(1)Under the Higher Education Facilities Bond Act of 1986, the Higher Education Facilities Bond Act of 1988, and the Higher Education Facilities Bond Act of June 1992, the issuance, pursuant to the State General Obligation Bond Law, of bonds in an amount not to exceed $400,000,000, $600,000,000, and $900,000,000, respectively, and the expenditure of the revenues therefrom, were authorized for the purpose of aid to the University of California and the California State University for, among other things, the construction and equipping of educational facilities, as specified. Existing law establishes the Higher Education Facilities Finance Committee to administer those acts, and to authorize the issuance and sale of bonds to the extent necessary to fund the education facilities construction apportionments expressly authorized by the Legislature in the annual Budget Act.

More recently, the Class Size Reduction Kindergarten-University Public Education Facilities Bond Act of 1998, the Kindergarten-University Public Education Facilities Bond Act of 2002, the Kindergarten-University Public Education Facilities Bond Act of 2004, and the Kindergarten-University Public Education Facilities Bond Act of 2006 authorized the issuance of bonds and the expenditure of revenues therefrom for the University of California and the California State University, as well as for the California Community Colleges and public elementary and secondary schools.

This bill would enact the Higher Education Facilities Bond Act of 2020, which, upon approval by the state electorate, would authorize the issuance of state general obligation bonds in an amount not to exceed $4,000,000,000, with one-half of the amount designated for the University of California and the Hastings College of the Law and the other half designated for the California State University, for purposes similar to those specified in the Higher Education Facilities Bond Act of 1986, the Higher Education Facilities Bond Act of 1988, and the Higher Education Facilities Bond Act of June 1992, to be issued and sold in a manner similar to that provided under those acts.

The bill would require that any request for funds from the bonds issued pursuant to the bond act enacted by this bill be accompanied by the 5-year capital outlay plan of the particular university or college and include a schedule that prioritizes the seismic retrofitting needed to significantly reduce seismic hazards in buildings identified as high priority by the university or college, as specified.

(2)This bill would provide for the submission of the Higher Education Facilities Bond Act of 2020 to the voters at the March 3, 2020, statewide primary election, as specified.

Date of Hearing: July 10, 2019

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez, Chair

SBPCA Bill Id:SB 14

Author:(Glazer) – As Amended Ver:April 22, 2019

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill places an $8 billion state general obligation (GO) bond on the March 3, 2020, statewide primary ballot for higher education facilities. Of the $8 billion, one-half of the amount is designated for the University of California (UC) and the Hasting College of the Law and the other half is designated for the California State University (CSU) and shall be used for the construction, reconstruction and remodeling of facilities, pre-construction costs, site acquisition, and construction or improvement of off-campus CSU facilities. The bill specifies that revenues raised by the bond may be encumbered only if the project is authorized in the annual budget act or another statute. The bill also specifies that any requests for bond funds from UC or CSU must be accompanied by a five-year capital outlay plan and include a schedule to prioritize seismic retrofitting.

The bill creates a committee consisting of the Governor, the Controller, the Treasurer, the Director of Finance (DOF), the President of UC, the Chancellor of CSU and their designees that is to authorize the sale of bonds by the Treasurer to the extent necessary to fund appropriations authorized by the Legislature.

The California Constitution requires measures authorizing general obligation bonds to be approved by a two-third vote of each house of the Legislature and a majority of the voters.

FISCAL EFFECT:

Annual General Fund debt service of $521 million beginning in 2022, after all bonds are sold, assuming they are sold in two years. Total principal and interest costs of $14.6 billion ($8 billion in principal and $6.6 billion in interest). This assumes an interest rate of 4.5% and a 30-year bond maturity. Costs could be higher or lower depending on interest rate fluctuations.

COMMENTS:

1. UC and CSU Facilities. The UC has identified $8.8 billion in capital need that could be supported by a state GO bond. The CSU has identified about $10 billion in capital need that could be supported by a state GO bond. Of this, it estimates $1 billion could be funded from existing resources. The Budget Act of 2019 included some funding for deferred maintenance costs at UC and CSU: $143.5 million and $239 million, respectively.
2. Facilities Funding Background. According to the Legislative Analyst’s Office (LAO), the state traditionally has issued GO bonds to fund facility projects at UC and CSU. Spending of the GO bonds for facilities projects required legislative approval and project plans were submitted to legislative budget committees for review and approval as part of the annual budget process.

In the 2013-14 fiscal year, the state made major changes to the way it funds facilities at UC and CSU. Specifically, the state granted UC authority to issue its own facilities bonds and use its state General Fund appropriation to pay associated debt (with a limit of 15% of its total General Fund appropriation). As part of this action, the state shifted all remaining liability for previous GO bond debt service to UC and provided about $200 million in ongoing General Fund to UC’s state appropriation. The state took a comparable action for CSU in the 2014-15 budget year. That is, the state granted CSU authority to issue its own facilities bonds and use its state General Fund appropriation to pay associated debt (with a limit of 12% of its total General Fund appropriation). In addition, the state shifted liability and $340 million in ongoing General Fund to CSU’s state appropriation and liability for previous GO bond debt service.

In addition, the state changed the facility approval process to require UC and CSU to submit proposals to the DOF and Legislature in the fall with DOF approval and Legislative notification by April of the following year. (This change was a significant departure from the oversight performed by the Legislature under the GO bond process. In the past, the Legislature was required to approve projects as part of the annual budget process. Under the new process, the DOF holds approval authority.)

The UC has used its bond authority annually since its 2013-14 authorization. According to UC, from fiscal year 2013-14 and through fiscal year 2019-20, it funded $1.98 billion in projects and the annual debt service payment in the 2018-19 fiscal year was $59 million. The UC indicates its annual interest rates have averaged about 4%. According to the LAO, as of fall 2018, all of UC’s 42 requested projects were approved by the DOF and UC’s support for capital projects are expected to reach $233 million by 2024-25, or 7% of its General Fund support—less than half of its 15% limit.

The CSU also has used its bond authority annually since its 2014-15 authorization, though less consistently than UC. According to the LAO, annually, CSU has sought approval for between 25 to 32 projects, though DOF has not approved all projects. Moreover, CSU has carried out only a portion of approved proposals. The CSU indicates its annual interest rates have averaged about 4%. According to the CSU, it currently uses about 5% of its General Fund support for capital projects—less than half of its 12% limit.

The UC and CSU have expressed that financing university bonds out of their General Fund has become increasingly challenging because of competing General Fund priorities and growing cost pressures.

