BILL ANALYSIS �
SENATE COMMITTEE ON EDUCATION
Alan Lowenthal, Chair
2011-2012 Regular Session
BILL NO: AB 2164
AUTHOR: Dickinson
AMENDED: April 24, 2012
FISCAL COMM: Yes HEARING DATE: May 16, 2012
URGENCY: No CONSULTANT: Kathleen
Chavira
SUBJECT : Community College Facilities.
SUMMARY
This bill authorizes the reimbursement of amounts incurred
for capital outlay projects approved by the Board of
Governors of the California Community Colleges (CCC),
thereby authorizing districts to proceed with an
expectation of reimbursement for project costs prior to
the Legislature's review and appropriation of project
funding in the annual Budget Act and prior to the approval
of preliminary plans by the Department of Finance and the
State Public Works Board.
BACKGROUND
Current law prohibits the expenditure of funds
appropriated for capital outlay by any state agency,
including the University of California (UC), California
State University (CSU), and the California Community
colleges (CCC), until the Department of Finance (DOF) and
the State Public Works Board have approved preliminary
plans for the project to be funded from a capital outlay
appropriation. (Government Code � 13332.11)
ANALYSIS
This bill :
1) Authorizes the reimbursement of amounts incurred by a
community college district for capital outlay
projects after the Board of Governors has approved
the project. More specifically it:
AB 2164
Page 2
a) Makes an exception to current law
which prohibits any state agency, including the
UC, CSU and the CCC from expending appropriated
funds prior to approval of preliminary plans for
the project by the DOF and the State Public
Works Board.
b) Authorizes districts to proceed
with an expectation of reimbursement for amounts
incurred prior to the Legislature's review and
appropriation of funding for a project.
2) Provides that reimbursement is authorized pursuant to
approval of preliminary plans by the DOF and the
State Public Works Board and an appropriation of
funds by the Legislature in the annual Budget Act for
specified project phases.
3) Provides that the amount of reimbursement is subject
to the Legislature's determination of the appropriate
scope and cost of the project.
4) Sunsets these provisions on January 1, 2018.
STAFF COMMENTS
1) Intent of the bill . According to the author's office,
because the state has not passed a statewide
education facilities bond since 2006, over 80
community college facilities projects have been
placed "on hold" pending a future bond authorization.
Colleges that could utilize other locally generated
funds to start these projects are reluctant to do so
without some assurance that the state will ultimately
reimburse them for these expenditures from future
bond authorizations.
This bill is intended to commit bond funds which may
be authorized in the future to reimburse community
college district facility projects currently being
constructed. In essence, this bill commits bond
funds to specific projects before any bonds have been
authorized, and provides that any new bonds issued
will fund projects already completed. There is
currently no active legislation to place a higher
education facilities bond before voters and it is
AB 2164
Page 3
unclear when, and if, that will occur. This bill
establishes the authority for reimbursement for CCC
projects until 2018.
2) Current process ? Currently, CCC districts with an
expectation of state funding for facilities projects
have their projects reviewed, approved, and
prioritized by the Facilities Planning and
Utilization Unit (FPU) at the CCC Chancellor's
Office. The list of proposed projects is forwarded to
the Board of Governor's which reviews and approves
them for submission to the DOF and the Legislature
annually. The approved list is then forwarded to the
DOF for consideration of funding in the annual Budget
Act and the Legislature reviews and appropriates the
funds for those projects which the budget committees
determine meet the Legislature's priorities. Once
funds are appropriated, DOF and the State Public
Works Board may review and approve preliminary plans
and working drawings. Once these are approved,
projects can begin with an assurance that they will
receive state funds.
3) Undermines Legislative discretion . The current
process for review and appropriation of state funds
for CCC facility projects ensures that the
Legislature maintains oversight of infrastructure
spending and controls how state bond funds are spent.
