SENATE BILL REPORT

ESB 6654

BYSenators McDonald, Gaspard, Bluechel, Wojahn, Cantu, Hayner, Thorsness and Johnson

Authorizing local governments to establish public corporations to finance nonprofit corporations.

Senate Committee on Ways & Means

Senate Hearing Date(s):January 24, 1990; January 25, 1990

Majority Report:     Do pass as amended.

     Signed by Senators McDonald, Chairman; Craswell, Vice Chairman; Amondson, Bailey, Bauer, Bluechel, Cantu, Fleming, Gaspard, Hayner, Johnson, Lee, Moore, Newhouse, Niemi, Owen, Saling, Smith, Warnke, Williams, Wojahn.

Senate Staff:Steve Jones (786-7715)

                February 14, 1990

AS PASSED SENATE, FEBRUARY 13, 1990

BACKGROUND:

A nonprofit organization under current law may borrow money for capital purposes through conventional financing methods, such as loans and mortgages from financial institutions.  The interest paid on these obligations does not enjoy the tax-exempt status that governmental obligations (bonds) receive under the federal tax laws.  As a result, the interest rate paid on private nonprofit obligations is presumably higher than the interest rate paid on governmental obligations.

SUMMARY:

A municipality of the state (including cities, towns, and counties) is authorized to form a public corporation for the purpose of issuing nonrecourse tax-exempt revenue bonds on behalf of private nonprofit corporations for capital facilities of the nonprofit corporation.

Nonprofit corporations eligible to use this method of financing include charitable, educational, human service, and cultural organizations under section 501(c)(3) of the federal Internal Revenue Code.  As nonrecourse revenue bonds, the principal and interest payments on the bonds comes solely from the revenues of the nonprofit facility being constructed, purchased, or leased.  The bonds are not a debt of the state or the municipality, and do not affect any public debt limits.  In case of default, a receiver may be appointed to operate the facility, or the facility may be foreclosed.

The revenue bonds cannot be issued without the permission of municipality creating the public corporation, and the proposed facility must be within the boundaries of the municipality.  Prior to issuance of the bonds, the public corporation must determine that there are sufficient revenues to pay principal and interest on the debt, any reserve funds that may be established, and insurance and maintenance of the facility.  The bonds are required to be reported to the Department of Community Development.

Revenue bonds under this legislation are not available for nonprofit corporations eligible for financing through the state Housing Financing Commission, the Health Care Facilities Authority, or the Higher Education Facilities Authority.

Appropriation:  none

Revenue:   none

Fiscal Note:    available

Senate Committee - Testified:   FOR:  Karen Reed, Fremont Public Association; Kevin Hughes, Washington State Arts Alliance; Sharon Foster, Wash. Comm. Mental Health Council; Dorothy Lengyez, Martin Luther King Ecumenical Center