1. Comments. This measure retains UC’s and CSU’s authorities to issue their own bonds. Were this measure to be approved by voters, UC and CSU could choose whether to submit approvals to finance projects using either (a) GO bond funds, with debt service paid directly by the state, or (b) university-issued bonds, with debt service paid by the UC or CSU from their General Fund allocations. It is unclear how the two approaches would interact and how UC and CSU would make decisions about which approach to use for a given project. Moreover, the approval processes for each approach differ, which could make Legislative oversight of universities facilities more difficult.
2. Related Legislation. AB 48 (O’Donnell), of this session, places on the 2020 primary statewide election ballot a $13 billion bond for the construction and modernization of facilities kindergarten through 12th grade and California Community Colleges facilities and places on the 2022 statewide general election a bond of an unspecified amount for the same purposes as the 2020 bond. The bill currently is pending before the Senate Governance and Finance Committee.

AB 2771 (Eggman), of the 2017-18 Legislative Session, in part, would have placed on the November 2018 ballot a $7 billion general obligation bond for facilities at the UC, the Hastings College of Law and the CSU. The bill died on the Senate Floor.

SB 1225 (Glazer), of the 2017-18 Legislative Session, would have placed a $4 billion general obligation bond on the November 2020 ballot for facilities at the UC, the Hastings College of the Law and the CSU. The bill was held on the Assembly Floor.

SB 483 (Glazer), of the 2017-18 Legislative Session, would have placed a $2 billion general obligation bond on the November 2018 ballot for facilities at the UC, the Hastings College of the Law and the CSU. The bill was held in the Senate Appropriations Committee.

AB 1433 (Gray), of the 2015-16 Legislative Session, would have authorized an unspecified amount of state general obligation bonds for facilities at the California Community Colleges, the UC, the Hastings College of the Law and the CSU. The bill was held in this committee.

Analysis Prepared by: Natasha Collins / APPR. / (916) 319-2081

Date of Hearing: June 11, 2019

ASSEMBLY COMMITTEE ON HIGHER EDUCATION

Jose Medina, Chair

SBPCA Bill Id:SB 14

Author:(Glazer and Allen) – As Amended Ver:April 22, 2019

SENATE VOTE: 34-4

SUBJECT: Education finance: Higher Education Facilities Bond Act of 2020.

SUMMARY: Places an $8 billion general obligation bond on the March 2020 ballot for the construction, reconstruction, and remodeling of existing or new facilities at the University of California (UC), the California State University (CSU), and the Hastings College of the Law. Specifically, this bill:

1. Enacts the Higher Education Facilities Bond Act of 2020, which, upon approval by the voters, authorizes no more than $8 billion of state general obligation bonds for the construction, reconstruction, and remodeling of existing or new facilities at the UC, the CSU, and the Hastings College of the Law.
2. Specifies that allowable uses of the funds include the following: (1) construction of buildings and the acquisition of related fixtures; (2) the equipping of new, renovated, or reconstructed facilities, including preconstruction costs, including, but not necessarily limited to, preliminary plans and working drawings; (3) renovation and reconstruction of facilities; and, (4) the construction or improvement of off-campus facilities of CSU, approved by the CSU Trustees on or before July 1, 2014, including the acquisition of sites upon which these facilities are to be constructed.
3. Authorizes the Higher Education Facilities Finance Committee (Committee), consisting of the Governor, the Controller, the Treasurer, the Director of Finance, the UC President, the CSU Chancellor, and the Chancellor of the California Community Colleges (CCC), to create debt or debts, liability or liabilities, of the State of California pursuant to this bill.
4. States that any request forwarded to the Legislature and the Department of Finance for funds from this bond issue for expenditure by the UC or CSU shall be accompanied by the five-year capital outlay plan of the particular university or college, and shall include a schedule that prioritizes the seismic retrofitting needed to significantly reduce, by the 2024–25 fiscal year, in the judgment of the particular university or college, seismic hazards in buildings identified as high priority by the university or college.
5. Specifies that the Treasurer shall sell the bonds authorized by the Committee at times necessary to service expenditures required by the apportionments and bonds authorized by this part shall be prepared, executed, issued, sold, paid, and redeemed as provided in the State General Obligation Bond Law (Chapter 4 (commencing with Section 16720) of Part 3 of Division 4 of Title 2 of the Government Code).
6. Requires the Committee to authorize the issuance of bonds only to the extent necessary to fund the apportionments that are expressly authorized by the Legislature in the annual Budget Act, as specified.

EXISTING LAW:

1. Stipulates that the Legislature shall not, in any manner create any debt or debts, liability or liabilities, which shall, singly or in the aggregate with any previous debts or liabilities, exceed $300,000 unless enactment has been passed by a two-thirds vote of all the members elected to each house of the Legislature and until, at a general election or at a direct primary, it shall have been submitted to the people and shall have received a majority of all the votes cast for and against it at such election (California Constitution, Article XVI, Section 1).
2. Requires the Governor to annually submit to the Legislature, in conjunction with the Governor's Budget, a proposed five-year infrastructure plan, which among other things, shall include the instructional and support facilities needs of UC and CSU (Government Code Section 13102).
3. Requires the CCC Chancellor’s Office to prepare a five-year capital outlay plan identifying the CCC’s statewide needs and priorities (Education Code (EC) Section 67501).
4. Authorizes CSU to use up to 12% of its General Fund support budget, less the amount required to fund general obligation bond payments and State Public Works Board rental payments, to fund capital outlay projects, either on a pay-as-you-go approach or to pay principal and interest on university-issued revenue bonds (EC Section 89770, et seq.).
5. Authorizes UC to use up to 15% of its General Fund support budget, less the amount required to fund general obligation bond payments and State Public Works Board rental payments, to fund capital outlay projects, either on a pay-as-you-go approach or to pay principal and interest on university-issued revenue bonds (EC Section 92943, et seq.).
6. Under the State University Revenue Bond Act of 1947, authorizes the CSU Board of Trustees to construct operate and control certain facilities, including student housing and boarding facilities, and to establish charges for use of such facilities (EC Section 90010, et seq.).
7. Under the UC Dormitory Revenue Bond Act of 1947, authorizes the UC Board of Regents to construct operate and control certain facilities, including student housing and boarding facilities, and to establish charges for use of such facilities (EC Section 92400, et seq.).
8. The Kindergarten-University Public Education Facilities Bond Act of 2006, authorized $10.4 billion in general obligation bonds, including $3.1 billion for higher education facilities, of which UC received $890 million and CSU received $690 million (EC Section 101000, et seq.).
9. The Kindergarten Through Community College Public Education Facilities Bond Act of 2016, approved by the voters in November 2016 (Proposition 51), authorized $9 billion state general obligation bonds for K-12 facilities ($7 billion) and California Community College (CCC) facilities ($2 billion) (EC Section 101110, et seq.).

FISCAL EFFECT: According to the Senate Appropriations Committee, the authorization of $8 billion in general obligation bonds is expected to result in General Fund costs of approximately $15.6 billion to repay, including $7.6 billion in interest, at an annual cost of $440 million.