This bill changes the process described in staff
comment #2 by providing that districts are eligible
to be reimbursed for costs incurred once the Board of
Governors approves the list of projects, thereby
authorizing districts to proceed with projects prior
to the Legislature's review and approval. Although
the bill provides that the amounts reimbursed are
subject to the Legislature's determination of
appropriate scope and cost, will a future Legislature
really have the capacity to limit or deny funding for
projects if districts have already proceeded with,
expended funds for, and perhaps even completed these
projects? Should this Committee establish a policy
which binds or pressures a future Legislature to
authorize bonds for funding purposes that may not
reflect that body's priorities or recognize the
fiscal condition of the state, at that time?
AB 2164
Page 4
4) Does K-12 have similar authority ? It has been
suggested that the authority sought by this bill is
similar to that provided to K-12 districts under the
School Facility Program. In order to receive state
bond funds, K-12 facility projects must be reviewed,
approved, and have funds apportioned by the State
Allocation Board (SAB), a role similar to that of the
Legislature in regards to CCC projects. The SAB,
citing its statutory authority to implement and
allocate voter-approved school construction bonds,
has, via regulation, periodically created an
"unfunded list" of projects. Generally, the unfunded
list has been used to provide school districts with
some assurance of their eligibility for funding from
bonds authorized, but not yet sold.
Staff notes the following:
All projects must go through the SAB review
and approval process before being placed on the
unfunded list.
Each district is advised that placement on
the unfunded list only reserves a place in line,
and is not a guarantee of future funding.
Generally, unfunded lists have not been
established for any extended period in the
absence of bond authority. Unfunded lists have
been established for only short periods of time
with the knowledge that a bond initiative was
going before voters in the next upcoming
election. This accommodation has also typicaly
been made for the CCC (see staff comment #5).
As bonds authorized for K-12 construction
are nearing exhaustion, the SAB is currently
considering whether (in the absence of any
legislative proposal to authorize future bonds
or that outlines any new requirements for the
use of funds under the School Facility Program)
creating such a list is prudent, and whether any
commitment of funding should accompany placement
on any unfunded list that may be created.
It appears that the CCC already enjoy a similar
AB 2164
Page 5
authority to that extended to K-12 districts, and
that this bill, by authorizing reimbursement for
projects that have not been reviewed and approved by
the body responsible for appropriating funds, would
provide the CCC with an authority that goes beyond
that which exists for K-12 schools. There is no
precedent within the K-16 facilities programs for the
extensive authority being proposed by this bill.
5) Past practice -- Who's next ? In the past, the
Legislature has granted the CCC only limited
authority to expend money in the absence of bond
authority. In August 1998-99 the Legislature
appropriated funds for CCC projects which were
ultimately authorized by voters in the November 1998
bond election. In September 2002, the Legislature
appropriated funds for projects in anticipation of
the passage of Proposition 47 in November 2002.
Finally, the 2006-07 Budget Act provided for the
appropriation of funds for CCC projects in
anticipation of the passage of Proposition 1D in
November 2006. However, unlike this bill, the
commitment of funding in the absence of existing bond
authority was made through the existing Legislative
review and oversight process and with the knowledge
that a bond proposal was authorized to be placed
before voters in an upcoming election.
If this bill were enacted, would/should the UC and
CSU also be "promised" reimbursement for their
facility projects? What other state infrastructure
projects will request that they be able to "lock-in"
as yet unauthorized bond funds? What kind of fiscal
pressure would be brought to bear on the state?
6) LAO Infrastructure report . In its August 2011 report,
A Ten-Year Perspective: California Infrastructure
Spending, the LAO notes that the state currently has
about $46 billion in infrastructure bonds that have
been approved but not yet sold, and that the
percentage of state general fund revenues for debt
service payments for bonds already sold is currently
at about 6 percent and growing (after over 30 years
of being under 5 percent). According to the LAO, the
largest single issue for the Legislature to determine
is the level of state spending to dedicate to the
AB 2164
Page 6
state's infrastructure investment versus program
spending, a trade-off which has become more
challenging due to the state's constrained fiscal
position. The LAO also notes, given other pressures
on the state budget, that the state will not have the
resources to sustain the level of higher education
infrastructure spending previously realized or
demanded by the segments' forecast in their five-year
capital outlay plans.
