BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: AB 1668 HEARING: 6/11/14
AUTHOR: Wieckowski FISCAL: Yes
VERSION: 2/12/14 TAX LEVY: No
CONSULTANT: Grinnell
CALIFORNIA EDUCATIONAL FACILITIES AUTHORITY (URGENCY)
Allows the California Educational Facilities Authority to
facilitate private placement loans.
Background and Existing Law
Several authorities within the State Treasurer's Office can
issue conduit bonds, whereby a public agency sells a bond,
then loans the proceeds to a nongovernmental borrower, such
as a hospital or factory. Only the nongovernmental
borrower's loan repayments secure the bond; the state
doesn't guarantee the bond in any way.
One such authority, the California Educational Financing
Authority (CEFA), issues conduit bonds on behalf of
private, non-profit, post-secondary degree-granting
institutions located in California, or institutions that
have educational facilities in California that are
regionally accredited and do not factor race or ethnicity
into their admissions process. CEFA's governing board
includes the Treasurer as Chair, the Controller, the
Director of Finance, and two appointees from the Governor.
Institutions must apply to CEFA, and can use proceeds to
purchase land, construct or remodel buildings, purchase or
lease equipment, and/or refinance existing debt. Religious
schools are not precluded from applying. Successful
applicants include Pepperdine University, University of
Southern California, Claremont University Consortium, and
Chapman.
Education institutions choose between CEFA and private
banks when seeking project finance. However, while CEFA
can issue bonds, notes, or other securities on behalf of
issuers, it can't accept loan proceeds or issue other
evidences of indebtedness necessary to allow for private
placement loans, whereby an intermediary identifies an
AB 1668 - 2/12/14 -- Page 2
investor who directly funds the loan to the institution.
Private placement loans are generally less costly because
the issuer doesn't have to pay the costs to issue a bond,
but can have higher interest rates because they can be
modified more easily than bonds. Generally, pension funds
and insurance companies invest in private placement loans.
Seeking parity with other authorities, the state, and joint
powers agencies, CEFA wants authority to issue private
placement loans.
Proposed Law
Assembly Bill 1668 allows CEFA to accept loan proceeds or
issue other evidences of indebtedness necessary to allow
for private placement loans. The measure also makes
several technical and conforming changes to CEFA's conduit
bond statutes recommended by the Office of the Attorney
General during a recent review, which include:
Replacing "any" with "a,"
Allowing CEFA to include in the bond with the same
effect any provision currently in a trust agreement,
indenture, or resolution, and
Making other grammatical changes.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . According to the author, "AB 1668
would give the California Educational Facilities Authority
the statutory authority to provide private or direct
placement loans to nonprofit higher educational
institutions. This will enable CEFA to respond to market
demand and maintain its longstanding relationship with
private non-profit colleges and universities by continuing
to offer them cost effective financing options. In the
past year, CEFA has turned away 12 borrowers, with a
resulting loss in fees of roughly $2 million, because it
currently lacks this authority. AB 1668 requires no
additional financial costs or staffing needs and is
supported by the Association of Independent California
Colleges and Universities."
AB 1668 - 2/12/14 -- Page 3
2. Appropriate ? Several authorities within the
Treasurer's Office, including CEFA, issue tax-exempt bonds
and financial instruments on behalf of private businesses.
While these programs can provide access to funds at lower
costs and interest rates than private lenders without risk
to the state's General Fund, they overlap with activities
that are typically the province of the financial services
industry, although only public entities can issue
tax-exempt financial instruments. Additionally, CEFA
identifies foregone fees from private loans as one of the
reasons to enact AB 1668, suggesting that the state could
take some business from other lenders. The Committee may
wish to consider whether it's appropriate to change the law
to enhance fee revenue and CEFA's position relative to its
competitors.
3. Urgency . Regular statutes take effect on January 1
following their enactment; bills passed in 2014 take effect
on January 1, 2015. The California Constitution allows
bills with urgency clauses to take effect immediately if
they're needed for the public peace, health, and safety.
AB 1668 contains an urgency clause declaring that it is
necessary for its provisions to go into effect immediately
to prevent the loss of additional revenue.
Assembly Actions
Assembly Floor 75-0
Assembly Appropriations 17-0
Assembly Higher Education 12-0
Support and Opposition (06/05/14)
Support : State Treasurer Bill Lockyer, Association of
Independent California Colleges and Universities.
Opposition : Unknown.