COMMENTS: Background. Since the late 1980s, the Legislature has placed on the ballot and voters have approved bonds for public higher education every two to four years. The last statewide general obligation bond, Proposition 1D (AB 127, Núñez and Perata, Chapter 35, Statutes of 2006), was approved by voters in November 2006, authorizing the sale of $10.4 billion in general obligation bonds of which $3.087 billion was earmarked for higher education facilities. Of this amount, $1.5 billion was provided for CCC facilities, $890 million was provided for UC, and $690 million was provided for CSU. All Proposition 1D higher education facilities funds have been depleted and K-12 funds have almost been exhausted.

Since 2006, as the state's fiscal condition continued to deteriorate, legislation needed to authorize education bonds was not enacted. Instead, since 2008 the higher education segments have received capital funding from lease-revenue bonds through the annual budget acts; however, these funds have met less than half of the segments' capital needs. Bond funds, whether lease-revenue or general obligation, are allocated through the budget process in accordance with the segments' five-year capital facility plans.

Additionally, in November 2012, California voters approved Proposition 39 to close a corporate tax loophole and increase the state’s annual corporate tax revenues by as much as $1.1 billion. Proposition 39 specified that half of the revenue generated from 2013-2018, up to $550 million, should support energy efficiency and alternative energy projects at public schools, colleges, universities and other public buildings, as well as related public-private partnerships and workforce training.

Need for this measure. According to the author, many CSU and UC buildings are over 30 years old, with “critical safety, infrastructure, and modernization needs.” The author contends that there is no current funding system from the state to address the deferred maintenance costs at the CSU and UC.

Summary of Capital Needs.

• The UC's inventory of capital assets totals approximately 137 million gross square feet in 6,000 buildings. More than half of UC's space is at least 30 years old. The UC’s Capital Financial Plan 2018-2028 – which provides the systemwide blueprint for developing and maintaining appropriate and necessary facilities – identifies more than $11.8 billion in unfunded capital need over the next five fiscal years (through 2023-24). The majority of which ($8.8 billion) is in state supportable education and general facilities.

According to the UC, “As the UC continues to expand student programs and services, additional infrastructure will be necessary to meet our strategic goals and support the University’s core mission of education, research, and public service. It is critical that we maintain and renovate our existing facilities, grounds, and infrastructure to ensure current and future generations of UC students enjoy the same high quality of education and experience as prior generations”.

• The CSU’s inventory of capital assets totals approximately 86 million gross square feet in 2,100 buildings. More than half of CSU's facility space is over 40 years or older and a third being over 50 years old. The CSU’s five-year capital outlay plan reflects more than $10 billion in academic infrastructure and $3.7 billion in deferred maintenance needs.

According to the CSU, “SB 14 provides essential funding for our campuses to expand student capacity in classrooms and labs; address fire, safety, and seismic deficiencies, and to modernize and construct facilities to keep pace with current technology and workforce needs”. The CSU contends that, “Absent this bill, financing our facilities and deferred maintenance needs will continue to come from our operating funds, in direct competition with the resources we need to educate and serve our students”.

Committee comments. According to the December 2018 Public Policy Institute of California (PPIC) report, Financing Higher Education Capital Projects, there is an increased demand for a CSU education, and the parallel need to invest in critical safety, infrastructures, and modernization of facilities to serve California’s students.

According to the PPIC report, of the three public higher education segments, the CSU faces the greatest challenge in financing capital projects as it receives less funding on a per student basis; has less access to private, philanthropic or other financing sources; and has no ability to issue general obligation bonds on its own.

Additionally, the California Faculty Association (CFA), in their “support if amended” position on this measure, notes that, “While the facilities funding would be welcomed, the distribution between the two systems contained in the bill is questionable. The two systems are not the same and have different needs and structures that have fiscal and policy implications”.

CFA notes that the CSU has 23 campuses while the UC has 10 campuses and the CSU serves almost 485,000 students while the UC serves 238,000 students.

Keeping the aforementioned in mind, moving forward, the author and the Legislature may wish to determine if the current 50 – 50 split as presently called for in SB 14 is equitable.

Related legislation. AB 13 (Eggman, et al.), which, pursuant to Assembly Rule 56.1, did not have a hearing in this Committee, would have placed the Higher Education Facilities Bond Act of 2020 on the November 3, 2020, statewide general election. AB 13 proposed $2 billion for UC facilities, $2 billion for CSU facilities, and $3 billion for new CSU campuses.

AB 48 (O’Donnell), which is pending action in the Senate Education Committee, places the Kindergarten-Community Colleges Public Education Facilities Bond Acts on the March 3, 2020 primary and November 8, 2022 general elections, to be operative only if approved by voters at the statewide elections.

Prior legislation. Several bond measures have been proposed since 2009 to fund higher education facilities. The most recent of these are:

AB 2771 (Eggman, et al.) of 2018, which died on the Senate Floor, in part, enacted a $7 billion general obligation bond for higher education facilities, to be considered by the voters at the November 2018 ballot.

SB 1225 (Glazer and Allen) of 2018, which died on the Assembly Floor, proposed a $4 billion general obligation bond measure for UC, CSU and Hastings to be placed on the November 2018 statewide ballot.

SB 483 (Glazer and Allen) of 2017, which was held on Suspense in the Senate Appropriations Committee, proposed a $2 billion bond for the November 2018 ballot facilities at UC, CSU, and Hastings.

AB 1433 (Gray) of 2016, which was held on Suspense in the Assembly Appropriations Committee, authorized an unspecified amount of bonds for the UC, CSU, CCC and Hastings.

AB 1088 (O'Donnell) of 2015, which was held on Suspense in the Assembly Appropriations Committee, authorized an unspecified amount of bonds for school districts, county superintendents of schools, county boards of education, charter schools, the CCC, CSU, Hastings, and UC.

REGISTERED SUPPORT / OPPOSITION:

Support

California State University (Co-Sponsor)
University of California (Co-Sponsor)

Opposition

None on file.

Analysis Prepared by: Jeanice Warden / HIGHER ED. / (916) 319-3960

 THIRD READING  

Bill No: SB 14

Author: Glazer (D) and Allen (D), et al.

Amended: 4/22/19

Vote: 27

SENATE EDUCATION COMMITTEE: 6-0, 3/20/19

AYES: Leyva, Wilk, Durazo, Glazer, McGuire, Pan

NO VOTE RECORDED: Chang

SENATE GOVERNANCE & FIN. COMMITTEE: 5-1, 4/3/19

AYES: McGuire, Beall, Hertzberg, Hurtado, Wiener

NOES: Moorlach

NO VOTE RECORDED: Nielsen

SENATE APPROPRIATIONS COMMITTEE: 5-1, 5/16/19

AYES: Portantino, Bates, Bradford, Hill, Wieckowski

NOES: Jones

SUBJECT: Education finance: Higher Education Facilities Bond Act of 2020

SOURCE: Author

DIGEST:

This bill places an $8 billion general obligation bond on the March 2020 ballot for the construction, reconstruction, and remodeling of existing or new facilities at the University of California (UC), the California State University (CSU), and the Hastings College of the Law.

