REFERENCE TITLE: public schools; guaranteed debt obligations





State of Arizona


Fifty-sixth Legislature

Second Regular Session





SB 1729


Introduced by

Senator Mesnard









An Act


amending title 15, chapter 10, Arizona Revised Statutes, by adding article 14; relating to public schools.





Be it enacted by the Legislature of the State of Arizona:

Section 1. Title 15, chapter 10, Arizona Revised Statutes, is amended by adding article 14, to read:


START_STATUTE15-1271. Definitions

In this article, unless the context otherwise requires:

1. "Board" means the Arizona credit ENHANCEMENT eligibility board established by section 15-1272.

2. "Fund" means the Arizona credit enhancement fund established by section 15-1273.

3. "Guaranteed financing" means a debt obligation, including principal and interest, that is both:

(a) Issued by or on behalf of a school district or charter school to acquire, construct, renovate, equip, refinance or improve capital FACILITIES.

(b) Guaranteed, in whole or in part, by the board pursuant to the program.

4. "Participating school" means a school district or charter school that has at least one outstanding guaranteed financing pursuant to a written agreement with the board.

5. "Permanent state school fund" means the fund prescribed by section 37-521.

6. "Program" means the Arizona credit enhancement program established by section 15-1273.

7. "Program leverage ratio" means the ratio between the total value of guaranteed financings pursuant to this article and the total monies available in both the Arizona credit enhancement fund and the permanent state school fund.  END_STATUTE

START_STATUTE15-1272. Board; membership; powers and duties

A. The Arizona credit enhancement eligibility board is established.  The board is a body corporate and politic. The board consists of the following members:

1. The governor or the governor's designee.

2. The state treasurer or the treasurer's designee.

3. The superintendent of public instruction or the superintendent's designee.

B. Members of the board are not eligible to receive compensation for services performed pursuant to this article.  Members of the board are public officers with respect to their service on the board and are subject to title 38, chapter 3, article 8.  The board is a public body for the purposes of title 38, chapter 3, article 3.1.

C. The department of education shall provide staff to support the board and the administration of the program. 

D. The board shall:

1. Administer the program established by section 15-1273.

2. Adopt rules governing the operation of the program.

E. The board may:

1. Sue and be sued.

2. Adopt a corporate seal.

3. Contract.

4. Take any other action that is necessary or appropriate to carry out this article or that may be deemed necessary or proper to protect monies in the fund. END_STATUTE

START_STATUTE15-1273. Arizona credit enhancement program; eligibility; program participation fee; fund; exemptions; enforcement

A. The Arizona credit enhancement program is established to assist school districts and charter schools in obtaining more favorable financing terms by guaranteeing the payment of principal and interest on guaranteed financing issued by or on behalf of participating schools. 

B. A school district or charter school may apply to the board, on a form and in the manner prescribed by the board, to participate in the program.  The application shall require at least the following:

1. For charter schools, verification that the charter school meets all of the following:

(a) Is assigned a letter grade of A or B pursuant to section 15-241.

(b) Has proven instructional strategies and curricula that demonstrate high academic outcomes.

(c) Has a verifiable enrollment demand, including a waiting list of prospective students.

(d) Has a sound financial plan that contemplates operational costs and future enrollment growth.

(e) Has shown a commitment to provide technical assistance, including business services, curriculum development and teacher training, to an underperforming public school in this state.

(f) Is rated at least "BB" or a comparable rating by a nationally recognized bond rating agency.

(g) Has a charter holder with experience in operating and managing charter schools with high academic outcomes for at least two consecutive years.

(h) Acknowledges that the guaranteed financing:

(i) Will require a debt service reserve fund that is equal to at least the maximum amount allowed by federal law in connection with the issuance of tax-exempt obligations. 

(ii) Will require Written notice If the charter school withdraws from the debt service reserve fund to pay the principal or interest, or both, of a guaranteed financing, not later than ten days after the withdrawal.

(iii) Will Meet any other criteria established by the board.

2. For school districts, verification that the school district meets any criteria established by the board.

3. Evidence of financial stability for at least two years, based on financial metrics determined by the board, including days' cash on hand, the ratio of operating revenues to debt service, and the ratio of financed property value to debt secured by the property.

4. Information about the proposed guaranteed financing, including the relevant timeline, sources and uses of monies, dates and estimated values of principal and interest payments by payment date, plans for funding reserves, and expected ratings, if any.

5. Identification of any property that will be used as collateral for the proposed guaranteed financing.

6. Any other information that the board requests or that is relevant to the application.

C. The board shall meet regularly to evaluate and approve or deny each application that the board receives.  The board shall notify each applicant within ten business days after the board approves or denies the application.  The board may approve an application only if the following requirements are met:

1. Approval of the application will not cause the program leverage ratio to exceed the ratio of three and one-half to one.

2. For each application that is submitted by a charter school, the proposed guaranteed financing is rated at least "BB" or a comparable rating by a nationally recognized bond rating agency.

