SENATE BILL REPORT

HB 2707

BYRepresentative H. Sommers 

Changing provisions relating to school district indebtedness.

House Committe on Capital Facilities & Financing

Senate Committee on Education

Senate Hearing Date(s):February 22, 1990

Majority Report:  Do pass as amended and be referred to Committee on Ways & Means.

      Signed by Senators Bailey, Chairman; Lee, Vice Chairman; Fleming, Gaspard, Murray, Rinehart.

Senate Staff:Leslie Goldstein (786-7424)

                  February 23, 1990

Senate Committee on Ways & Means

Senate Hearing Date(s):February 26, 1990

Majority Report:  Do pass as amended by Committee on Education.

      Signed by Senators McDonald, Chairman; Amondson, Bailey, Bauer, Bluechel, Cantu, Fleming, Gaspard, Johnson, Lee, Owen, Saling, Smith, Williams, Wojahn.

Senate Staff:Ken Kanikeberg (786-7715)

                  February 27, 1990

AS REPORTED BY COMMITTEE ON WAYS & MEANS, FEBRUARY 26, 1990

BACKGROUND:

State law permits school districts to purchase any real or personal property through conditional sales contracts, within the three-eighths of 1 percent non-voter debt limit.  The use of contracts is common for the purchase of buses, portable buildings, and office equipment.  Often the equipment vendors sell the tax-exempt contracts to leasing companies or local banks.  Interest rates on such contracts often are significantly higher than current tax-exempt rates on local government bonds and notes.  In order to gain access to the lower interest rates available in the tax-exempt bond market, and because changes in federal tax laws make banks less willing to purchase the tax-exempt conditional sales contracts, districts in recent years have arranged for the division of such contracts into $5,000 pieces for sale on the bond market.  These "certificates of participation" in conditional sales contracts are quite common nationally and are treated like non-voter limited tax general obligation bonds.

Although the interest rates on certificates of participation in school district contracts are attractive, the number of steps involved in their issuance and the extensive documentation required by securities laws make them expensive.  It has been suggested that school districts be given clear authority to borrow directly through the issuance of bonds, rather than the more costly conditional sales contracts.

SUMMARY:

School districts are permitted to issue limited tax general obligation bonds for the purchase of real and personal property without a vote of the people.  The bonds are subject to the existing debt limits in state law.  The bond proceeds will be deposited in the districts' capital fund, transportation fund, or the general fund, as applicable.  The authorized use of the transportation fund is expanded to include payments on bonds issued for pupil transportation vehicles.

Appropriation:    none

Revenue:    none

Fiscal Note:      requested January 19, 1990

SUMMARY OF PROPOSED SENATE EDUCATION AMENDMENTS:

Clarification is made that voter approval is not needed for limited tax general obligation bonds.

Use of the transportation vehicle fund includes not just limited tax general obligation bonds but types of indebtedness authorized including notes or other types of indebtedness.

Senate Committee - Testified: EDUCATION:  Hugh Spitzer, Foster Pepper Shefelman; John Rose, Seattle NW Securities Corporation; Dwayne Slate, Washington State School Directors Association

Senate Committee - Testified: WAYS & MEANS:  FOR:  Deborah Winter, Foster, Pepper & Shefelman; Dwayne Slate, Washington State School Directors Association