ANALYSIS:

Existing law:

1. Stipulates that the Legislature shall not, in any manner create any debt or debts, liability or liabilities, which shall, singly or in the aggregate with any previous debts or liabilities, exceed $300,000 unless enactment has been passed by a two-thirds vote of all the members elected to each house of the Legislature and until, at a general election or at a direct primary, it shall have been submitted to the people and shall have received a majority of all the votes cast for and against it at such election (California Constitution Article XVI, Section 1.).
2. Requires the Governor to annually submit to the Legislature, in conjunction with the Governor's Budget, a proposed five-year infrastructure plan, which among other things, shall include the instructional and support facilities needs of UC and CSU (Government Code Section 13102.).

This bill places an $8 billion general obligation bond on the March 2020 ballot for the construction, reconstruction, and remodeling of existing or new facilities at UC, CSU, and the Hastings College of the Law. Of the total amount of bonds authorized, one-half are for UC and the Hastings College of the Law and one-half are for CSU. Specifically, this bill:

1. Enacts the Higher Education Facilities Bond Act of 2020, which, upon approval by the voters, authorizes no more than $8 billion of state general obligation bonds for the construction, reconstruction, and remodeling of existing or new facilities at the UC, the CSU, and the Hastings College of the Law.
2. Specifies that allowable uses of the funds include the following: (1) construction of buildings and the acquisition of related fixtures, (2) the equipping of new, renovated, or reconstructed facilities, including preconstruction costs, including, but not necessarily limited to, preliminary plans and working drawings, (3) renovation and reconstruction of facilities, and (4) the construction or improvement of off-campus facilities of CSU, approved by the CSU Trustees on or before July 1, 2014, including the acquisition of sites upon which these facilities are to be constructed.
3. Authorizes the Higher Education Facilities Finance Committee (Committee), consisting of the Governor, the Controller, the Treasurer, the Director of Finance, the UC President, the CSU Chancellor, and the Chancellor of the California Community Colleges, to create debt or debts, liability or liabilities, of the State of California pursuant to this bill.
4. States that any request forwarded to the Legislature and the Department of Finance for funds from this bond issue for expenditure by the UC or CSU shall be accompanied by the five-year capital outlay plan of the particular university or college, and shall include a schedule that prioritizes the seismic retrofitting needed to significantly reduce, by the 2024–25 fiscal year, in the judgment of the particular university or college, seismic hazards in buildings identified as high priority by the university or college.
5. Specifies that the Treasurer shall sell the bonds authorized by the Committee at times necessary to service expenditures required by the apportionments and bonds authorized by this part shall be prepared, executed, issued, sold, paid, and redeemed as provided in the State General Obligation Bond Law (Chapter 4 (commencing with Section 16720) of Part 3 of Division 4 of Title 2 of the Government Code).
6. Requires the Committee to authorize the issuance of bonds only to the extent necessary to fund the apportionments that are expressly authorized by the Legislature in the annual Budget Act, as specified.

Background

From the late 1980s to 2006, the Legislature placed on the ballot and voters approved bonds that have included support for public higher education every two to four years. The last statewide general obligation bond to include support for public higher education was Proposition 1D (AB 127, Núñez and Perata, Chapter 35, Statutes of 2006), authorizing the sale of $10.4 billion in general obligation bonds, of which $3.087 billion was earmarked for higher education facilities. Of this amount, $1.5 billion was provided for the community colleges, $890 million for UC, and $690 million for CSU. All Proposition 1D higher education facilities funds have been depleted.

Since 2006, no general obligation bonds supporting higher education have been enacted. Instead, the higher education segments have received capital funding from lease-revenue bonds through the annual budget acts. Bond funds, whether lease-revenue or general obligation, are allocated through the budget process in accordance with the segments' five-year capital facility plans.

Comments

1. Need for the bill. According to the author, “Since 2006, despite a deteriorated fiscal condition for both the UC and CSU, no higher education-specific bonds have been authorized. Instead, the UC and CSU are able to raise capital funding in limited amounts through their General Revenue Bond Program and Systemwide Revenue Bond Program, respectively. This, however, is an unsustainable way for the segments to meet their capital needs–currently identified to be over $16 billion combined. Further, these bond programs, which must be paid back by the systems themselves, can result in higher costs to students and their families.”

“The last higher education-specific bond passed was Proposition 153 in 1992, which authorized a bond issue of $900 million for the strengthening, upgrading and constructing of public colleges and universities throughout the state.”

“Public support is growing for improving campus infrastructure: In a November 2018 PPIC statewide survey on higher education, two in three Californians (66%) agree with the general idea of a bond measure on the state ballot for higher education construction projects. This is a 12-point increase in support since December 2014 and the highest level of support since PPIC first began asking the question in 2007."

1. What are the facilities needs of the segments? The UC and CSU report the following capital needs:
   1. The UC reported that combining the projects included in its Capital Financial Plan with its current deferred maintenance backlog puts the five- year capital need at nearly $24.8 billion. However, UC conceded that, of this amount, about $13 billion could be funded with existing resources.
   2. The CSU reported their capital needs for academic programs total about $10.2 billion. However, about $1 billion of the need was anticipated to be met with current revenue bonds.

The last statewide general obligation bond supporting the higher education segments, Proposition 1D, provided $890 million for UC and $690 million for CSU. After accounting for the available resources at UC and CSU, the capital needs of the segments appear to be equivalent.

1. How are the higher education segments funded for facilities needs currently? Over the past few years, the responsibility for capital outlay projects has shifted from the state to the UC and CSU through the state’s annual budget. The segments are now able to use their general fund to support capital outlay projects or to fund revenue bond debt service, with the expectation that they prioritize their capital expenditures within their overall operating budgets. However, UC and CSU maintain that this shift does not preclude them from participating in a state general obligation bond. Further, the segments have expressed that they are not funded adequately for their operations currently, let alone at a level that can also support all of their facilities costs.
2. What is the state’s cost exposure? Based on the legislative analyst office’s analysis of the costs associated with Proposition 51 of 2016, the $8 billion in bonds authorized by this bill would cost about $15.6 billion to repay, including an estimated $7.6 billion in interest, at an annual cost of about $440 million per year.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

According to the Senate Appropriations Committee, the authorization of $8 billion in general obligation bonds is expected to result in General Fund costs of approximately $15.6 billion to repay, including $7.6 billion in interest, at an annual cost of $440 million.

