BILL ANALYSIS �
AB 1979
Page 1
Date of Hearing: April 9, 2014
ASSEMBLY COMMITTEE ON EDUCATION
Joan Buchanan, Chair
AB 1979 (Nazarian) - As Introduced: February 19, 2014
SUBJECT : School facilities: California School Finance
Authority: definitions
SUMMARY : Expands the definition of "project" under the
California School Finance Authority (CSFA) Act to include the
reimbursement for the costs of acquisition, construction,
expansion, remodeling, renovation, improvement, furnishing, or
equipping of an educational facility to be financed or
refinanced.
EXISTING LAW :
1)Establishes the CSFA Act, and makes findings and declarations
regarding the interest of the state and its people for the
state to reconstruct, remodel or replace existing school
buildings that do not meet structural safety requirements;
acquire new schoolsites and buildings for school districts,
charter schools and community college districts; and assist
school districts and community college districts by providing
access to financing for working capital and capital
improvements. (Education Code (EC) Sections 17170 and 17171)
2)Establishes the CSFA, comprised of the Treasurer or his/her
designee, who serves as the Chairperson; the director of the
Department of Finance or his/her designee; and the
Superintendent of Public Instruction or his/her designee. (EC
Sections 17172 and 17174)
3)Defines "bonds" or "revenue bonds" as bonds, notes, lease
obligations, certificates of participation, commercial paper,
and any other evidence of indebtedness. (EC Section 17173
(d))
4)Defines "project" as the acquisition, construction, expansion,
remodeling, renovation, improvement, furnishing, or equipping
of an educational facility to be financed or refinanced.
Specifies that "project" may include any combination of the
aforementioned undertaken jointly by any participating
district with one or other participating parties. (EC Section
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17173 (h))
5)Specifies that the Attorney General (AG) shall be the legal
counsel for the CSFA, unless the AG provides approval for the
CSFA to employ legal counsel, including the employment of a
bond counsel in connection with the issuance of bonds. (EC
Section 17176)
6)Specifies the powers and authorities of the CSFA, including
the authority to issue revenue bonds to provide funds for the
financing or refinancing of a single, a series or several
projects, or financing of working capital for a single party
or several participating parties. Expresses the intent of the
Legislature to provide financing only for projects
demonstrated by the participating party to be financially
feasible, and specifies that revenue bonds are not and shall
not be deemed to constitute a debt or liability of the state,
obligate the state to pay the principal and interest, or
obligate the state to levy or pledge any form of taxation or
make any appropriation for their payment. (EC Sections 17180,
17183 and 17185)
FISCAL EFFECT : Unknown
COMMENTS : The CSFA was established as a conduit to secure
financing for working capital and facilities projects for school
districts, charter schools and community college districts. The
CSFA operates under the Treasurer's Office, who is the sponsor
of this bill. According to the Treasurer's Office, because
school districts and community colleges are able to issue
general obligation bonds on their own, the CSFA has provided
financing mostly to charter schools. Over the last four years,
CSFA has issued $279.6 million bonds for 120 charter school
facilities. Charter schools are the obligor and make bond
payments through an intercept process whereby the State
Controller intercepts or redirects state funds allocated to
charter schools to make bond payments. According to the CSFA,
bonds are typically sold to large institutional investors, with
interest rates ranging between 4.19% to 7.58% over the last four
years.
Under the CSFA Act, "project" is defined as the acquisition,
construction, expansion, remodeling, renovation, improvement,
furnishing, or equipping of an educational facility to be
financed or refinanced. According to the Treasurer's Office,
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"when borrowers embark on a bond sale to fund a capital project,
the governing board of the entity adopts an inducement
resolution that starts the clock on the project. The resolution
enables the entity to begin to incur project-related expense and
pay for these expenses out of existing operating or other
funding sources and reimburse itself with bond proceeds once the
bonds are sold. Almost all financings issued through CSFA
utilize this resolution to begin work on projects in advance of
bonds closing with the expectation that costs will be reimbursed
once the sale of bonds takes place."
When bonds are issued, the AG, who serves as the legal counsel
for the CSFA, provides an issuer's opinion to protect the CSFA
in the bond sale. The AG's Office opined last year that the
CSFA Act authorizes the proceeds of bond funds to be used for
financing or refinancing of projects, but does not expressly
provide authority to reimburse borrowers for costs incurred
prior to issuance of the bond.
This bill expands the definition of "project" to include the
reimbursement for the costs of acquisition, construction,
expansion, remodeling, renovation, improvement, furnishing, or
equipping of an educational facility to be financed or
refinanced. This language is consistent with the authority
provided to other boards, commissions and authorities under the
Treasurer's Office, such as the California Health Facilities
Financing Authority, the California Educational Facilities
Authority, and the California Pollution Control Authority.
In light of the AG's opinion, the AG's Office stopped providing
legal opinions on bonds, and the Treasurer's Office has retained
outside counsel. This has resulted in higher costs to the
borrowers due to much higher fees charged by outside counsel
(e.g., $170/hour for the AG and $500/hour for outside counsel).
The Treasurer's Office states that any savings derived from this
bill could be better used for classroom purposes.
Arguments in support . The California Charter Schools
Association Advocates supports the bill and states, "Through the
conduit financing program, CSFA offers charter schools access to
low-interest capital. All costs of the program are borne by the
charter school but typically the rates offered are much lowered
than that which a school may be able to attain on its own. This
bill provides a technical amendment to the CSFA statutes by
allowing the reimbursement of pre-issuance costs, a standard use
AB 1979
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of bond proceeds. Such authority will enable the use of state
attorneys at the Office of the Attorney General."
REGISTERED SUPPORT / OPPOSITION :
Support
California Charter Schools Association
Opposition
None on file
Analysis Prepared by : Sophia Kwong Kim / ED. / (916) 319-2087