BILL ANALYSIS Ó
AB 912
Page 1
Date of Hearing: April 8, 2015
ASSEMBLY COMMITTEE ON EDUCATION
Patrick O'Donnell, Chair
AB 912
(Wilk) - As Introduced February 26, 2015
SUBJECT: Local educational agencies: school bonds: notices
SUMMARY: Expands the requirement for reporting issuances of
non-voter-approved debt to include voter-approved debt.
Specifically, this bill:
1)Requires a governing board of a school district to do the
following:
a) Notify the county superintendent of schools and the
county auditor upon approval of the issuance of all bonds,
not just revenue bonds, by the governing board.
b) Notify the county superintendent of schools and the
county auditor, no later than 30 days before the approval
by a governing board of a school district to issue all
bonds.
2)Requires the superintendent of the school district to provide
the repayment schedules for that debt obligation, evidence of
the ability of the school district to repay that obligation,
AB 912
Page 2
and the issuance costs, to the county auditor, the county
superintendent, the governing board, both before an issuance
and upon approval by the governing board of an issuance.
3)Requires a county superintendent of schools to do the
following:
a) Notify the Superintendent of Public Instruction (SPI)
upon approval of the issuance of all bonds, not just
revenue bonds, by the county board of education.
b) Notify the SPI, no later than 30 days before the
approval by the county board of education to issue all debt
instruments that are secured by real property.
4)Requires the county superintendent of schools or the
superintendent of a school district for which the county board
serves as the governing board to provide information necessary
to assess the anticipated effect of the debt obligation, the
repayment schedules, the evidence of the ability of the county
office of education or school district to repay that
obligation, and issuance costs to the SPI, both before an
issuance and upon approval of an issuance.
EXISTING LAW:
1)Requires that upon approval by the governing board of a school
district or a county office of education to proceed with the
issuance of revenue bonds or entering an agreement for school
facility financing through the California School Finance
Authority, the school district shall provide notification to
the county superintendent and county auditor. A county
superintendent and district superintendent for which the
AB 912
Page 3
county board serves as the governing board shall provide
notification to the SPI.
2)Requires the superintendent of the school district to provide
to the county superintendent of schools, the county auditor,
the governing board and the public, the repayment schedules
for that debt obligation and evidence of the ability of the
school district to repay that obligation. Requires the county
superintendent or the district superintendent for whom the
county board serves as the governing board to provide to the
SPI, the governing board and public, the repayment schedules
for that debt obligation and evidence of the ability of the
county office of education or school district to repay that
obligation.
3)Provides that within 15 days of the receipt of the
information, the county superintendent and the county auditor
may comment publicly to the governing board of the school
district regarding the capability of the school district to
repay that debt obligation, and the SPI may comment publicly
to the county board of education regarding the capability of
the county board of education or school district to repay that
debt obligation.
4)Provides that no later than 30 days before a governing board
of a school district or a county office of education approves
the issuance of certificates of participation (COPs) and other
non-voter-approved debt instrument secured by real property,
the superintendent of the school district shall notify the
county superintendent of schools and the county auditor, and
the county superintendent of schools shall notify the SPI.
AB 912
Page 4
5)Requires the superintendent of the school district to provide
to the county superintendent of schools, the county auditor,
the governing board and the public, information necessary to
assess the anticipated effect of the debt issuance, including
the issuance costs, the repayment schedules for that debt
obligation, and evidence of the ability of the school district
or county office of education to repay that obligation.
6)Provides that within 15 days of the receipt of the
information, the county superintendent of schools and the
county auditor may comment publicly to the governing board of
the school district, and the SPI may comment publicly to the
county board of education regarding the capability of the
school district to repay that debt obligation.
FISCAL EFFECT: The Legislative Counsel has keyed this bill as a
state-mandated local program.
COMMENTS: Existing law requires the superintendent of a school
district to notify the county superintendent of schools, and the
county superintendent of schools to notify the SPI, at least 30
days prior to approving a COP or other debt instruments that are
secured by real property and do not require the approval of
voters. This provision was enacted by AB 2197 (Mullin),
Chapter, 128, Statutes of 2008, following reports of districts'
over-reliance of COPs that could put school districts' or county
offices of educations' general funds at risk.
A COP is a form of lease purchasing using properties (e.g.,
facilities and equipment) as collateral to borrow funds for
physical capital needs. COPs do not require voter approval and
are commonly used by local governmental entities to secure
immediate resources. An independent party, sometimes another
public entity or a nonprofit organization, known as a lessor,
executes the lease agreement. The borrower, also known as the
lessee, purchases the property from the lessor and makes annual
payments for the principal and interests, which are tax exempt.
AB 912
Page 5
When the debt is retired, the lessee receives ownership of the
property. A trustee, usually a bank or trust company, holds
title to the property and sells the COPs to investors. If the
lessee defaults on the payments, the property used for
collateral will be sold to reimburse investors. Interest rates
and issuance (administrative) costs for COPs can be higher than
those for general obligation (GO) bonds.
