BILL ANALYSIS �
AB 1979
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 1979 (Nazarian)
As Amended August 5, 2014
Majority vote
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|ASSEMBLY: |73-0 |(May 8, 2014) |SENATE: |35-0 |(August 18, |
| | | | | |2014) |
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Original Committee Reference: ED.
SUMMARY : Expands the definition of "project" under the
California School Finance Authority (CSFA) Act (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; expands the authority to use the intercept repayment
method to include other bond-related costs, and consolidates the
caps on the total amount of revenue bonds that may be issued and
outstanding at any time under the Act.
The Senate amendments :
1)Require the reimbursement from bond proceeds 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.
2)Add language modifying the provisions that outline conditions
to be met by a school district, charter school, county office
of education, or community college district electing to
guarantee or provide for payment of bonds and related
obligations through the intercept repayment mechanism under
the Act. Specifically, this bill:
a) Expands the costs which may be covered via the intercept
repayment method to include payment on authority bonds,
payments under credit enhancement or liquidity support
agreements and amounts pledged or assigned under these
agreements, payments to fund reserves for these items, fees
and charges, and any other costs necessary or incidental to
financing or refinancing activity under the Act.
b) Modifies the process to be followed by a borrower in
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order to initiate the intercept repayment method to reflect
current practice.
c) Establishes the rules by which the State Controller
(Controller) shall conduct the intercept and provides that
the Controller may rely on the requests for intercept made
by investors, bondholders, trustees, borrowers, and credit
providers without liability if these requests are made in
compliance with the bill's provisions.
d) Establishes the following new authorities for the CSFA:
i) Authorizes the CSFA to require participation in the
intercept repayment under the terms of
financing/refinancing under the Act.
ii) Authorizes the CSFA to impose limits on new
participation in the intercept repayment process.
iii) Authorizes the CSFA to require school districts,
county offices of education, charter schools, and
community college districts to apply to CSFA in order to
participate in the intercept repayment process.
e) Declares that these provisions do not obligate the State
of California to provide additional appropriations to fund
debt service obligations beyond those specifically
designated for apportionment to the participating school
district, charter school, county office of education, or
community college district.
3)Add language eliminating the distinction in the cap between
revenue bonds issued and outstanding under the Act and the cap
on the total amount outstanding for purposes of the intercept
repayment mechanism, and consolidates these caps into a single
total amount of revenue bonds that may be issued and
outstanding at any time under the Act. Specifically, this
bill:
a) Eliminates the $4 billion cap on the amount of bonds
outstanding for purpose of the intercept repayment
mechanism.
b) Eliminates the $400 million cap on the total amount of
revenue bonds that may be issued and outstanding at any
time for any purpose under the Act.
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c) Caps the total amount of revenue bonds that may be
issued and outstanding under the Act at $4.4 billion.
4)Add double jointing language to avoid chaptering out
provisions contained in SB 971 (Huff) of the current
legislative session.
FISCAL EFFECT : According to the Senate Appropriations
Committee, pursuant to Senate Rule 28.8, negligible state costs.
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 State 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,
"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 Attorney General (AG), who serves as
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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 per 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.
Amendments adopted in the Senate make changes to the intercept
process. According to the sponsor, the AG has interpreted
current law as authorizing the intercept process to be used only
to service debt payments and not for other bond-related costs.
This bill authorizes an optional intercept to be used for other
costs associated with bond financing such as bond counsel and
underwriting costs, making this financing more attractive to
borrowers and investors.
Amendments adopted in the Senate also consolidate the caps on
the amount of debt authorized to be issued. Current law divides
CSFA's maximum bond authority into two categories: $400 million
for debt that is not intercepted and $4 billion for debt that is
intercepted. According to the Treasurer's Office, CSFA has
issued approximately $295 million in charter school debt over
the last three years, of which, only one financing for $7
million did not use the intercept method. In addition, the
Treasurer's Office reports that the intercept repayment option
is typically preferred, if not required, by potential investors.
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This bill combines both categories of debt under a single cap,
authorizing a total of $4.4 billion in bonds, regardless of the
repayment method, in recognition of the current environment at
CSFA with respect to charter school financings.
Analysis Prepared by : Sophia Kwong Kim / ED. / (916) 319-2087
FN: 0004439