BILL ANALYSIS ------------------------------------------------------------ |SENATE RULES COMMITTEE | SB 205| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ UNFINISHED BUSINESS Bill No: SB 205 Author: Hancock (D), et al Amended: 4/14/09 Vote: 21 SENATE VOTE NOT RELEVANT SUBJECT : Education Finance SOURCE : State Superintendent of Public Instruction Jack OConnell State Treasurer Bill Lockyer DIGEST : Assembly Amendments delete the Senate version of the bill authorizing a countywide transportation planning agency to impose, upon a majority vote of the electorate, an annual fee of up to $10 on motor vehicles registered in a county for transportation-related programs and projects which became SB 83 (Hancock) and was signed into law. The bill now provides statutory authority for the California Department of Education and the California School Finance Authority to administer the federal Qualified School Construction Bonds tax credit program authorized by the federal American Recovery and Reinvestment Act of 2009. ANALYSIS : In February 2009, the federal government passed American Recovery and Reinvestment Act (ARRA), which allocated approximately $100 billion nationwide for CONTINUED SB 205 Page 2 education programs with the purpose of stimulating the economy, including $22 billion in tax credits over two years under the Qualified School Construction Bonds (QSCB) program. The QSCB 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 California Department of Education (CDE), interest payments typically equal about 50 percent of the cost of a bond. The maximum term of a bond using QSCB 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 percent 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, county office of educations (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 California School Finance Authority (CSFA). This amount was determined based on charter schools receiving approximately 10 percent 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 SB 205 Page 3 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 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 SB 205 Page 4 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. Specifics of SB 205: 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 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 SB 205 Page 5 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 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. SB 205 Page 6 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 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. FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: No These are federal tax credits and not bonds and therefore pose no impact on the state's general fund. SUPPORT : (Verified 2/17/10) State Superintendent of Public Instruction Jack O'Connell (co-source) State Treasurer Bill Lockyer (co-source) Aspire Public Schools California Charter Schools Association Coalition for Adequate School Construction HTH Learning Oak Grove Union School District Perris Union High School District Sacramento City UDS Small School Districts' Association Vaughn Next Century Learning Center ARGUMENTS IN SUPPORT : The author's office states that by clarifying the role of the CSFA and CDE in the allocation SB 205 Page 7 of these tax credits, California can help to ensure that (1) districts and charter schools can issue locally authorized school bonds with the attached tax credits, (2) both borrowers and bond investors will benefit from the federal tax credit attached to the bonds, and (3) California will benefit from the economic and educational growth created by the building and renovation of schools. > DLW:do 2/17/10 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END ****