SUPPORT: (Verified 5/21/19)

Associated Students of the University of California

Associated Students, Inc. Sacramento State University

Cal State Student Association

California State University

California Teamsters

Hispanic Association of Colleges and Universities

Medical Students for Choice

University of California

University of California Student Association

OPPOSITION: (Verified 5/15/19)

None received

Prepared by: Ian Johnson / ED. /

5/21/19 11:44:41

**** END ****

SENATE COMMITTEE ON APPROPRIATIONS

Senator Anthony Portantino, Chair

2019 - 2020 Regular Session

SB 14 (Glazer) - Education finance: Higher Education Facilities Bond Act of 2020

Bill Summary:

This bill places an $8 billion general obligation bond on the March 2020 ballot for the construction, reconstruction, and remodeling of existing or new facilities at the University of California (UC), the California State University (CSU), and the Hastings College of the Law.

Fiscal Impact:

The authorization of $8 billion in general obligation bonds is expected to result in General Fund costs of approximately $15.6 billion to repay, including $7.6 billion in interest, at an annual cost of $440 million.

Background:

From the late 1980s to 2006, the Legislature placed on the ballot and voters approved bonds that have included support for public higher education every two to four years. The last statewide general obligation bond to include support for public higher education was Proposition 1D (AB 127, Núñez and Perata, Chapter 35, Statutes of 2006), authorizing the sale of $10.4 billion in general obligation bonds, of which $3.087 billion was earmarked for higher education facilities. Of this amount, $1.5 billion was provided for the community colleges, $890 million for UC, and $690 million for CSU. All Proposition 1D higher education facilities funds have been depleted.

Since 2006, no general obligation bonds supporting higher education have been enacted. Instead, the higher education segments have received capital funding from lease-revenue bonds through the annual budget acts. Bond funds, whether lease-revenue or general obligation, are allocated through the budget process in accordance with the segments' five-year capital facility plans.

Proposed Law:

This bill places an $8 billion general obligation bond on the March 2020 ballot for the construction, reconstruction, and remodeling of existing or new facilities at UC, CSU, and the Hastings College of the Law. Of the total amount of bonds authorized, one-half is designated for UC and the Hastings College of the Law and the other half is designated for CSU.

This bill specifies that allowable uses of the funds are for the construction, reconstruction, renovation, renewal, and remodeling of existing or new facilities and infrastructure, including the following: (1) construction of buildings and the acquisition of related fixtures; (2) the equipping of new, renovated, or reconstructed facilities, including preconstruction costs, preliminary plans and working drawings; (3) renovation, reconstruction of facilities; (4) site acquisition; and (5) the construction or improvement of off-campus facilities of CSU, approved by the CSU Trustees, including the acquisition of sites upon which these facilities are to be constructed.

This bill authorizes the Higher Education Facilities Finance Committee, consisting of the Governor, the Controller, the Treasurer, the Director of Finance, the UC President, the CSU Chancellor, and the Chancellor of the California Community Colleges, to create debt or debts, liability or liabilities, of the State of California pursuant to this measure.

This bill states that any request forwarded to the Legislature and the Department of Finance for funds from this bond issue for expenditure by the UC, Hastings, or CSU shall be accompanied by the five-year capital outlay plan of the particular university or college, and shall include a schedule that prioritizes the seismic retrofitting needed to significantly reduce, by the 2026–27 fiscal year, in the judgment of the particular university or college, seismic hazards in buildings identified as high priority by the university or college.

This bill specifies that the Treasurer shall sell the bonds authorized by the committee at times necessary to service expenditures required by the apportionments and bonds authorized by this part shall be prepared, executed, issued, sold, paid, and redeemed as provided in the State General Obligation Bond Law (Chapter 4 (commencing with Section 16720) of Part 3 of Division 4 of Title 2 of the Government Code). This bill also requires the committee to authorize the issuance of bonds only to the extent necessary to fund the apportionments that are expressly authorized by the Legislature in the annual Budget Act, as specified.

Related Legislation:

SB 1225 (Glazer and Allen, 2018) would have placed a $4 billion general obligation bond on the November 2020 ballot for the construction, reconstruction, and remodeling of existing or new facilities at the UC, CSU, and the Hastings College of the Law. The measure was held on the Assembly Floor.

SB 483 (Glazer and Allen, 2017) would have placed a $2 billion general obligation bond on the November 2018 ballot for the construction, reconstruction, and remodeling of existing or new facilities at the UC, the CSU, and the Hastings College of the Law. The measure was held in the Senate Appropriations Committee.

AB 1433 (Gray, 2016) would have authorized an unspecified amount of state general obligation bonds for the California Community Colleges (CCC), the UC, the Hastings College of the Law, and the CSU to construct and modernize education facilities. The measure was held in the Assembly Appropriations Committee.

Staff Comments:

The UC reports that combining the projects included in its Capital Financial Plan with its current deferred maintenance backlog puts the five- year capital need at nearly $24.8 billion. However, of this amount, about $13 billion can be funded with existing resources. The CSU reports that its capital needs for academic programs total about $10.2 billion for which approximately $1 billion is anticipated to be met with current revenue bonds. The last statewide general obligation bond supporting the segments, Proposition 1D, provided $890 million for UC and $690 million for CSU.

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SENATE COMMITTEE ON GOVERNANCE AND FINANCE

Senator Mike McGuire, Chair

2019 - 2020 Regular

Education finance: Higher Education Facilities Bond Act of 2020

Enacts the Higher Education Facilities Bond Act of 2020, which places an $8 billion bond before voters at the March 2020, statewide primary election.

Background

When public agencies issue bonds, they borrow money from investors, who provide cash in exchange for the agencies’ commitment to repay the principal amount of the bond plus interest. Bonds are usually either revenue bonds, which repay investors out of revenue generated from the project the agency buys with bond proceeds, or general obligation bonds, which the public agency pays out of general revenues and are guaranteed by its full faith and credit.

Section One of Article XVI of the California Constitution and the state’s General Obligation Bond Law guide the issuance of the state’s general obligation debt. The Constitution allows the Legislature to place general obligation bonds on the ballot for specific purposes with a two-thirds vote of the Assembly and Senate. Voters also can place bonds on the ballot by initiative, as they have for parks, water projects, high-speed rail, and stem cell research, among others. Either way, general obligation bonds must be ratified by majority vote of the state’s electorate. Unlike local general obligation bonds, approval by the state’s electorate does not automatically trigger an increased tax to repay the bond. The Constitution commits the state to repay investors from general revenues above all other claims, except payments to public education. California voters approved $38.4 billion of general obligation bonds between 1974 and 1999, which increased significantly to $112 billion between 2000 and 2010. Last year, voters approved the $4 billion California Drought, Water, Parks, Climate, Coastal Protection, and Outdoor Access for All Act of 2018 (SB 5, De Leon, 2017), the $3 billion Veterans and Affordable Housing Bond Act (SB 3, Beall, 2017), and the $1.5 billion Children’s Hospital Bond Act of 2018 (Proposition 4).

