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  








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            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,  








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          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  








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          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:








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          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