KBRA releases research highlighting the statutory framework and legal protections for California School District general obligation bondholders.

KBRA’s ratings of California School District general obligation (GO) bonds continue to reflect the statutory framework established by Assembly Bill 1200 (A.B. 1200) and its amendments, which provide fiscal oversight and monitoring requirements for California school districts and the explicit legal protections for bondholders with respect to the pledged ad valorem property taxes supporting school district debt. As KBRA has noted previously, and as our updated review of the legal and regulatory environment in California demonstrates, we expect the validity and resilience of these credit strengths to remain fully in place irrespective of the underlying financial condition of the school district.

Key Takeaways

• The property-tax levy collected for the payment of GO bonds is deposited in special accounts held by the county treasurer and must be used solely for the payment of debt service on each series of bonds and may not be diverted, allocated, or utilized for any other purpose.
• Under A.B. 1200, as amended, school districts are subject to ongoing fiscal monitoring, and those districts experiencing fiscal distress are subject to escalating tiers of assistance and control by the state and the relevant county, although the level of control imposed on a district can vary depending on the level of financial distress.
• Property tax revenues collected to pay debt service on California School District GO bonds would likely be treated as special revenues, as defined under the U.S. Bankruptcy Code.
• These bonds also benefit from a statutory lien, clarified with the passage of Senate Bill 222, which provides an additional level of protection for bondholders.

Click here to view the report.

Related Publications

• San Diego Unified School District
• Los Angeles Unified School District (LAUSD)
• Coronavirus (COVID-19): Why Does Federalism Matter to Municipal Credit?

About KBRA

KBRA, one of the major credit rating agencies, is registered in the U.S., EU, and the UK. KBRA is recognized as a Qualified Rating Agency in Taiwan, and is also a Designated Rating Organization for structured finance ratings in Canada. As a full-service credit rating agency, investors can use KBRA ratings for regulatory capital purposes in multiple jurisdictions.

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