BILL ANALYSIS Senate Appropriations Committee Fiscal Summary Senator Christine Kehoe, Chair 205 (Hancock) Hearing Date: 03/15/2010 Amended: 03/08/2010 Consultant: Dan Troy Policy Vote: NA _________________________________________________________________ ____ BILL SUMMARY: SB 205, an urgency measure, would provide statutory authority for the California Department of Education and the California School Finance Authority, as specified, to administer the Qualified School Construction Bonds tax credit program authorized through the federal American Recovery and Reinvestment Act of 2009. The bill would assign specified amounts to school districts and county offices of education and to charter schools, and would extend the timeframe for districts that were notified of eligibility for this program on or before December 31, 2009 to issues qualifying local bonds until 120 days after the enactment of this bill. _________________________________________________________________ ____ Fiscal Impact (in thousands) Major Provisions 2010-11 2011-12 2012-13 Fund QCSB allocation Allows for allocation of $773 million in Federal Federal tax credits _________________________________________________________________ ____ STAFF COMMENTS: This bill meets the criteria for referral to the Suspense File. As part of the American Recovery and Reinvestment Act of 2009 (ARRA), the federal government allocated $22 billion in tax credits under the Qualified School Construction Bonds (QSCB) program. The QSCB program would provide 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. Allocations to the state are determined based upon the state's Federal Title 1 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 2009 amount, $582 million was directly allocated to 11 large school districts and $773.5 million has been reserved for school districts, county office of educations (COEs), and charter schools for allocation by the state. 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 assigned for charter schools conforms with the approximately 10 percent of new construction funding they received in the last two statewide education school facility bonds. Page 2 SB 205 (Hancock) CDE developed an administrative process for implementing this program, including parameters for participation, and received applications from 231 school districts totaling $3.6 billion in requests for the $700 million. Through a lottery process, CDE awarded tax credits to 43 school districts. School districts that received bond tax credits through the state were not been able to issue bonds by the December 31, 2009 deadline. This was due to districts being informed by bond counsels that the federal law contains an ambiguity that requires statutory clarification by the state. Specifically, ARRA authorizes "the state" to make federal tax credit allocations, but does not specify which entity in the state is the responsible entity. As a result, bond counsels have refused to issue bond opinions for school districts to sell bonds fearing that a challenge can be made that a school district has not received the tax credits from a legally-authorized entity. This bill would clarify state authority for making the allocations. Specifically, this bill would: Assign $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 Assign $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 Provide 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 Extend the deadline for school districts and county offices of education 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 Exempt the assignment and distribution of the federal tax credit bond volume cap from rulemaking provisions of the Administrative Procedure Act. State 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 As the dollars in question are federal tax credits, this bill should have no impact on the state's general fund.