BILL ANALYSIS SB 205 Page 1 REPLACE - 01/9/2010 CHANGE PER CONSULTANT. SENATE THIRD READING SB 205 (Hancock) As Amended January 25, 2010 2/3 vote. Urgency SENATE VOTE :Vote not relevant TRANSPORTATION LOCAL GOVERNMENT (vote not relevant) (vote not relevant) APPROPRIATIONS 17-0 -------------------------------- |Ayes:|De Leon, Conway, Ammiano, | | |Bradford, Charles | | |Calderon, Coto, Davis, | | |Fuentes, Hall, Harkey, | | |Miller, Nielsen, John A. | | |Perez, Skinner, Solorio, | | |Audra Strickland, | | |Torlakson | |-----+--------------------------| | | | -------------------------------- SUMMARY : Provides statutory authority for the California Department of Education (CDE) 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 CDE 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. 3)Provides that any of the state's 2009 federal tax credit volume cap for QSCB assigned to CDE or CSFA that has not SB 205 Page 2 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 bill, provided these entities received an assignment of tax credits under the QSCB program from CDE prior to December 31, 2009 and an extension to issue bonds through March 31, 2010. 5)Requires any of the state's federal 2009 tax credit bond volume cap for the QSCB program originally allocated to CDE that does not result in the issuance of bonds within 120 days from the effective date of this bill to revert to the state and be reallocated in accordance with the process established pursuant to state law for allocating the 2010 federal tax credit bond volume cap. 6)Requires any charter school that received an allocation from CSFA prior to December 31, 2009 to retain its allocation pursuant to a CSFA resolution. 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 CDE and CSFA from the rulemaking provisions of the Administrative Procedures Act (APA) in order to further the purposes of the ARRA and allow school districts to issue federal tax credit bonds as expeditiously as possible. 9)Ratifies and approves any actions taken and distributions of tax credit volume cap made by CDE and CSFA with respect to the QSCB tax credit bond volume cap. 10)Contains an urgency clause in order to access federal stimulus tax credits at the earliest possible opportunity. FISCAL EFFECT : According to the Assembly Appropriations Committee, there is no General Fund impact. COMMENTS : In February 2009, the federal government passed ARRA, SB 205 Page 3 which allocated approximately $100 billion nationwide for education programs with the purpose of stimulating the economy, including $22 billion in tax credits over two years under the QCSB program. The QCSB program provides savings for school districts issuing local bonds for the construction and renovation of school facilities by lowering or eliminating interest payments. The federal government will provide federal tax credits for bondholders in lieu of interest normally paid by issuers. According to the CDE, interest payments typically equal about 50% of the cost of a bond. The maximum term of a bond using QCSB tax credits is determined by the United States Treasury Department - currently at approximately 15 years. ARRA provides for an allocation to each state based on the state's Title 1 (poor, needy pupils) allocation, 40% of which are allocated directly by the federal government to large school districts and the remaining to be allocated to school districts by the state. California received a total of $1.3 billion for 2009 and will receive another $1.3 billion for 2010. Of the amount for 2009, $582 million was allocated directly to 11 large school districts and $773.5 million is reserved for school districts, COEs, and charter schools. CDE, in collaboration with the Governor's Office and the State Treasurer, designated $73.5 million of the state's $773.5 million allocation for charter schools, to be administered by the CSFA. This amount was determined based on charter schools receiving approximately 10% of new construction funding in the last two statewide education school facility bonds. CDE developed an administrative process for implementing this program, including parameters for participation. There is not a minimum bond authorization amount in order for local educational agencies (LEAs) to participate in this program. LEAs, however, are limited to $25 million in tax credits per authorization cycle. With requests from 231 school districts applications totaling $3.6 billion in requests for $700 million, the CDE conducted a lottery and allocated tax credits to 43 school districts. CSFA was granted authority to administer the QSCB program for charter schools due to its existing expertise in administering federal and state funds for charter school facilities. Similar to CDE, CSFA developed parameters and procedures for this program; the eligibility criteria are similar to criteria used SB 205 Page 4 for the Charter School Facility Program. CSFA received 28 applications from charter schools. The CSFA guidelines prioritize charters that are deemed "credit worthy" and that are "shovel ready" and awarded $19.2 million in tax credits to six charter schools. The 22 remaining applicants are being further evaluated by CSFA. Because charter schools do not have authority to issue bonds, the CSFA will sell the bonds and provide low- or no-interest loans to charter schools. The problem that arose that prompted the introduction of this bill came when school districts, in attempting to sell the bonds, were informed by bond counsels that the federal law contained ambiguity that requires statutory clarification by the state. Specifically, the ARRA authorized "the state" to make federal tax credit allocations, but did not specify which entity in the state is the responsible entity. As a result, bond counsels refused to issue bond opinions for school districts to sell bonds fearing that a challenge can be made that a school district did not receive the tax credits from a legally-authorized entity. Thus far, no school district that received its bond tax credits from the state has issued bonds, despite a deadline of December 31, 2009 to do so. This bill provides statutory authority for the CDE and CSFA to administer the QSCB program and issue 2009 program tax credits to approved school districts and charter schools. The bill also provides an extension of 120 days from the effective date of this bill for districts to issue bonds, provided that they received an extension from the CDE through March 31, 2010. The CDE granted extensions to 39 of the 43 districts on a case-by-case basis. Four LEAs returned their allocations. The bill authorizes charter schools to retain their allocations as established by the CSFA. Any allocations that do not ultimately result in issuance of bonds and are therefore not used will revert back to the CDE and the CSFA for reallocation in 2010. Due to time constraints and to enable school districts and the CSFA to issue bonds as soon as possible, this bill contains an urgency clause, waives the requirement for the CDE and the CSFA to adopt regulations, and ratifies the actions already undertaken by the CDE and the CSFA with respect to the QSCB program. There are several unresolved questions and issues as follows: SB 205 Page 5 1)It is unclear why any tax credit bond volume cap to be reallocated by the CDE is pursuant to future legislation for 2010 allocations while any carryover for charter schools is reallocated and determined by the CSFA; and, 2)This bill does not establish a process for large districts that received their allocations directly from the federal government to reallocate their unused tax credits to the state for reallocation to any district, including the large districts. The CDE contends that there is a potential remedy in federal legislation but it is unknown if or when federal legislation might be enacted. In the meantime, the unused allocations to large districts are suspended. Analysis Prepared by : Sophia Kwong Kim / ED. / (916) 319-2087FN: 0003633