BILL ANALYSIS                                                                                                                                                                                                    



                                                                  SB 205
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          SENATE THIRD READING
          SB 205 (Hancock)
          As Amended  February 4, 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  
            resulted in the issuance of bonds by December 31, 2009 be  
            added to the state's volume cap for 2010.  









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          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 the CDE to reassign to a school district any 2009  
            federal tax credit bond volume cap for QSCBs that was directly  
            allocated to the district by the United States Internal  
            Revenue Service (IRS) that did not result in the issuance of  
            QSCBs by December 31, 2009 and was reallocated by the district  
            to the state no later than 30 days after the effective date of  
            this bill.  Requires the CDE to grant the school district 120  
            days from the effective date of this bill to issue the QSCBs.   
            Provides that any of the federal tax credit bond volume cap  
            for QSCB that was reallocated to the district pursuant to this  
            provision that does not result in the issuance of QSCBs within  
            120 days from the effective date of this bill shall revert to  
            the state and shall be reallocated by the CDE in accordance  
            with the process to be established in state law for allocating  
            the 2010 federal tax credit bond volume cap for QCSBs.

          7)Requires any charter school that received an allocation from  
            CSFA prior to December 31, 2009 to retain its allocation  
            pursuant to a CSFA resolution.  

          8)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.  Specifies that  
            all parameters and conditions for receipt of tax credits under  
            the tax credit bond volume cap to be allocated by the CSFA  
            shall be in accordance with the Charter Schools Act of 1992  
            and any related regulations.  
           
           9)Exempts the assignment and distribution of tax credit bond  








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            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.

          10)States the intent of the Legislature that the parameters and  
            conditions adopted by the CDE and the CSFA be comparable where  
            practical and applicable in order to ensure consistency and  
            equity in the state level assignment and distribution of the  
            federal tax credit bond volume cap, including, but not limited  
            to, maximum tax credit amounts per project or school district.  
              

          11)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,  
          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  








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          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  
          for the Charter School Facility Program.  This bill also  
          requires the CSFA parameters to be consistent with the Charter  
          Schools Act of 1992.  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  








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          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. 

          Federal law requires large districts that received the federal  
          tax credit allocations directly from the IRS to issue QSCBs by  
          December 31, 2009.  Federal law also allows large districts that  
          do not issue their allotted QSCBs to reallocate the credits to  
          the state for reallocation.  Five districts out of the 11 large  
          districts did not issue QSCBs within the required timeframe.   
          The most recent amendments to the bill establish a process  
          whereby the CDE reassigns to these school districts their  
          federal tax credit bond volume cap for QSCBs if the districts  
          reallocate their credits to the state within 30 days after the  
          enactment of this bill.  The amendments also require the CDE to  
          allow these districts to issue the QSCBs within 120 days after  
          the enactment of this bill and further provide that if the  
          districts do not issue the bonds within the 120 days, the  
          credits will revert back to the state and shall be reallocated  
          by the CDE in accordance with the process for allocating 2010  
          federal tax credit bond volume cap for QSCBs.  This provision  
          will enable large school districts to take advantage of the  
          federal tax credits and ensure that any credits not utilized by  
          the large districts can be reallocated to other districts.  

          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 and waives the requirement for the CDE and the  
          CSFA to adopt regulations.


                    Analysis Prepared by  :    Sophia Kwong Kim / ED. / (916)  
                                                       319-2087FN:  0003656