Bond acts have standard provisions that authorize the State Treasurer to sell a specified amount of bonds, and generally include several uniform provisions that:

• Establish the state’s obligation to repay them, and pledge its full faith and credit to repayment,
• Set forth issuance procedures, and link the bond act to the state’s General Obligation Bond Law,
• Create a finance committee with specified membership, chaired by the State Treasurer,
• Charge the committee with determining whether it is “necessary or desirable” to issue the bonds, and
• Add other mechanisms necessary for the State Treasurer and the Department of Finance to implement the bond act, including allowing the board to request a loan from the Pooled Money Investment Board to advance funds for bond-funded programs prior to the bond sale, among others.

In bond acts, the Legislature generally:

• Sets forth categories of projects eligible for bond funds, such as library construction or school facility modernization,
• Chooses an administrative agency to award the funds, such as the State Librarian or the State Allocation Board,
• Details the criteria to guide the administrative agency’s funding in each category,
• Enacts enforcement and audit provisions, and
• Provides for an election to approve the bond act.

Should the voters approve the bond act, the Legislature then appropriates funds to the chosen agencies to fund projects consistent with the criteria, generally as part of the Budget Act. The Department of Finance (DOF) then surveys agencies to determine the need for bond funds based on a project’s readiness, and then asks the State Treasurer to sell bonds in a specified amount. After the bond sale, DOF determines which bond acts and agencies receive bond proceeds.

The University of California (UC) offers both undergraduate and graduate education, with its ten campuses enrolling approximately 238,000 students. Its ten campuses are governed by the Board of Regents; while not governed by the Board of Regents, the UC Hastings College of Law in San Francisco is the state’s oldest law school, with an enrollment of approximately 1,154 students.

The California State University (CSU) provides undergraduate and graduate instruction generally through the master’s degree, and its 23 campuses enroll approximately 484,000 students. CSU is governed by a 25-member Board of Regents.

Both CSU and UC have authority to issue their own revenue bonds, which are bonds repaid and secured by a specified pledge of revenues, such as student housing or parking fees, and not backed by the full faith and credit of the state like general obligation bonds. Additionally, the State Public Works Board (SPWB) can also issue lease revenue bonds where CSU or UC lease facilities from the Board, and the Legislature appropriates funds to pay the leases. These bonds are not general obligations because the Legislature is not obligated to pay the lease rentals if the building is not available for use and occupancy. CSU currently has $154 million in outstanding lease revenue bonds.

Historically, general obligation bonds and SPWB lease revenue bonds have financed many UC and CSU capital improvements. However, the Governor and the Legislature in recent years have changed the way the state funds UC and CSU capital outlay expenditures; previously, each system would distinguish capital outlay from other costs when requesting funding as part of the Budget Act. Today, UC and CSU include capital outlay with all of its other spending. To implement this change, the Legislature recently provided UC with increased flexibility to pursue capital outlay projects outside of the annual budget process, after approval by DOF and review by the Joint Legislative Budget Committee (AB 94, Committee on Budget, 2013).

AB 94 allowed UC to pledge up to 15% of the state funds provided in its General Fund support budget less general obligation debt payments and lease payments towards capital outlay, lease revenue bond debt, and pay as you go financing of infrastructure. The Legislature also added almost identical authority for CSU to finance capital projects in 2014 (SB 860, Committee on Budget and Fiscal Review).

UC’s Capital Financial Plan identifies $11.8 billion in unfunded capital needs in the last five years, and is currently developing its estimated deferred maintenance need. CSU reports their capital needs of $10.2 billion, and deferred maintenance of $3.7 billion, of which only $1 billion can be met with current resources.

The last statewide general obligation bond to include support for public higher education was Proposition 1D (AB 127, Núñez and Perata, 2006), which authorized the sale of $10.4 billion in general obligation bonds, of which $3 billion was earmarked for higher education facilities. Of this amount, $1.5 billion was provided for the community colleges, $890 million for UC, and $690 million for CSU. The Governor’s Bond Accountability website (www.bondaccountability.ca.gov) indicates that almost all of these funds have been committed. The author wants the state to issue general obligation bonds to fund additional higher education improvements.

Proposed Law

Senate Bill 14 enacts the Higher Education Facilities Bond Act of 2020, which places an $8 billion bond before voters at the March, 2020, statewide primary election ballot. The measure creates the 2020 Higher Education Capital Outlay Bond Fund, and requires that all bond proceeds be deposited in the Fund. The measure creates a finance committee to administer the bond, consisting of the Treasurer as Chair, the Governor, the Controller, the Director of Finance, the President of the University of California, the Chancellor of the California State University, and the Chancellor of the California Community Colleges, or their designees.

The bill provides that bonds can only be sold to fund apportionments expressly authorized by the Legislature in the Budget Act, and requires that one-half of the total amount of bonds must be designated for the UC and the Hastings College of the Law, and the other half for CSU. The bill authorizes the Committee to create debts and liabilities on behalf of the state for the purposes of funding aid to UC, CSU, and the Hastings College of the Law for the construction, reconstruction, and remodeling of existing or new facilities authorized in the Budget Act, including:

• Construction of buildings and related fixtures,
• Equipping of new, renovated, or reconstructed facilities, and
• Funding for the payment of preconstruction costs, including:
• Preliminary plans and working drawings,
• Renovation and reconstruction of facilities
• Construction of off-campus facilities of CSU, so long as the Trustees approved the construction on or before July 1, 2014, including acquisition of sites upon which the facilities are to be built.

SB 14 charges the Committee, pursuant to legislative direction, with the duty to authorize the issuance and sale of its bonds, and incorporates standard provisions in general obligation bond law, either explicitly or by reference, with some modifications.

The measure contains legislative findings and declarations supporting its purposes, and language stating that its provisions clarify authorizations made in the 1986 and 1988 Bond Acts, and is not intended to mark a change.

State Revenue Impact

No estimate.

Comments

1. Purpose of the bill. According to the author, “Since 2006 when the last higher education-specific bond was authorized, the UC and CSU have resorted to raising capital funding in limited amounts through their respective bond programs. This has proven to be an unsustainable way for the segments to meet their capital needs of over $16 billion combined. Since 2006, as the state's fiscal condition continued to deteriorate, legislation needed to authorize education bonds was not enacted. Instead, since 2008 the higher education segments have received capital funding from lease-revenue bonds through the annual budget acts; however, these funds have met less than half of the segments' capital needs. Bond funds, whether lease-revenue or general obligation, are allocated through the budget process in accordance with the segments' five-year capital facility plans. These bond programs, which must be paid back by the systems themselves, can result in higher costs to students and their families. Additionally, many buildings are typically at least 30 years old, with critical safety, infrastructure, and modernization needs. The total cost to improve infrastructure is high and encompasses more than new classrooms or dormitories. SB 14 would authorize an $8 billion bond for the construction, reconstruction, and remodeling of existing or new facilities, including the preconstruction and equipping of buildings and the acquisition of land facilities at the UC and CSU. This bill helps alleviate this financial burden on both the institutions and students, while also constructing facilities that reflect the needs of 21st century students.”

