(a) For purposes of this section “department” means the Department of Housing and Community Development.

(b) Subject to appropriation in the annual Budget Act, the Child Care and Development Facilities Loan Guaranty Fund and the Child Care and Development Facilities Direct Loan Fund are hereby established in the State Treasury. The Superintendent of Public Instruction may transfer state funds appropriated for child care facilities enhancement and the proceeds derived from any future sales of tax-exempt child care and development facilities bonds into these funds.

(c) Notwithstanding Section 13340 of the Government Code, all moneys in the Child Care and Development Facilities Loan Guaranty Fund and the Child Care and Development Facilities Direct Loan Fund, including any interest on loans made from the fund, or loan repayments to the fund, are hereby continuously appropriated to the department for carrying out the purposes of this section and Section 8277.6, respectively. Any loan repayment or interest resulting from investment or deposit of moneys in these funds shall be deposited in the applicable fund, notwithstanding Section 16305.7 of the Government Code. Moneys in the funds shall not be subject to transfer to any other fund pursuant to Part 2 (commencing with Section 16300) of Division 4 of Title 2 of the Government Code, except the Surplus Money Investment Fund.

(d) (1) Moneys deposited in the Child Care and Development Facilities Loan Guaranty Fund shall be used for the purpose of guaranteeing private sector loans to sole proprietorships, partnerships, proprietary and nonprofit corporations, and local public agencies for the purchase, development, construction, expansion, or improvement of licensed child care and development facilities, and for the purpose of administering the guarantees of these loans. The loan guarantees shall be made by the department or by a public or private entity approved by the department, in accordance with the priorities established by the department, as described in Section 8277.6. The full faith and credit of the State of California is not pledged to the Child Care and Development Facilities Loan Guaranty Fund and the state is not liable for loan defaults that exceed the amount of funds deposited with the Child Care and Development Facilities Loan Guaranty Fund.

(2) A loan guarantee made pursuant to this section may not exceed 80 percent of the principal and interest amount of a private sector loan guaranteed by the fund and shall be used only to guarantee a private sector loan for the purchase, development, construction, expansion, or improvement of facilities described in Section 8277.6 and for related equipment and fixtures, but shall not be used primarily to refinance an existing loan or for working capital, supplies, or inventory. A loan guarantee for improvements shall be limited to those improvements necessary, as determined by the department, for any of the following purposes:

(A) To obtain, maintain, renew, expand, or revise a child care license.

(B) To make necessary health and safety improvements.

(C) To make seismic improvements.

(D) To provide access for disabled children.

(E) To expand upon or preserve existing child care operations.

(3) The aggregate amount of outstanding loan guarantees shall not exceed four times the amount in the Child Care and Development Facilities Loan Guaranty Fund.

(4) A loan guarantee made pursuant to this section shall be for the term of the loan or 20 years, whichever is less. Security for the guaranteed loan may include a deed of trust, personal guarantees of shareholders and partners in the case of proprietary borrowers, or other reasonably available collateral. These liens may be subordinated to other liens. Default provisions and other terms shall be reasonable and designed to obtain prompt and full repayment of the guaranteed loan by the borrower. Reasonable loan guarantee fees and points may be charged to applicants and borrowers by any public or private entity approved by the department, as described in regulations adopted by the department.

(5) A loan guarantee made pursuant to this section shall only be granted if the applicant agrees to provide child care in a facility for a period of 20 years or the term of the guaranteed loan, whichever is less.

(6) A loan guarantee made pursuant to this section terminates 120 days after the lender’s receipt of notice that the recipient has either ceased making payments or providing child care in the facility for which the loan was made, or both, unless the lender takes action to accelerate the loan. If a family day care provider ceases to operate, but retains its three-year license, the provider shall give notice to the department and the lending institution of its intention to resume offering child care services for the term of its license, or shall provide notice of its intention to cease providing child care services. The Child Care and Development Facilities Loan Guaranty Fund is not liable for a default occurring after the loan guarantee has ended.

(e) (1) Moneys deposited in the Child Care and Development Facilities Direct Loan Fund shall be used for the purpose of making subordinated loans directly or through a public or private entity approved by the department to sole proprietorships, partnerships, proprietary and nonprofit corporations, and local public agencies for the purchase, development, construction, expansion, or improvement of licensed child care and development facilities, and for the purpose of administering these loans. Loans shall be made in accordance with the priorities established by the department as set forth in Section 8277.6. The full faith and credit of the State of California is not pledged to the Child Care and Development Facilities Direct Loan Fund and the state is not liable for loan defaults that exceed the amount of funds deposited in the Child Care and Development Facilities Direct Loan Fund.

(2) A loan made pursuant to this section may not exceed 75 percent of the total amount of investment for the purchase, development, expansion, or improvement of eligible child care and development facilities as described in Section 8277.6 and for related equipment and fixtures, but may not be used primarily to refinance an existing loan, for working capital, for supplies, or for inventory. A loan made pursuant to this section may not exceed 20 percent of the total amount of investment if the same facility is also utilizing a loan guarantee pursuant to subdivision (c). Investment for purposes of this paragraph means the total cost paid or incurred by the applicant in constructing, renovating, or acquiring a facility. A loan for improvements shall be limited to those improvements necessary, as determined by the department, for any of the following purposes:

(A) To obtain, maintain, renew, expand, or revise a child care license.

(B) To make necessary health and safety improvements.

(C) To make seismic improvements.

(D) To provide access for disabled children.

(E)To expand upon or preserve existing child care operations.

(3) The term of a loan made pursuant to this section may not exceed 30 years. Security for the loan may include a deed of trust, personal guarantees of shareholders and partners in the case of proprietary borrowers, or other reasonably available collateral. These liens may be subordinated to other liens. The payment provisions, late charges, and other terms may vary based on the ability of the borrower to repay the loan, but shall be reasonable and designed to obtain prompt and full repayment of the loan by the borrower. A direct loan shall bear simple interest at the rate of 3 percent per annum on the unpaid principal balance. Reasonable loan fees and points may be charged to applicants and borrowers, as described in regulations adopted by the department. The department may permit a loan to be assumed by an otherwise qualified borrower who agrees to continue to provide child care for the balance of the original term of the loan.

(f) Funds appropriated for the purposes of this section and Section 8277.6 shall be made from funds that are not designated as meeting the state’s minimum funding obligation under Section 8 of Article XVI of the California Constitution.

(Amended by Stats. 2001, Ch. 118, Sec. 2. Effective July 30, 2001.)