BILL ANALYSIS SB 205 Page 1 Date of Hearing: January 21, 2010 ASSEMBLY COMMITTEE ON APPROPRIATIONS Kevin De Leon, Chair SB 205 (Hancock) - As Amended: January 19, 2010 Policy Committee: Transportation Vote: Not relevant Urgency: No State Mandated Local Program: No Reimbursable: No SUMMARY This bill provides statutory authority for the State Department of Education (SDE) and the California School Finance Authority (CSFA) to administer the federal Qualified School Construction Bonds (QSCB) tax credit program authorized by the federal American Recovery and Reinvestment Act of 2009 (ARRA). Specifically, this bill: 1)Assigns $700 million of the state's 2009 federal tax credit bond volume cap for the QSCB program to SDE for further assignment and distribution to school districts and county offices of education (COEs). 2)Assigns $73.5 million of the state's 2009 federal tax credit bond volume cap for the QSCB program to CSFA to be issued for the benefit of charter schools, as determined by CSFA. 3)Requires any of the state's 2009 federal tax credit volume cap for QSCB assigned to SDE or CSFA that has not resulted in the issuance of bonds by December 31, 2009 be added to the state's volume cap for 2010. 4)Extends school districts and COEs ability to issue bonds by 120 days from the effective date of this measure, provided these entities received an assignment of tax credits under the QSCB program from SDE prior to December 31, 2009. 5)Requires any of the state's federal 2009 tax credit bond volume cap for the QSCB program originally allocated to SDE that does not result in the issuance of bonds within 120 days from the effective date of this measure to revert to the state SB 205 Page 2 and be reallocated in accordance with the process established by the state, as specified. 6)Requires any charter school that received an allocation from CSFA prior to December 31, 2009 to retain its allocation pursuant to a resolution of the CSFA board. FISCAL EFFECT California received a total of $1.36 billion for the QSCB program. Of this amount, $582 million is allocated directly to large school districts based on their federal Title I allocations (poor, needy pupils) and $773.5 million is reserved for school districts, COEs, and charter schools. SDE, in collaboration with the governor's office and state treasurer, designated $73.5 million of the state's $773.5 million allocation for charter schools. This amount was determined based on charter schools receiving approximately 10% of new construction funding in the last two statewide education school facility bonds. There is not a minimum bond authorization amount in order for LEAs to participate in this program. LEAs, however, are limited to $25 million in tax credits per authorization cycle. SUMMARY CONTINUED 7)Requires any of the state's federal 2009 tax credit bond volume cap for QSCB originally allocated to CSFA that does not result in the issuance of bonds by December 31, 2010 to be retained by CSFA and reallocated in accordance with the QSCB program parameters established by the CSFA. 8)Exempts the assignment and distribution of tax credit bond volume cap by SDE and CSFA from the rulemaking provisions of the Administrative Procedures Act (APA). 9)Ratifies and approves any actions taken and distributions of tax credit volume cap made by SDE and CSFA with respect to the state's volume cap. COMMENTS 1)Background . In February 2009, the federal government passed ARRA, which allocated approximately $100 billion nationwide SB 205 Page 3 for education programs with the purpose of stimulating the economy, including tax credits under the QCSB program. The QCSB program allows local education agencies (LEAs), including charter schools, to issue tax-exempt bonds and use 100% of the proceeds for specified school facility purposes. The bonds provide federal tax credits for bondholders in lieu of interest in order to significantly reduce an issuer's (i.e., LEAs) cost of borrowing. The final maturity of the loan may vary slightly; it typically is limited to approximately 15 years. ARRA provides for an allocation to each state based on the state's Title I allocation, along with separate allocations for large school districts. In the summer of 2009, SDE, in collaboration with the governor's office and the state treasurer, was designated as the administrating agency for the QSCB program. SDE developed an administrative process for implementing this program, including parameters for participation and designating allocation amounts for school districts and COEs ($700 million) and to CSFA for charter schools ($73.5 million). Applications were due to SDE by August 25, 2009. CSFA was granted authority to administer the QSCB program for charter schools due to its existing expertise in charter school facility finance issues. Similar to SDE, CSFA's board developed parameters and procedures for this program. Applications were due to CSFA by September 14, 2009. While both SDE and CSFA have established policies and procedures to administer the QSCB program, each entities' bond counsel, including the governor's office and the attorney general, have expressed concerns regarding their legal authority to issue tax credits to LEAs and charter schools, as required under this program. Therefore, approved school districts and charter schools have not issued bonds due to the legal concerns regarding the state's ability to issue QSCB tax credits. This bill provides statutory authority for the SDE and CSFA to administer the QSCB program and issue program tax credits to approved school districts and charter schools. 2)Who received funding under the QSCB program ? SDE received a total of 231 school districts applications for $3.6 billion. SB 205 Page 4 As a result, SDE conducted a lottery to determine the recipients of the $700 million designated for LEAs. 43 school districts were funded and initially required to issue bonds by December 31, 2009. SDE granted extensions to 39 of the 43 districts on a case by case basis. Four LEAs returned their program allocations. School districts have until March 31, 2010 to issue bonds. This bill extends this timeline by 120 days, as specified. CSFA received 28 applications from charter schools for the QSCB program. Under the board's parameters, CSFA staff developed a list of six charter schools deemed "credit worthy" and that demonstrated an ability to immediately begin construction or modernization. These six charter schools were approved for $29.2 million under the QSCB program. To date, the approved charter schools have not issued bonds due to legal concerns. The 22 remaining applicants are being further evaluated by CSFA. 3)Committee amendments . As currently drafted, there is not an urgency clause in the bill. Approved school districts and charter schools, however, are waiting to issue bonds and receive tax credits from the state under the QSCB program. Committee staff recommends an urgency clause be amended into this measure. Also, SDE informed the committee that there is a technical error in the amount of money specified for charter schools. The committee recommends an amendment to change this number to $75,525,000. Analysis Prepared by : Kimberly Rodriguez / APPR. / (916) 319-2081