BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
SB 1240 (Cannella) - School Finance: Emergency Loans
Amended: May 2, 2012 Policy Vote: Education 8-0
Urgency: No Mandate: No
Hearing Date: May 14, 2012 Consultant: Jacqueline
Wong-Hernandez
This bill meets the criteria for referral to the Suspense File.
Bill Summary: SB 1240 changes the interest rate from 5.44% to
1%, for the purposes of determining the cost of the original
emergency loan for the South Monterey County Joint Union High
School District, contingent upon the passage of a local parcel
tax, as specified.
Fiscal Impact:
$445,000 annually, totaling approximately $9 million
General Fund over the life of the loan.
Fiscal precedent: Granting such a subsidy to assist a
specific district in repaying its bailout loan will likely
encourage future bailout loan recipients to seek similar
subsidies.
Background: According to the Fiscal Crisis Management Assistance
Team (FCMAT), from 2002 until the appointment of the state
administrator in July 2009, inconsistent leadership and
ineffective governance, exacerbated multiple years of financial
difficulties which led to cash insolvency and the need for state
intervention in the King City Joint Union High School District,
now named the South Monterey County Joint Union High School
District.
SB 130 (Denham) Chapter 20/2009, appropriated $5 million from
the General Fund as an emergency loan to the district, and
authorized lease-back bond financing through the Infrastructure
and Economic Development Bank (I-Bank) of up to $13 million,
plus expenses. The principal, accrued interest, and issuance
costs totaled $14.4 million in
I-Bank issued bonds.
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According to FCMAT, the emergency loan has a repayment period of
20 years and includes annual debt service of $1.2 million. The
annual debt service payment is approximately 7.5% of the
district's projected unrestricted general fund revenue for
2011-12. The district's high interest rate is the result of the
sale of bonds through the I-Bank to fund the loan; the interest
rate reflected the going bond interest rate at the time of the
sale.
Using the I-Bank for this purpose began with AB 1554 (Keene)
Chapter 263/2004, which provided the General Fund one-time and
potentially on-going savings by requiring local educational
agencies (LEAs) with outstanding emergency loans, at that time,
to refinance these loans with revenue bonds issued by the
I-Bank. LEAs are required to repay the bonds within 20 years.
This type of arrangement was used to refinance the emergency
loans to Oakland, Vallejo, and West Contra Costa school
districts, which all had loans executed prior to the passage of
AB 1554.
Proposed Law: SB 1240 reduces the interest rate from 5.44% to
1%, for the purposes of determining the cost of the original
emergency loan for the South Monterey County Joint Union High
School District. The reduction would be contingent upon the levy
of a local parcel tax, the proceeds of which must benefit the
district.
Related Legislation: AB 1858 (Alejo) is very similar to SB 1240.
That bill is in the Assembly Appropriations Committee.
Staff Comments: Reducing the rate from 5.44% to 1%, for the
purposes of determining the district's cost for the original
emergency loan for the South Monterey County Joint Union High
School District, will result in $445,000 in annual savings to
the district, at the expense of the state General Fund. The
General Fund cost would be approximately $9 million over the
life of the loan.
This bill contains legislative intent and declarations that this
bill "not be deemed precedent" because of the "unique fiscal
situation of these school districts". It is unlikely that such a
declaration would deter future school districts that receive
emergency loans from seeking the same treatment, with the same
rationale given for this bill. This bill overrides legislation
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for a specific school district, and is likely to result in all
future schools districts in similar situations asking for equal
protection.