SHB 1398

HOUSE BILL REPORT
SHB 1398

This analysis was prepared by non-partisan legislative staff for the use of legislative members in their deliberations. This analysis is not a part of the legislation nor does it constitute a statement of legislative intent.

As Passed Legislature

Title: An act relating to the University of Washington's and Washington State University's local borrowing authority.

Brief Description: Expanding the University of Washington's and Washington State University's local borrowing authority.

Sponsors: By House Committee on Capital Budget (originally sponsored by Representatives Fromhold, Wallace, Anderson, McDonald, Pedersen and Chase; by request of University of Washington).

Majority Report: The substitute bill be substituted therefor and the substitute bill do pass. Signed by 21 members: Representatives Fromhold, Chair; Ormsby, Vice Chair; Schual-Berke, Vice Chair; McDonald, Ranking Minority Member; Newhouse, Assistant Ranking Minority Member; Blake, Chase, Dunshee, Eickmeyer, Flannigan, Goodman, Hankins, Kelley, McCune, Orcutt, Pearson, Pedersen, Sells, Skinner, Strow and Upthegrove.

Background:

The Board of Regents at the state research universities are authorized to issue bonds and other debt for research and enterprise facilities. Research facilities are largely supported by federal grants and contracts, as well as other nonstate sources. Enterprise facilities generate revenue from their operations, and these facilities are not subject to legislative appropriation. Such facilities include student housing and dining halls, parking structures, intercollegiate athletics, hospitals, and other student services.

The research universities are not authorized to issue bonds for academic and administrative facilities, but may execute other long-term financial commitments for such facilities. These other long-term financial commitments include long-term leases and lease-to-own contracts that take advantage of tax-exempt financing under the federal tax code (commonly referred to as 63-20 projects). These allowable long-term financial commitments are typically more costly than bond financing.

Summary of Substitute Bill:

The authority of the University of Washington and Washington State University to issue bonds is expanded to any university purpose. Any nonappropriated funds may be obligated for the repayment of such bonds. This debt will not count against the state's constitutional debt limit and will not be backed by the full faith and credit of the state. The universities must report annually to the appropriate committees of the Legislature and the State Treasurer on the use of this bonding authority.

Effective Date: The bill takes effect 90 days after adjournment of session in which bill is passed, except for section 4, relating to the refinancing of real and personal property acquired by the University of Washington between August and October 2006, which contains an emergency clause and takes effect May 1, 2007.

Staff Summary of Public Testimony:

(In support) This bill will allow the university to manage debt in a most cost effective way. The benefit of doing this is cost savings and cost management. With the ability to offer bondholders the total of the university's nonappropriated funds, the university can get a higher bond rating and lower interest costs. Currently the university can only use individual pockets of revenue to support bonds. This authority would allow for a direct issue of bonds for administrative or academic facilities supported by nonappropriated funds. The requirement of at least a single "A" rating is restrictive and not necessary.

(Opposed) None.

Persons Testifying: Harlan Patterson, University of Washington; Mike Murphy, State Treasurer; and Larry Ganders, Washington State University.