BILL ANALYSIS
SENATE COMMITTEE ON EDUCATION
Gloria Romero, Chair
2009-2010 Regular Session
BILL NO: AB 2560
AUTHOR: Brownley
AMENDED: June 15, 2010
FISCAL COMM: Yes HEARING DATE: June 23, 2010
URGENCY: Yes CONSULTANT:Kathleen Chavira
SUBJECT : 2010 Federal Tax Credit Bond Volume Cap
KEY POLICY ISSUE
What conditions should be imposed upon the distribution of
the state's 2010 federal tax credit bond volume cap for
Qualified School Construction Bonds?
SUMMARY
This bill, an urgency measure, provides for the
distribution of the state's 2010 federal tax credit bond
volume cap for Qualified School Construction Bonds (QSCBs).
BACKGROUND
The American Recovery and Reinvestment Act of 2009 (ARRA)
has authorized $22 billion in Qualified School Construction
Bonds (QSCBs) nationally, providing for the issuance of $11
billion of QSCBs by states and large local educational
agencies (LEAs) in 2009 and $11 billion in 2010. The ARRA
provides for an allocation to each state, along with
separate allocations for large LEAs with the amount of the
allocation determined via a statutory formula based upon
each state's share of Title I Basic Grant funds. The 2010
allocations include $6.6 billion of bonding authority to
the 50 states and the remaining $4.4 billion (40 percent)
of volume cap directly to 103 large LEAs. States with LEAs
that receive QSCB allocations directly from the federal
government have the overall state allocation reduced by
that amount. An LEA that receives a direct allocation may
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reallocate any of its unused QSCB allocations to its state.
If an allocation to a state is unused for a calendar year,
the state may carry it forward to the next calendar year.
QSCBs are subsidized by the federal government. Investors
who buy these bonds receive federal income tax credits at
prescribed tax credit rates in lieu of interest that would
normally be paid by states and districts to holders of
these taxable bonds. These tax credits essentially allow
state and local governments that issue bonds to borrow
without incurring interest costs.
QSCBs can be used for the construction, rehabilitation, or
repair of a public school facility. In addition, a portion
of the proceeds of such a bond may be used for the
acquisition of land on which a public school facility is to
be constructed.
ANALYSIS
This bill :
1) Authorizes the assignment and distribution of the
state's 2010 federal tax credit bond volume cap for
QSCBs. Specifically it:
a) Authorizes the California Department of
(CDE) to assign and distribute $651 million the
state's 2010 federal tax credit bond volume cap
for QSCBs to, or for, the benefit of school
districts and county offices of education.
b) Authorizes the California School Finance
Authority (CSFA) to assign and distribute, or to
further assign and distribute to one or more
issuers in the state, $68 million of the state's
2010 federal tax credit bond volume cap for QSCBs
to, or for, the benefit of charter schools.
2) Establishes the following conditions on the assignment
and distribution of the 2010 QSCBs by the CDE:
a) Requires a school district or
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county office of education to meet specified
criteria in order to be eligible. Specifically
the district is required to:
i) Apply for and received
Division of the State Architect approval of
the project before submission of the QSCB
application.
ii) Fund the project with
local voter approved bonds issued by the
school district (but authorizes other forms
of financing for county offices of education
and school districts with enrollment of
2,500 or less with the submission of a
resolution adopted by the governing board
authorizing issuance of the alternate
financing).
iii) Adopt a local governing board
resolution committing to ensuring that all
their school facility construction
projections will meet or exceed
Collaborative for High Performance Schools
(CHPS) or Leadership in Energy and
Environmental Design (LEED) standards.
b) Prohibits a school district or
county office of education that received a 2009
federal tax credit bond volume cap for QSCBs from
the CDE or as a direction allocation from the
federal government from applying.
c) Requires the CDE to post the
application form on its Internet website five
business days after the enactment of this bill
and additionally requires an application be
submitted via certified mail postmarked no sooner
than 20 business days after the enactment of the
bill and include the total overall enrollment for
the 2008-09 school year and the total number of
these students that qualify for the federal free
and reduced priced meal program.
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d) Requires the return of an
application to an applicant not meeting these
conditions.
e) Requires that applications meeting
these conditions be accepted on a first come
first served basis by date of postmark.
f) Provides that, in the event the
program is oversubscribed, order of allocation
shall be based first upon the earliest date of
postmark and second upon the greater percentage
of students enrolled in the 2008-09 school year
that qualify for free and reduced meals, to be
certified as specified.
g) Prohibits authorization of the
2010 federal tax credit bond volume cap by the
CDE prior to December 1, 2010.
h) Requires the CDE to maintain a
waiting list of eligible applicants pursuant to
the ordering criteria established by the bill.
i) Caps the amount that an applicant
may request at $25 million from the 2010 federal
tax credit bond volume cap.
j) Requires an applicant to certify
in its application that it will fulfill with all
federal program bond requirements.
aa) Requires issuance of all federal
QSCB within 6 months of the date of
authorization, requires reversion of any unused
authorizations to the CDE, and prohibits
provision of any extensions.