Generally, the LAO suggests that the Legislature
evaluate which programs should be a state
responsibility, and which should be shifted to
require a greater share of cost to local governments,
private sector, or other beneficiaries. With regards
to higher education, the LAO additionally recommended
that policies should place a greater emphasis on
distance education and improved use of existing
facilities.
7) How many projects ? According to the CCC Chancellor's
office there are currently 88 facility projects
anticipating state general obligation bond funds,
totaling approximately $447 million in project costs.
Staff notes that Proposition 1D, the last voter
authorized Education Facilities Bond in 2006,
provided $1.5 billion in general obligation bonds for
community college facility projects.
8) Equity/Disparity . It is unclear how the provisions
of this bill would be implemented by the CCC. Under
the current process, the CCC FPU unit utilizes a
scoring/prioritization methodology that considers the
nature of the project, the age of the facility,
enrollment capacity, cost, project scope and local
contribution. It appears that the provisions of this
bill could result in the overriding determination of
priority being access to alternative local financing
mechanisms, potentially resulting in districts that
have the local resources to fund their projects being
"moved to the front of the line" for state bond
funds. Regardless of the priority that the
Legislature might assign to a project, districts
without the capacity to access interim financing
could be left to compete for whatever bond funding
might remain after districts with greater resources
AB 2164
Page 7
had been reimbursed. Should a district's priority for
scarce state bond funds be determined by whether or
not local resources are readily available?
In the K-12 program, apportionment of bond funds are
generally granted based on the receipt and approval
dates of completed funding applications, or on a
first in, first out basis, and approved projects have
up to 18 months to request release of the State
funds. In May 2010, the SAB took the unprecedented
step of approving accelerated funding rules in order
to prioritize "shovel-ready" projects. To qualify for
priority funding, participating school districts
certified that within 90 days of receiving an
apportionment, they would have local matching funds,
usually 50 percent of the total project cost, in
hand, and at least half of their construction
contracts in place. School districts in financial
hardship (where the State provides up to 100 percent
of funding) were also able to compete for the
priority-ordered funding to purchase sites or begin
design work.
If the committee were to advance a proposal to commit
future bond funding, how should such a proposal be
structured to ensure that it does not create an
inadvertent inequity/disparity in district's access
to limited state bond funds?
9) Incentive for risky financing ? In an attempt to
ensure access to state bond funds, districts without
sufficient local bond funds or capital funds to
subsidize their projects on an interim basis will
likely consider alternative funding mechanisms.
Should this committee implement a policy that might
encourage districts to undertake greater risk or pay
higher borrowing costs in order to access state bond
funds? If a bond measure is not authorized, how will
the fiscal obligations undertaken by these districts
be met?
10) Related legislation . There is currently no active
legislation authorizing the submission of a general
obligation bond proposal for K-16 facilities
construction to voters. However, the following
measures were introduced in the first half of this
AB 2164
Page 8
legislative session:
AB 822 (Block) established the
Kindergarten-University Public Education Facilities
Bond Act of 2012 (Act) and authorized an unspecified
dollar amount of public higher education facility
general obligation (GO) bonds to be submitted to the
voters at the November 2012 election. AB 822 was
heard and passed by the Assembly Higher Education
Committee in January 2012 by a vote of 6-2 but was
never heard in the Assembly Appropriations Committee
and died in the Assembly in February 2012.
AB 331 (Brownley) expresses the intent of the
Legislature to enact legislation that would create a
Kindergarten-University Public Education Facilities
Bond Act and makes changes to the School Facility
Program (SFP). AB 331 was heard and passed by the
Assembly Education Committee in January 2012 by a
vote of 7-3, but was never heard in the Assembly
Appropriations Committee and died in the Assembly in
February 2012.
SUPPORT
Antelope Valley Community College District
Associated General Contractors
College of the Canyons
Community College League
Los Rios Community College District
Peralta Community College District
Riverside Community College District
San Jose-Evergreen Community College District
South Orange County Community College District
West Kern Community College District
Yosemite Community College District
OPPOSITION
None received.