2. Role reversal? SB 14 authorizes the sale of $8 billion in general obligation bonds contingent on voter approval to fund capital improvements for UC and CSU authorized in the Budget Act. However, the Legislature recently changed UC and CSU’s capital outlay programs for a future in which the state would not approve general obligation bond funding; instead, UC and CSU had to integrate capital outlay funding into their general request for resources, and use that funding as security when issuing revenue bonds under its own name. The Legislature increased funding for both systems to compensate. While UC and CSU have significant capital outlay needs, and student fees have escalated significantly in the past decade, should the Legislature again turn to general obligation bonds so soon after making the change? The Committee may wish to consider whether general obligation bonds are the right source to fund UC and CSU capital outlay given its recent shift away from that source.

3. Sixteen tons. Setting the right amount of state general obligation debt is difficult; both the State Treasurer and the Legislative Analyst’s Office state that there is no correct level. Instead, experts suggest that states should look at three criteria: affordability, comparability, and optimality.^[1]

California currently has $72.9 billion of general obligation and $13 billion of lease revenue debt outstanding, which is affordable. The Governor’s 2018 Five-Year Infrastructure Plan estimates that the Debt Service Ratio, or the ratio between debt service and general fund revenues, as 6.18% in 2018-19, 5.88% in 2019-20, and 5.72% in 2020-21. The State Treasurer estimates a debt service ratio of 6.09% in 2018-19. Annual expenditures on debt service have grown from $2.9 billion in 2000-01 to $8.1 billion in 2018-19, and estimated to increase to $8.5 billion in 2021-22. Additionally, 95% of outstanding debt is paid at a fixed rate of interest. While debt service percentages are reasonable, every dollar spent on debt service reduces the funding that is available for other priorities.

California’s comparability to other states is less favorable, but improving. The State Treasurer’s 2018 Debt Affordability Report, issued last October, contains the following chart:

Determining optimality or whether government is investing in the quantity and quality of public capital desired by residents, and financing the appropriate share with debt, is more difficult. LAO recommends that the Legislature consider the Governor’s annual Five-Year Infrastructure Plan as a starting point to developing a coordinated approach to infrastructure funding, and establish a committee to focus on statewide infrastructure.

4. The good news. Ratings issued from the three major credit rating agencies often inform investors and the public regarding the state’s creditworthiness, and assess any investment risk from investing in California general obligation bonds. Rating agencies Fitch, Standard and Poor’s, and Moody’s praise California’s deep and diverse economy, recent balanced and on-time budgets, reduced budget deficits, and improved reserves and liquidity. However, the agencies also state that California faces challenges: a highly volatile revenue system, constitutionally-imposed governance restrictions, high housing costs that threaten economic growth, minimal prefunding of retiree health care benefits, and a large backlog of maintenance and infrastructure needs, among others. Once considered an outlier, the “credit spread” between California bonds and other states as measured by the benchmark 30-year Municipal Market Data Index has tightened significantly in the last ten years; credit spreads represent the difference in yield between two bonds of similar maturity but different credit quality. The Debt Affordability Report notes that California’s credit spread has declined from a high of more than 150 basis points at the end of 2009 to four basis points as of September 2018. The report also says that California’s GO bonds even yielded less than the national MMD benchmark through year 13, and less than five basis points higher for the remainder of the 30-year benchmark. The report added that these spreads are 15 to 28 basis points better than they had been at the beginning of the 2017-18 fiscal year. State Treasurer Fiona Ma announced plans to sell $800 million in new money general obligation bonds on March 26.

5. The bad news. California has a distinct problem: of the $152.7 billion in general obligation bonds that voters have authorized, more than $36 billion hasn’t been issued yet, with voters approving the $4 billion Drought, Water, Parks, Climate, Coastal Protection, and Outdoor Access for All Act of 2018 in June, as well as the $3 billion Veterans and Affordable Housing Bond Act of 2018 and the $1.5 billion Children’s Hospital Bond Act of 2018 last November. Among others, the state hasn’t issued more than $6.5 billion to fund high speed rail, $6.7 billion from the recent water bond, and $8 billion more K-12 and community college education facility bonds (Proposition 51, 2016), among others. While the state has made great progress reducing the amount of authorized, unissued bonds in recent years, many bond-funded projects have not yet received required approvals.

6. Related legislation. Last year, the Senate approved SB 1225 (Glazer), which was almost identical to this bill. SB 1225 did not advance from the Assembly Floor. The Committee also approved AB 2771 (Eggman), which was very similar to SB 1225, which did not advance from the Senate Floor. Additionally, the Committee will also consider SB 45 (Allen), which enacts the Wildfire, Drought, and Flood Protection Bond Act of 2020, a $4.3 billion bond, should the measure advance from the Environmental Quality Committee.

7. Incoming! On March 20^th, the Committee on Education approved SB 14 by a vote of 6 to 0. The Committee is hearing the bill as the Committee of second reference.

8. Technicals. Committee staff recommend the following technical amendments:

• Add “exclusive of refunding bonds issued in accordance with 101228” after “bonds” on Page 4, Line 4.
• Add “renovation, renewal” after “reconstruction on Page 4, Line 18.
• Add “infrastructure,” before “including,” on Page 4, Line 19.
• Add “site acquisition” on Page 4, Line 23.
• Remove “on or before July 1, 2014” on Page 4, Line 26.
• On Page 5, Lines 29, change “chapter,” to “part.”
• On Page 6, Line 21, after “101227,” insert “and not yet repaid and any amount loaned from the General Fund pursuant to this section not yet returned to the general fund that have been authorized by the 2020 Higher Education Facilities Bond Act Finance Committee to be sold for the purpose of carrying out this part.”
• On Page 6, Line 31, add “or the Hastings College of the Law.”
• On Page 7, Line 13, after “101225” add “and not yet repaid.”
• On Page 7, Line 26 change “chapter” to “part.”

Support and Opposition

(3/28/19)

Support: Associated Students of the University of California, California State Student Association, California State University, California Teamsters, University of California

Opposition: Unknown.

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1. Robert Wassmer and Ronald Fisher “Debt Burdens of California State and Local Governments: Past, Present and Future.” As requested and supported by the California Debt and Investment Advisory Commission. July 2011. ↑

SENATE COMMITTEE ON EDUCATION

Senator Connie Leyva, Chair

2019 - 2020 Regular

Bill No: SB 14 Hearing Date: March 20, 2019

Subject: Education finance: Higher Education Facilities Bond Act of 2020.

NOTE: This bill has been referred to the Committees on Education and Governance and Finance. A "do pass" motion should include referral to the Committee on Governance and Finance.

SUMMARY

This bill places an $8 billion general obligation bond on the March 2020 ballot for the construction, reconstruction, and remodeling of existing or new facilities at the University of California (UC), the California State University (CSU), and the Hastings College of the Law.

