BILL ANALYSIS �
SENATE COMMITTEE ON EDUCATION
Alan Lowenthal, Chair
2011-2012 Regular Session
BILL NO: AB 2164
AUTHOR: Dickinson
AMENDED: May 31, 2012
FISCAL COMM: Yes HEARING DATE: June 13, 2012
URGENCY: No CONSULTANT:Kathleen Chavira
SUBJECT : Community College Facilities.
SUMMARY
This bill, until 2018 and subject to specified conditions,
authorizes a community college district to be reimbursed
for amounts incurred for a capital outlay project if a
state general obligation bond is approved on or before
December 31, 2016.
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 through the expenditure of local funds
before funds are available from voter approved
general obligation bond, if the project has:
a) Been granted final project approval by the
Board of Governors.
b) Received approval of preliminary
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plans for the project by the DOF and the State
Public Works Board.
c) Received an appropriation for the
project by the Legislature in the Annual Budget
Act or related legislation.
2) Provides that the amount of reimbursement is subject
to the Legislature's determination of the appropriate
scope and cost of the project.
3) Establishes the following requirements in order to
apply to receive reimbursement:
a) Prior to incurring amounts, the
community college district must demonstrate to
the Community College Chancellor's Office that
sufficient local funds are available to fully
pay for the project without reimbursement and
without causing fiscal hardship to the district.
b) A community college district must
comply with all state and federal laws,
including labor compliance program requirements,
governing the use of state bond funds for
facility construction projects.
c) Expenditures made by a community
college district must be eligible for
reimbursement in accordance with applicable
state and federal laws and procedures.
d) Reimbursement of amounts only
occurs pursuant to a state general obligation
bond being approved by voters on or before
December 31, 2016.
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.
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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
unclear when, and if, that will occur. This bill
establishes the authority for reimbursement for CCC
projects until 2018.
2) 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. This bill extends this authority for
up to five years, with no assurance that a bond
proposal will be placed before voters in an upcoming
election or that it will include funding for
community college construction projects.
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? How would this affect
K-12 school district deliberations? What kind of
fiscal pressure would be brought to bear on the
state?
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3) Similar issues in K-12 ? 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:
a) All projects must go through the SAB review
and approval process before being placed on the
unfunded list.
b) Each district is advised that placement on
the unfunded list only reserves a place in line,
and is not a guarantee of future funding.
c) 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 typically
been made for the CCC (see staff comment #3).
d) 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's unclear whether K-12 districts will be granted
similar authority to "lock-in" funds from future
bonds and how far that authority will extend.
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4) 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
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.
5) Binding a future legislature ? This bill would extend
the authority for reimbursement for projects
completed prior to any state general obligation bond
authorization until January 1, 2018. Should this
Committee support 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? If it is the desire of the Committee to
extend some authority for reimbursement, how far into
the future should state bonds for this purpose be
committed?
In light of these concerns and those outlined in
staff comments 3, 4, and 5, staff recommends the bill
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be amended to make its provisions contingent on the
approval of a state general obligation bond by voters
on or before December 31, 2014, and to sunset these
provisions on January 1, 2016.
6) 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.
7) Equity/Disparity . It is unclear how the provisions
of this bill would be implemented by the CCC. Under
the current process, the CCC Facilities Planning 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 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
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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?
8) 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? Staff notes that this bill was recently
amended to require that the district demonstrate to
the Chancellor's Office that sufficient local funds
are available to pay for a project without
reimbursement and without causing fiscal hardship to
the district.
Staff recommends the bill be further amended on page
3, line 31 to require the Chancellor's Office to
notify applicant districts that the provisions of the
bill do not guarantee funding for the project and
that participating districts assume any associated
financial risk should state general obligation bond
funds be unavailable, pursuant to the bill's
provisions.
9) 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
legislative session:
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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
Community College Chancellor's Office
Community College League
Construction Employers' Association
OPPOSITION
None received.