D. If the board approves an application, the board shall enter into a written agreement with the participating school that provides the essential terms and conditions for the guaranteed financing, including the remedies available to the board if the participating school defaults on the guaranteed financing payments or other obligations pursuant to the program.

E. Each participating school shall pay an annual program participation fee until the guaranteed financing is fully satisfied.  Unless otherwise provided by the board, the program participation fee shall be paid in equal amounts on the same date that interest is due and payable to investors under the debt obligation that is issued by or on behalf of the participating school.  Program participation fees shall be an annual amount determined by the board that the participating school pays to the state treasurer for deposit in the fund.

F. The Arizona credit enhancement fund is established. The state treasurer shall administer the Arizona credit enhancement fund and disburse monies pursuant to subsection G of this section.  The state treasurer shall separately account for monies received from each source listed in this subsection and may establish accounts and subaccounts as necessary.  The state treasurer shall invest and divest monies in the Arizona credit enhancement fund as provided in section 35-313, and monies earned from investment shall be credited to the Arizona credit enhancement fund. Monies in the Arizona credit enhancement fund are subject to legislative appropriation and are exempt from the provisions of section 35-190 relating to lapsing of appropriations.  If there are insufficient monies in the Arizona credit enhancement fund for program expenses, the state treasurer shall transfer monies from the permanent state school fund to the Arizona credit enhancement fund in the amount necessary to fund program expenses.  The Arizona credit enhancement fund consists of monies from the following sources:

1. Program participation fees paid pursuant to subsection E of this section.

2. Reimbursements pursuant to subsection J of this section.

3. The proceeds of program funding obligations issued by the board.

4. Gifts, grants and donations received from any public or private source to carry out the purposes of this article.

5. Interest earnings and investment income earned on monies in the fund.

6. Monies transferred to the fund pursuant to section 37-521.

7. Any other monies distributed, paid or deposited in the fund by law, including monies received pursuant to a contract that is related to a guaranteed financing.

G. Monies and other assets of the fund shall be held and disbursed separately from all other monies or assets of this state or of any political subdivision of this state.  The state treasurer shall use monies from the fund to pay the principal or interest payments on guaranteed financing or as directed by the board to pay for any of the following:

1. Operational or administrative expenses of the board, including fees for advisers, rating agencies and professionals retained by the board.

2. Municipal bond insurance premiums for insurance to guarantee the timely payment of all or a portion of any guaranteed financing.

3. Principal and interest payments for program funding obligations.

H. Monies deposited in the fund pursuant to subsection F of this section may be used only for guaranteeing or making principal and interest payments for guaranteed financings, program expenses and the board's expenses pursuant to this article.

I. If a participating school cannot timely pay principal or interest, or both, of a guaranteed financing, the participating school shall notify the board and the state treasurer in writing at least five days before the payment is due.  The state treasurer shall distribute monies from the fund to the participating school on or before the second business day after receiving written notice pursuant to this subsection.  Monies distributed pursuant to this subsection may be used only to pay the principal or interest, or both, of the guaranteed financing. 

J. A participating school that receives monies pursuant to subsection I of this section shall reimburse the program in an amount equal to the amount of monies received plus interest at a rate that is one hundred basis points higher than the true interest rate on the guaranteed financing, as determined by the board.  Unless otherwise provided by the board, the participating school shall reimburse the program by paying equal installments to the state treasurer every month for one year.  Any monies due pursuant to this subsection after one year are a legal obligation of the participating school, and the participating school shall satisfy the obligation using any monies lawfully available to the participating school. END_STATUTE

START_STATUTE15-1274. Reporting requirements

Not later than thirty days after the last day of each calendar quarter, the division of school facilities within the department of administration, in consultation with the board, shall report to the speaker of the house of representatives, the president of the senate, the director of the joint legislative budget committee and the director of the governor's office of strategic planning and budgeting. The quarterly report shall include at least the following information:

1. A list of all outstanding guaranteed financings, including the following information for each guaranteed financing:

(a) The name of the participating school that is associated with the guaranteed financing.

(b) The date that the guaranteed financing was issued.

(c) The original value of the guaranteed financing, including principal and expected interest.

(d) The interest rate.

(e) The term length.

(f) The credit rating.

(g) The outstanding principal and interest for the current fiscal year.

(h) The purpose for which the debt obligation for each guaranteed financing was issued, including whether the debt obligation was issued to construct new capital facilities, renovate existing capital facilities or refinance existing debt obligations.

(i) The current outstanding principal of the guaranteed financing.

2. A list of all guaranteed financings for which the state treasurer distributed monies from the fund pursuant to section 15-1273, subsection I during the previous quarter.  This list shall include the amount distributed for each guaranteed financing, the terms for reimbursement pursuant to section 15-1273, subsection J and any default by a participating school on a guaranteed obligation.

3. The current balance of the fund.

4. The current program leverage ratio. END_STATUTE