BACKGROUND

From the late 1980s to 2006, the Legislature placed on the ballot and voters approved bonds that have included support for public higher education every two to four years. The last statewide general obligation bond to include support for public higher education was Proposition 1D (AB 127, Núñez and Perata, Chapter 35, Statutes of 2006), authorizing the sale of $10.4 billion in general obligation bonds, of which $3.087 billion was earmarked for higher education facilities. Of this amount, $1.5 billion was provided for the community colleges, $890 million for UC, and $690 million for CSU. All Proposition 1D higher education facilities funds have been depleted.

Since 2006, no general obligation bonds supporting higher education have been enacted. Instead, the higher education segments have received capital funding from lease-revenue bonds through the annual budget acts. Bond funds, whether lease-revenue or general obligation, are allocated through the budget process in accordance with the segments' five-year capital facility plans.

ANALYSIS

This bill places an $8 billion general obligation bond on the March 2020 ballot for the construction, reconstruction, and remodeling of existing or new facilities at UC, CSU, and the Hastings College of the Law. Of the total amount of bonds authorized, one-half are for UC and the Hastings College of the Law and one-half are for CSU.

Specifically, this bill:

1. Enacts the Higher Education Facilities Bond Act of 2020, which, upon approval by the voters, authorizes no more than $8 billion of state general obligation bonds for the construction, reconstruction, and remodeling of existing or new facilities at the University of California (UC), the California State University (CSU), and the Hastings College of the Law.
2. Specifies that allowable uses of the funds include the following: (1) construction of buildings and the acquisition of related fixtures, (2) the equipping of new, renovated, or reconstructed facilities, including preconstruction costs, including, but not necessarily limited to, preliminary plans and working drawings, (3) renovation and reconstruction of facilities, and (4) the construction or improvement of off-campus facilities of CSU, approved by the CSU Trustees on or before July 1, 2014, including the acquisition of sites upon which these facilities are to be constructed.
3. Authorizes the Higher Education Facilities Finance Committee, consisting of the Governor, the Controller, the Treasurer, the Director of Finance, the UC President, the CSU Chancellor, and the Chancellor of the California Community Colleges, to create debt or debts, liability or liabilities, of the State of California pursuant to this measure.
4. States that any request forwarded to the Legislature and the Department of Finance for funds from this bond issue for expenditure by the UC or CSU shall be accompanied by the five-year capital outlay plan of the particular university or college, and shall include a schedule that prioritizes the seismic retrofitting needed to significantly reduce, by the 2024–25 fiscal year, in the judgment of the particular university or college, seismic hazards in buildings identified as high priority by the university or college.
5. Specifies that the Treasurer shall sell the bonds authorized by the committee at times necessary to service expenditures required by the apportionments and bonds authorized by this part shall be prepared, executed, issued, sold, paid, and redeemed as provided in the State General Obligation Bond Law (Chapter 4 (commencing with Section 16720) of Part 3 of Division 4 of Title 2 of the Government Code).
6. Requires the Committee to authorize the issuance of bonds only to the extent necessary to fund the apportionments that are expressly authorized by the Legislature in the annual Budget Act, as specified.

STAFF COMMENTS

1. Need for the bill. According to the author, “Since 2006, despite a deteriorated fiscal condition for both the UC and CSU, no higher education-specific bonds have been authorized. Instead, the UC and CSU are able to raise capital funding in limited amounts through their General Revenue Bond Program and Systemwide Revenue Bond Program, respectively. This, however, is an unsustainable way for the segments to meet their capital needs–currently identified to be over $16 billion combined. Further, these bond programs, which must be paid back by the systems themselves, can result in higher costs to students and their families.”

“The last higher education-specific bond passed was Proposition 153 in 1992, which authorized a bond issue of $900 million for the strengthening, upgrading and constructing of public colleges and universities throughout the state.”

“Public support is growing for improving campus infrastructure: In a November 2018 PPIC statewide survey on higher education, two in three Californians (66%) agree with the general idea of a bond measure on the state ballot for higher education construction projects. This is a 12-point increase in support since December 2014 and the highest level of support since PPIC first began asking the question in 2007."

1. What are the facilities needs of the segments? The University of California (UC) and California State University (CSU) report the following capital needs:
   1. The UC reported that combining the projects included in its Capital Financial Plan with its current deferred maintenance backlog puts the five- year capital need at nearly $24.8 billion. However, UC conceded that, of this amount, about $13 billion could be funded with existing resources.
   2. The CSU reported their capital needs for academic programs total about $10.2 billion. However, about $1 billion of the need was anticipated to be met with current revenue bonds.

The last statewide general obligation bond supporting the higher education segments, Proposition 1D, provided $890 million for UC and $690 million for CSU. After accounting for the available resources at UC and CSU, the capital needs of the segments appear to be equivalent.

1. How are the higher education segments funded for facilities needs currently? Over the past few years, the responsibility for capital outlay projects has shifted from the state to the UC and CSU through the state’s annual budget. The segments are now able to use their general fund to support capital outlay projects or to fund revenue bond debt service, with the expectation that they prioritize their capital expenditures within their overall operating budgets. However, UC and CSU maintain that this shift does not preclude them from participating in a state general obligation bond. Further, the segments have expressed that they are not funded adequately for their operations currently, let alone at a level that can also support all of their facilities costs.
2. What is the state’s cost exposure? Based on the legislative analyst office’s analysis of the costs associated with Proposition 51 of 2016, the $8 billion in bonds authorized by this bill would cost about $15.6 billion to repay, including an estimated $7.6 billion in interest, at an annual cost of about $440 million per year.
3. Previous Legislation

SB 1225 (Glazer and Allen, 2018) would have placed a $4 billion general obligation bond on the November 2020 ballot for the construction, reconstruction, and remodeling of existing or new facilities at the University of California (UC), the California State University (CSU), and the Hastings College of the Law. The measure was held on the Assembly Floor.

SB 483 (Glazer and Allen, 2017) would have placed a $2 billion general obligation bond on the November 2018 ballot for the construction, reconstruction, and remodeling of existing or new facilities at the University of California (UC), the CSU, and the Hastings College of the Law. The measure was held in the Senate Appropriations Committee.

AB 1433 (Gray, 2016) would have authorized an unspecified amount of state general obligation bonds for the California Community Colleges (CCC), the UC, the Hastings College of the Law, and the CSU to construct and modernize education facilities. The measure was held in the Assembly Appropriations Committee.

AB 1088 (O'Donnell, 2015), would have authorized an unspecified amount of state general obligation bonds for school districts, county superintendents of schools, county boards of education, charter schools, the CCC, the UC, the Hastings College of the Law, and the CSU to construct and modernize education facilities. The measure was held in the Assembly Appropriations Committee.

SUPPORT

Cal State Student Association

California State University

University of California

OPPOSITION

None received

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