BILL ANALYSIS �
AB 1668
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Date of Hearing: March 18, 2014
ASSEMBLY COMMITTEE ON HIGHER EDUCATION
Das Williams, Chair
AB 1668 (Wieckowski) - As Introduced: February 12, 2014
SUBJECT : Educational facilities: California Educational
Facilities Authority.
SUMMARY : Defines the term "bond" as it relates to the
California Educational Facilities Authority (CEFA); specifies
CEFA has the power to, receive and accept from any source,
loans, contributions, or grants for, in aid of, the acquisition,
construction, financing or refinancing of a project, in money,
property, labor or other things of value; authorizes CEFA to
issue notes and bonds for any corporate purpose and bond
anticipation notes in anticipation of the sale of the bonds;
provides that any provision CEFA may include in a trust
agreement or resolution providing for the issuances of bonds, as
specified, may also be included in a bond and the provision
shall have the same effect; allows CEFA to have options as to
where they inscribe statements on their issued bonds; requires
all funds received by CEFA to be deemed to be trust funds to be
held and applied as specified, whether as proceeds from selling
or incurring bonds as revenues; states this measure is urgency
measure to take effect immediately; and, makes numerous
clarifying and technical changes to existing law. Specifically,
this bill :
1)Defines the term "bond" to mean bonds, notes, debentures,
securities, or other evidences of indebtedness of the CEFA.
2)Authorizes CEFA to receive and accept, from any source, loans,
contributions, or grants for, or in aid of, the acquisition,
construction, financing or refinancing of a project, or any
portion of a project, in money, property, labor, or other
things of value.
3)Authorizes CEFA to issue notes and bonds for corporate
purposes and bond anticipation notes in anticipation of the
sale of bonds; and, specifies that negotiable bonds and notes
shall be and be deemed to be, for all purposes, negotiable
instruments, notwithstanding the fact that the negotiable
bonds or notes may be payable from a special fund subject only
to the provisions of the bonds or notes for registration.
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4)Specifies that any provision CEFA may include in a trust
agreement of or resolution providing for the issuance of bonds
may also be included in a bond and the provision shall have
the same effect.
5)Allows that the mandated statement CEFA must inscribe on all
their issued bonds no longer shall be solely contained on the
face of the bond.
6)Requires that all funds received by CEFA whether as proceeds
from selling or incurring bonds, or as revenue, shall be
deemed to be trust funds to be held and applied solely as
specified.
7)States this measure is an urgency measure and, in order to
prevent the loss of additional revenue, must go into effect
immediately.
8)Makes numerous technical and clarifying changes to current
law.
EXISTING LAW establishes CEFA to provide higher education
institutions, including private colleges, with additional means
for specified construction projects (Education Code � 94110 et
sec.).
FISCAL EFFECT : Unknown
COMMENTS : Background . CEFA, which is housed in the State
Treasurer's Office, was created in 1973 for the purpose of
issuing revenue bonds to assist private non-profit postsecondary
education institutions in the expansion and construction of
educational facilities, in order to expand educational
opportunities in California. Because it is authorized to issue
tax-exempt bonds, CEFA may provide more favorable financing to
such private institutions than might otherwise be obtainable.
The law specifically provides that bonds issued by CEFA shall
not be a debt, liability, or claim on the faith and credit or
the taxing power of the State of California or any of its
political subdivisions. The full faith and credit of the
participating institution is normally pledged to the payment of
the bonds. The CEFA authority consists of 1) the Director of
Finance, 2) the Controller, 3) the Treasurer, who serves as
chairperson, and 4) two members appointed by the Governor for
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four year terms, as specified.
Direct or private placement loans . According to the sponsor,
State Treasure Bill Lockyer, direct or private placement loans
are becoming more common for financing and refinancing higher
educational facilities; however, the economic downturn in
2008-2009 reduced the availability of low cost financing avenues
that many colleges and universities received through the
municipal bond market. Subsequently, these institutions are now
issuing debt in the form of direct loans with private banks
(often referred to as private or direct placement loans). These
loans provide many of the same benefits to a borrower as issuing
a bond, but with lower transaction costs because of avoided
costs such as underwriter services, or bond insurance fees.
Without these associated costs, private or direct placement
loans are an attractive option for many colleges and
universities seeking to access low cost financing for the
construction of educational facilities.
Need for the bill . CEFA does not have statutory authority to
issue direct or private placement loans. As a result, according
to the author's office, CEFA has had to turn away business from
several private, non-profit colleges and universities.
According to the State Treasurer's Office, having to turn away
eight borrowers that were interested in CEFA assistance to
transact a private placement loan cost CEFA approximately 1.2
million dollars in lost revenue.
The author states, "AB 1668 would give CEFA statutory authority
for the issuance of direct or private placement loans. This
will enable CEFA to meet the needs of its borrowers in the
evolving field of tax-exempt financing."
Expansion of CEFA financing eligibility . In recent history,
this committee has heard and passed several bills which have
expanded eligibility for CEFA financing, including the
following:
1)AB 1163 (Brownley, Chapter 281, Statutes of 2011), which
changed the definition of a "participating private college" or
"participating college" to allow CEFA to act as a conduit
issuer of tax exempt bonds for private religious colleges, as
specified.
2)SB 280 (Scott, Chapter 345, Statutes of 2007), which modified
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the definition of "participating college" to maintain the
eligibility of research organizations that did not grant
degrees for CEFA financing, if they had received CEFA
financing in the past.
3)AB 947 (Liu, Chapter 191, Statutes of 2005), which expanded
the definition of a "private college," for purposes of CEFA
financing eligibility, to include nonprofit affiliates, as
specified, of nonprofit private or independent degree-granting
accredited colleges.
4)SB 1624 (Romero, Chapter 1081, Statutes of 2002), which
authorized the California Educational Facilities Authority
(CEFA) to finance the construction of faculty and staff
housing owned by private colleges, as specified, and
authorized CEFA to use up to $2 million of its fund balance,
on a one-time basis, to provide grants to private colleges to
support academic assistance programs to middle and high school
pupils attending schools in low-income areas with low college
going rates, as specified.
5)AB 1611 (Keeley, Chapter 569, Statutes of 2001), which
authorized the CEFA to enter into agreements with nonprofit
entities to finance construction costs for student, faculty,
and staff housing near the campuses of the University of
California, the Hastings College of Law, the California State
University, the California Community Colleges, or
participating private colleges.
REGISTERED SUPPORT / OPPOSITION :
Support
Association of Independent California Colleges and Universities
California State Treasurer, Bill Lockyer (sponsor)
Opposition
None on file.
Analysis Prepared by : Jeanice Warden / HIGHER ED. / (916)
319-3960
AB 1668
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