3) Establishes the following conditions on the assignment
and distribution of the 2010 QSCBs by the CSFA:
a) Requires application of the parameters
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specified in the February 10, 2010 application
and referenced in the CSFA Resolution 10-04 to
all applications submitted to CSFA.
b) Requires that a charter school comply with
all requirements of the Charter School Facilities
Program if it uses any of the 2010 federal tax
credit bond volume cap in conjunction with a bond
that will serve as a local match for the Charter
School Facilities Program.
4) Finds and declares that the federal tax credit bond
volume cap for QSCB's do not constitute federal
moneys, federal funds, or fund of any kind for any
purpose under the Education Code.
5) Declares the act to be an urgency statute.
STAFF COMMENTS
1) Need for the bill . California has been allocated $720
million of the Qualified School Construction Bonds
(QSCBs) authorized nationally by the federal
government for distribution by the state in 2010 as
part of the federal ARRA of 2009. Although the ARRA
authorizes "the state" to make these federal tax
credit allocations, it does not specify which entity
in the state is the responsible entity. In response to
concerns raised by school district bond counsel over
the sale of QSCBs in 2009, statutory clarification by
the state was necessary in order to ensure that LEAs
had received them from a legally authorized entity and
could legitimately be sold by them. The CDE was
granted the authority to distribute the 2009 tax
credits to school districts and county offices of
education while the CSFA was granted authority to
distribute them to charter schools. This bill
provides statutory authority for the CDE and CSFA to
issue the 2010 program tax credits and administer the
QSCB program. It also establishes new criteria to be
met by applicant LEAs and charter schools to receive
these allocations in 2010.
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2) 2009 vs. 2010 . Of the $22 billion in QSCBs authorized
by the federal Government under AARA, California
received authorization for $1.3 billion in tax credits
in 2009 and $1.26 billion in 2010. The table below
summarizes the disposition of those QSCBs in 2009 and
the proposed distribution in 2010.
For 2009, with requests of over $3 billion for the
$700 million available, CDE conducted a lottery and
made allocations of QSCBs to 43 school districts.
This bill proposes a different process for CDE's
allocation of the 2010 tax credits. It requires that
projects be "construction ready," be built to "green"
standards, and use local voter-approved debt
instruments (local bonds or Mello Roos). Allocations
will be made on a first come, first served basis based
on postmark date. In the event that the program is
oversubscribed, second priority will be assigned based
upon the proportion of students eligible for free and
reduced price meals. Projects will continue to be
limited to a maximum $25 million allocation per
district. Finally a district must issue bonds within 6
months of the date of the authorization or the credits
revert to the CDE for redistribution.
Consistent with the distribution of these credits in
2009, about 10 percent of the state's allocation of
QSCBs has been made available to CSFA for charter
schools. The CSFA's process for allocations to charter
schools remains the same for both 2009 and 2010.
3) Status of 2009 allocations . The total 2009 QSCB
allocated by the CDE was about $700 million. Of that
amount, about $81 million has been issued to the
following five districts; Windsor Unified, San Leandro
Unified, Placentia Yorba Linda Unified, Washington
Unified, and San Dieguito Union High. The remaining
balance is approximately $693 million. Districts have
until July 23, 2010, to request that their 2009
allocation be issued. After that time, QSCB
allocations made by the CDE will revert to the agency
for redistribution.
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The CSFA, although authorized to distribute
approximately $73.5 million has $19 million in QSCBs
awaiting allocation. About $20.5 million has been
issued to three charter school projects. Charter
schools must enter into a binding agreement for at
least ten percent of the proceeds of the bonds within
six months of the QSCBs issuance date, and are
required to spend the remainder within three years of
this date. Subject to CSFA's sole discretion, any
authorization to borrow QSCB proceeds is contingent on
the issuance of the QSCBs by December 31, 2010, after
which time the authorization expires and CSFA may give
the authority to another qualified applicant.
4) CSFA's parameters . This bill makes reference to
parameters outlined in the CSFA's 2010 application for
an allocation of tax credits as the conditions to be
met by an applicant charter school. Eligible charter
schools must be operated as or by a non-profit entity,
have an approved charter in place current from the
time of application to the date of bond issuance, must
be in good standing with the chartering authority and
in compliance with the terms of its charter, provide a
level of classroom based instruction consistent with
requirements for participating in other state funding
programs, and have completed at least three full
school years of instructional operation as of June 30,
2009. The CSFA has set a minimum of $2 million and a
maximum of $25 million per project. If oversubscribed,
priority will be assigned to charters that are deemed
"credit worthy" and that are "shovel ready."
5) Prior legislation . SB 205 (Hancock, Chapter 11,
Statutes of 2010), an urgency measure, provided
statutory authority for the CDE and the CSFA, to
administer the 2009 QSCB's federal tax credit program
authorized through the federal ARRA of 2009. The bill
assigned specified amounts for distribution to school
districts and county offices of education and to
charter schools, and extended the timeframe for
districts that were notified of eligibility for this
program on or before December 31, 2009, to issue
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qualifying local bonds until 120 days after its
enactment.
SUPPORT
County School Facilities Consortium
State Superintendent of Public Instruction Jack O'Connell
State Treasurer's Office
OPPOSITION
None received.