need for the state to borrow in
the short-run to bridge past that cash flow pressure,
and thus reducing the state's debt service. The down
side to intra-year deferrals is that the cash flow
pressure is transferred to school districts and other
recipients of apportionments, since revenues are
received on a deferred schedule even though current
expenditure obligations remain.
The LAO reports: "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 cost 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 the
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TRAN it seeks. Most school districts, however, do not
extend this offer to charter schools because of
liability and increased transitional costs. 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.
3) Some relief from deferrals is available. Chapter 724
(AB 1610, 2010) established a waiver process for an
inter-year (across fiscal years) 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
based on a first-come, first-served basis.
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) 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
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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.
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.
Loans can be made only to address cash shortfalls
caused by the deferral of apportionments. Prior to
making the loan, the county superintendent of schools
must notify and allow input from the charter school's
authorizer and the county offices of education (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. As a condition of making
loans to charter schools, the county board of
education must provide to the CDE specified
information on loans made in the prior year.
Consistent with this measure, staff recommends an
amendment that limits a charter school to pursue one
loan from one county office of education, pursuant to
provisions of this measure, in any fiscal year.
5) Related legislation. The Governor has proposed budget
trailer bill language to help charter schools meet
their cash flow needs. Specifically, the proposed
language:
a) Authorizes charter schools the ability to
temporarily borrow money through the use of
short-term notes (commonly known as tax and
revenue anticipation notes or TRANS).
b) Authorizes county boards of supervisors
to order county treasurers to make temporary
transfers to charter schools that do not have
sufficient funds to meet current expenses.
(Current law requires such transfers to school
districts.)
c) Authorizes county superintendents of
schools, with the approval of the county board of
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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.)
SUPPORT
California Charter School Association
El Dorado County Superintendent of Schools
San Diego County Office of Education
OPPOSITION
None on file.