BILL ANALYSIS                                                                                                                                                                                                    



                                                                       



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                              UNFINISHED BUSINESS


          Bill No:  SB 205
          Author:   Hancock (D), et al
          Amended:  3/8/10
          Vote:     27

           
          PRIOR SENATE VOTES NOT RELEVANT

           SENATE APPROPRIATIONS COMMITTEE  :  10-0, 3/15/10
          AYES:  Kehoe, Cox, Alquist, Corbett, Denham, Leno, Liu,  
            Price, Wyland, Yee
          NO VOTE RECORDED:  Walters

           ASSEMBLY FLOOR  :  73-0, 3/11/10 - See last page for vote


           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), Chapter 544, Statutes of  
          2009.

          The bill now provides statutory authority for the  
          California Department of Education and the California  
                                                           CONTINUED





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          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  
          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  







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          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 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  







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          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.

          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.







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           2.Assigns $73.5 million of the state's 2009 federal tax  
             credit bond volume cap for the QSCB program to CFSA to  
             be issued for the benefit of charter schools.  Provides  
             that the parameters specified in the document "Borrowing  
             authority Parameters and Application," dated February  
             10, 2010, as developed by CSFA and referenced in CSFA  
             Resolution 10-04, shall apply to all applications  
             submitted to the CSFA for the 2009 federal tax credit  
             bond volume cap for QSCBs.  Requires the applicant to  
             comply with all of the requirements of this bill, if any  
             of the 2009 federal tax credit volume cap is to be used  
             in conjunction with a bond that will serve as a local  
             match for the CSFP.

           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.

           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.  







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              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.  

           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. 

          11.Specifies that notwithstanding any other provision of  
             the bill, issuers within the state may issued QSCBs in  
             any manner permitted by federal law, including, but not  
             limited to, as tax credit bonds or federal subsidy  
             bonds.

          12.Contains an urgency clause in order to access federal  
             stimulus tax credit at the earliest possible  
             opportunity.







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           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  3/11/10)

          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  
          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.

          >

           ASSEMBLY FLOOR  : 
          AYES:  Adams, Ammiano, Anderson, Arambula, Bass, Beall,  
            Bill Berryhill, Tom Berryhill, Blakeslee, Block,  
            Blumenfield, Bradford, Brownley, Buchanan, Charles  
            Calderon, Carter, Chesbro, Conway, Cook, Coto, Davis, De  
            La Torre, De Leon, DeVore, Emmerson, Eng, Feuer,  
            Fletcher, Fong, Fuentes, Fuller, Furutani, Gaines,  
            Galgiani, Garrick, Gilmore, Hagman, Hall, Harkey,  
            Hayashi, Hernandez, Hill, Huber, Huffman, Jones, Knight,  







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            Lieu, Logue, Bonnie Lowenthal, Ma, Mendoza, Miller,  
            Monning, Nava, Nestande, Niello, Nielsen, V. Manuel  
            Perez, Portantino, Ruskin, Salas, Saldana, Silva,  
            Skinner, Solorio, Audra Strickland, Swanson, Torlakson,  
            Torres, Torrico, Tran, Yamada, John A. Perez
          NO VOTE RECORDED:  Caballero, Evans, Jeffries, Norby,  
            Smyth, Villines, Vacancy


          DLW:cm  3/22/10   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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