BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: AB 1979 HEARING: 6/25/14
AUTHOR: Nazarian FISCAL: Yes
VERSION: 6/18/14 TAX LEVY: No
CONSULTANT: Grinnell
CALIFORNIA SCHOOL FINANCE AUTHORITY
Enacts four changes to California School Finance
Authority's authorizing statute.
Background and Existing Law
Housed in the Office of the State Treasurer, the California
School Finance Authority (CSFA) finances educational
facilities and provide school districts and community
college districts access to working capital. CSFA is
comprised of the State Treasurer, the State Superintendent
of Public Instruction, and the Director of Finance. CSFA
almost exclusively provides financial assistance to charter
schools by administering state education bond funds,
federal and state grants, a revolving loan fund, a credit
enhancement grant program, and conduit bond financing.
I. Definition of Project. Charter Schools apply to CSFA
for bond funds by adopting an inducement resolution. If
CSFA approves the application, then the charter school will
often use funds on hand to begin construction in advance of
the bond issue. After the bond is sold, the charter school
reimburses the advanced funds out of bond proceeds, a
process consistent with federal tax law. However, the
Attorney General's recent review of CSFA indicates that the
definition of "project" in its statute doesn't allow for
reimbursements similar to many of the other authorities
housed in the State Treasurer's Office. The Attorney
General has subsequently refused to provide an issuer's
opinion, forcing CSFA to rely on more expensive private
bond counsel.
II. Intercept Bonds. CSFA issues "intercept" bonds, where
the state controller intercepts an amount equal to debt
service from state aid allocated to a charter school, and
pays the intercepted amount directly to the bond trustee.
AB 1979 - 6/18/14 -- Page 2
CSFA's statute also places a cap on its intercept bonds at
$4 billion, and $400 million for all other bonds, but CSFA
has only issued intercept bonds lately, and doesn't
anticipate issuing non-intercept bonds any time.
Additionally, state law contains a chapter for public
credit providers, which CSFA don't use anymore.
Proposed Law
Assembly Bill 1979 makes four changes to CSFA's bond
statutes:
First, the measure changes the definition of
"project" to explicitly allow for reimbursements
provided that reimbursement from bond proceeds is
required to comply with federal tax law in accordance
with an opinion of counsel that supports special
treatment under federal tax law for the bonds issued
for the applicable financing or refinancing, and
rearranges definitions to put the section in
alphabetical order.
Second, the bill revises the law authorizing
intercept bonds by repealing one, and refining
another. The new section:
o Spells out the specific payments that can
be intercepted, including payments for reserves,
credit support, and bond issuance costs,
o Applies its changes to refinancing
existing bonds,
o Provides a process for charter schools to
elect to participate in the intercept program,
o Directs the Controller to intercept state
funds from specific state funds flowing to the
charter school,
o Ensures that the Controller doesn't have
any liability for the intercept beyond his or her
duties in the intercept agreement,
o Allows CSFA to impose the intercept
process on applicants,
o Makes conforming changes.
Third, AB 1979 combines the two separate debt caps
into one, totaling $4.4 billion,
Lastly, the measure repeals a section of law
relating to public credit providers.
AB 1979 - 6/18/14 -- Page 3
State Revenue Impact
No estimate.
Comment
Purpose of the bill . According to the author, "Unlike
public schools, charter schools use general operational
funds to pay for debt related to facility financing.
Operational funds are also used to pay for classroom
instruction and related programs. Any cost savings from
the bond transaction could be used towards classroom needs.
However, since the cost of obtaining issuer's counsel
opinion from private firms is triple the amount than those
provided by the AGO, the schools are taking more funds away
from classroom needs. AB 1979 allows CSFA to issue bonds
at a significantly reduced cost and will update the CSFA
statute to match current practices."
Assembly Actions
Assembly Floor 73-0
Assembly Appropriations 17-0
Assembly Education 7-0
Support and Opposition (06/19/14)
Support : State Treasurer Bill Lockyer; California Charter
Schools Association Advocates
Opposition : None received.