According to school facilities financial consultants, a COP is
one of the easiest sources of funding because it does not
require approval by voters. A school district that issues a COP
generally anticipates repaying the COP through projected new
revenues, such as developer fees, redevelopment agency funds,
state bond funds, or the general fund. If the non-general-fund
sources of revenue do not materialize, a district's general fund
may be put at risk.
Current law also requires a superintendent of a school district
to notify the county superintendent of schools and the county
superintendent of schools to notify the SPI upon approval of an
issuance of a revenue bond. Similarly, revenue bonds are
secured by an anticipated revenue stream and are occasionally
used by school districts.
Is this bill necessary? This bill removes the reference to
"revenue" bonds and "non-voter-approved" debt so that the
notification provisions would apply to all debt instruments,
including GO bonds. Current law requires the notification for
revenue bonds and COPs because they do not require voter
approval and they could impact a district's general fund. In
these cases, it is a good idea for a county office of education
or the SPI to review the proposed debt and be able to comment on
whether a school district or county office of education is able
to make repayments without jeopardizing a school district or
county office of education's general fund. Voter approved debt,
such as GO bonds, Mello Roos, and School Facilities Improvement
AB 912
Page 6
Districts, are secured by property taxes and require voter
approval. A bond proposition informs voters of the maximum
amount of bonds that can be issued while statute caps the
maximum rate that can be assessed for bonds approved by a 55%
vote (Proposition 39). Moreover, governing boards are required
to approve the bond issuance at a public meeting. Any objection
can be made at the public meeting.
Current law authorizes the county superintendent of schools or
the SPI to comment on the proposed debt regarding the capability
of the school district or county office of education to repay
that debt obligation. This bill extends this requirement to GO
bonds. It is not necessary because GO bond debt payments are
secured by property taxes that are approved by voters. We know
districts will be able to pay GO bond debt.
Will this bill have the effect intended by the author and
sponsor? If enacted, this bill will require notification both
before and after a bond issuance is approved by a governing
board. Districts are required to provide the same information
about the bond, including evidence that the school district is
able to pay the debt, both before and after a bond issuance is
approved.
The sponsor, the Howard Jarvis Taxpayers Association, states
that notification will allow the county superintendent of
schools, the county auditor and the SPI to identify any
potential issues prior to a bond approval. County offices of
education have expertise in district general fund budgeting;
however, county offices of education do not seek passage or
issue GO bonds and likely do not have the expertise to evaluate
a GO bond issuance. Most school districts issue bonds through
the provisions of the Education Code, which are issued by the
County. County auditors will already have the information about
the proposed bond issuance.
AB 912
Page 7
Supporters also state that notification can avert questionable
issuances, such as capital appreciation bonds (CABs), which is a
costly tool used to get funding now but delay payments for a
long period of time, or use bond proceeds to repay non-voter
approved debt. Districts that issued CABs became the subject of
media attention a couple of years ago. Staff notes that county
auditors were aware of CABs, but ultimately, CABs had to be
addressed by the Legislature, which enacted AB 182 (Buchanan),
Chapter 477, Statutes of 2013. This bill would not have
prevented CABs.
Under Education Code Section 15150, districts are authorized to
issue bond anticipation notes (BANs). BANs are non-voter
approved short-term borrowing that are paid back when GO bonds
are sold. Districts issuing GO bonds to repay this type of
non-voter approved debt are not doing something they are not
legally allowed to do. It is not clear why this is a problem or
how this bill would address it.
Unintended consequence? GO bond issuance is driven by the
market. A rate is not secured until the bond goes to market.
Any delay can potentially prevent a school district from getting
a low rate. This is particularly true for refunding
(refinancing) of bonds because rates can change quickly.
Similar to refinancing of home mortgages, the purpose of a
refinance is to get a better rate.
Arguments in support. The Howard Jarvis Taxpayers Association,
the sponsor of the bill, states, "This increase in transparency
would benefit several interests. Local school boards and the
general public receive the benefit of the time disclosure of all
debt, not just what in non-voter approved."
Arguments in opposition. The California Association of School
AB 912
Page 8
Business Officials states, "We agree that it is appropriate for
local education agencies to report the issuance of non-voter
approved debt to the County Auditor and County Superintendent of
Schools. However, when a school district issues voter-approved
general obligation bond debt, the final documents are submitted
to the district's governing board for approval - at an open
meeting - through adoption of a resolution authorizing the debt.
It is not clear how AB 912 would enhance transparency to a
process that is already open to the public and interested
stakeholders."
REGISTERED SUPPORT / OPPOSITION:
Support
Howard Jarvis Taxpayers Association (sponsor)
California League of Bond Oversight Committees
California Taxpayers Association
Opposition
California Association of School Business Officials
Coalition for Adequate School Housing
AB 912
Page 9
Los Angeles Unified School District
Small School Districts' Association
Analysis Prepared by:Sophia Kwong Kim / ED. / (916) 319-2087