BILL ANALYSIS Ó
SENATE COMMITTEE ON EDUCATION
Alan Lowenthal, Chair
2011-2012 Regular Session
BILL NO: AB 1163
AUTHOR: Brownley
INTRODUCED: February 18, 2011
FISCAL COMM: Yes HEARING DATE: June 15, 2011
URGENCY: No CONSULTANT: Kathleen
Chavira
SUBJECT : California Educational Facilities Authority.
SUMMARY
This bill changes the definition of a "participating
private college" or "participating college" to allow the
California Educational Facilities Authority (CEFA) to act
as a conduit issuer of tax exempt bonds for private
religious colleges, as specified.
BACKGROUND
The California Educational Facilities Authority (CEFA),
established in 1973 and administered by the State
Treasurer's Office, was created for the purpose of issuing
revenue bonds to assist private non-profit institutions of
higher learning, in the expansion and construction of
educational facilities. Because it is authorized to issue
tax-exempt bonds, CEFA may provide more favorable financing
to such private institutions than might otherwise be
obtainable. The law specifically provides that bonds
issued under CEFA shall not be a debt, liability, or claim
on the faith and credit or the taxing power of the State of
California, or any of its political subdivisions. The full
faith and credit of the participating institution is
normally pledged to the payment of the bonds.
Proceeds from CEFA financings may be used for project
related costs including, construction, remodeling and
renovation, land acquisition (as part of the proposed
project), purchase of or lease of equipment, refinancing or
refunding of prior debt, costs of bond issuance and
reimbursement of prior expenses.
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In order to be eligible for financing through CEFA, a
"private college" must be a nonprofit private or
independent degree-granting educational institution that is
regionally accredited and empowered to provide a program of
education beyond the high school level. In addition,
current law requires that the private college neither
restricts entry on racial or religious grounds nor requires
students gaining admission to receive instruction in the
tenets of a particular faith. (Education Code § 94110)
Article 16, section 5 of the California Constitution
prohibits the Legislature, any county, city and county,
township, school district, or other municipal corporation,
from making an appropriation, or paying from any public
fund whatever, or grant anything to or in aid of any
religious sect, church, creed, or sectarian purpose, or
help to support or sustain any school, college, university,
hospital, or other institution controlled by any religious
creed, church, or sectarian denomination whatever; nor
shall any grant or donation of personal property or real
estate ever be made by the State, or any city, city and
county, town, or other municipal corporation for any
religious creed, church, or sectarian purpose whatever.
This section also provides that the Legislature is not
prohibited from granting aid pursuant to Section 3 of
Article XVI which provides for the granting of state
assistance to institutions which are not under the control
or management of the state, for specified purposes.
ANALYSIS
This bill :
1) Deletes the requirement that a "participating private
college" or "participating college" for purposes of
eligibility for financing through the California
Educational Facilities Authority (CEFA) must not
restrict entry on religious grounds nor require
students gaining admission receive instruction in the
tenets of a particular faith.
2) Prohibits the provision of financing for a
"participating private college" or "participating
college" through the CEFA if such financing would
violate Article 16, section 5 of the California
Constitution or the establishment clause of the First
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Amendment of the United States Constitution.
STAFF COMMENTS
1) Need for the bill . In 2007, the California Supreme
Court ruled, in California Statewide Communities
Development Authority v. All Persons, 40 Cal. 4Th 788,
that government financiers may act as conduit issuers
of tax-exempt bonds for religious colleges without
violating federal or state constitutional provisions
so long as certain conditions are met. According to
the sponsor (State Treasurer), as a result of the
court's ruling, CEFA's statutory definition of a
"participating college" results in a more restrictive
standard than that which now applies to other
government financing authorities that can also issue
tax-exempt bonds for religious schools and colleges.
This bill would delete the more restrictive statutory
language and instead, reference relevant state
constitutional provisions, thereby placing the CEFA on
an equal playing field with other government financing
authorities. In addition, referencing the State
Constitution and the United State Constitution would
ensure that any future court decisions in this area
would automatically apply, eliminating the need for
statutory changes in order to keep pace with case law.
2) How did CEFA get here ? According to the State
Treasurer's Office, CEFA's statute contains language
from 1972 that reflects the United State's Supreme
Court's 1971 decision in Lemon v. Kurtzman (403) U.S.
602. While competing government financing authorities
are subject to the same constitutional restrictions on
the provision of public funding to sectarian colleges
as the California Educational Facilities Authority
(CEFA), the Government Code provisions applicable to
these entities do not contain the additionally
restrictive language in the Education Code which
applies to eligibility for CEFA financing.
In the recent court case (California Statewide
Communities Development Authority v. All Person, 40
Cal. 4Th 788) bond financing agreements between a
public entity and three religiously affiliated schools
were challenged as violating state constitutional
provisions because the institutions were "pervasively
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sectarian." The California Supreme Court concluded
that the pertinent inquiry should center on the
substance of the education provided and not on the
religious character of the institution. The validity
of the program was based upon two questions:
Do each of the recipient schools offer a
broad curriculum in secular subjects?
Do the schools' secular classes consist
of information and coursework that is neutral
with respect to religion?
The court concluded that if these conditions were met,
the state bond funding program would not violate the
relevant state or federal constitutional provisions.
1) What is the effect ? According to the CEFA, it has been
determined that as many as 21 potential borrowers
would be considered ineligible for tax-exempt
financing through CEFA. These potential borrowers
either elected not to apply for financing through CEFA
or were deemed ineligible prior to submitting an
application for financing. Thirteen of these potential
borrowers have issued bonds through other authorities
including the California Statewide Communities
Development Authority (CSCDA), California
Infrastructure and Economic Development Bank (IBANK),
California Municipal Financing Authority (CMFA), and
the Association of Bay Area Governments (ABAG). The
CEFA reports that, from 2008-2010, these borrowers
issued approximately $234 million in bonds through
CEFA'S competing authorities.
2) Expansion of CEFA financing eligibility . In recent
history, this Committee has heard and passed several
bills which have expanded eligibility for CEFA
financing, including the following:
SB 280 (Scott, Chapter 345, Statutes of 2007)
modified the definition of "participating
college" to maintain the eligibility of research
organizations that did not grant degrees for CEFA
financing, if they had received CEFA financing in
the past.
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AB 947 (Liu, Chapter 191, Statutes of 2005)
expanded the definition of a "private college",
for purposes of CEFA financing
eligibility, to include nonprofit affiliates, as
specified, of nonprofit private or independent
degree-granting accredited colleges.
SB 1624 (Romero, Chapter 1081, Statutes of 2002)
authorized the California Educational Facilities
Authority (CEFA) to finance the construction of
faculty and staff housing owned by private
colleges, as specified, and authorized CEFA to
use up to $2 million of its fund balance, on a
one-time basis, to provide grants to private
colleges to support academic assistance programs
to middle and high school pupils attending
schools in low-income areas with low college
going rates, as specified.
AB 1611 (Keeley,Chapter 569, Statutes of 2001)
authorized the CEFA to enter into agreements with
nonprofit entities to finance construction costs
for student, faculty, and staff housing near the
campuses of the UC, the Hastings College of Law,
the CSU, the CCC, or participating private
colleges.
SUPPORT
California State Controller John Chiang
California State Treasurer Bill Lockyer
Pepperdine University
OPPOSITION
None received.