New Law Imposes Additional Requirements On School Districts That Engage In Financings

Under current law, school districts issuing general obligation bonds, certificates of participation (“COPs”), or other forms of debt must submit timely reports to the California Debt and Investment Advisory Commission (“CDlAC”) of the proposed issuance and final sale.  SB 1029 provides that commencing January 1, 2017, a school district must additionally certify that it has adopted local debt policies in the report of final sale for any financing. The local debt policies must include specified provisions concerning the use of debt and that the contemplated debt issuance is consistent with those local debt policies. SB 1029 will also require local agencies to prepare an annual report for any debt issue for which it has filed a CDIAC report of final sale on or after January 21, 2017.

The local debt policies are to include all of the following:

(a)  The purposes for which the debt proceeds may be used.

(b)  The types of debt that may be issued.

(c)  The relationship of the debt to, and integration with, the issuer’s capital improvement program or budget, if applicable, and

(d)  Policy goals related to the issuer’s planning goals and objectives.

While the issuance of debt can be an appropriate method of financing capital projects, more stringent monitoring of such debt issuance is now required under SB 1029 to preserve a school district’s credit strength and budget and financial flexibility. The SB 1029 policies will assist school districts in determining the appropriate uses for debt financing as well as establishing prudent debt management goals.