BILL ANALYSIS                                                                                                                                                                                                    Ó




                   Senate Appropriations Committee Fiscal Summary
                            Senator Kevin de León, Chair


          SB 594 (Steinberg) - California Career Pathways Investment
          
          Amended: April 3, 2013          Policy Vote: G&F 5-0, Education  
          8-0
          Urgency: No                     Mandate: Yes
          Hearing Date: May 13, 2013      Consultant: Robert Ingenito
          
          This bill meets the criteria for referral to the Suspense File.

          Bill Summary: SB 594 would authorize several types of financial  
          mechanisms to promote corporate investment in career pathway  
          programs. 

          Fiscal Impact:
                 Unknown (greater than $50,000 General Fund) costs to the  
               Franchise Tax Board related to printing, processing and  
               information technology costs.
                 Unknown, likely significant costs to the Department of  
               Education, Chancellor of the Community Colleges, and the  
               California Workforce Investment Board, to provide staff and  
               resources to the California Career Pathways Investment  
               Committee.

          In addition, the measure states intent (1) to appropriate $250  
          million from the General Fund to the Career Pathways State  
          Revolving Fund, and (2) to redirect $100 million from a current  
          tax credit program to the Career Pathways Investment Credit.

          Background: California provides various tax credits designed to  
          provide incentives for taxpayers that incur certain expenses,  
          such as child adoption, or to influence behavior, including  
          business practices and decisions, such as research and  
          development credits and Geographically Targeted Economic  
          Development Area credits.  The Legislature typically enacts such  
          tax incentives to encourage taxpayers to do something, but for  
          the tax credit, they would not otherwise do.

          Proposed Law: SB 594 would provide tax credits and several other  
          new financing tools for the development of career pathway  
          programs, as defined.  Specifically, the bill would create all  
          of the following:









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          I.   California Career Pathways Investment Committee.  Senate  
          Bill 594 creates the California Career Pathways Investment  
          Committee, composed of the following:  
                 The Chancellor of the California Community Colleges, who  
               serves as Chair, 
                 The State Superintendent of Public Instruction,
                 The Chair of the California Workforce Investment Board,  
               or his or her designee.
                 One appointee of the Senate Committee on Rules to  
               represent the business community, who will serve a  
               four-year term, and
                 One appointee of the Speaker of the Assembly, who will  
               serve a four-year term.

          The committee allocates funds from the Career Pathways Revolving  
          Fund and Career Pathways Investment Credits to local educational  
          entities, community college districts, and applicants.  The  
          committee also creates application forms and procedures, as well  
          as sets criteria and guidelines for evaluating applications for  
          financial assistance.

          The committee shall allocate financial assistance based on the  
          following priorities:
                 Local educational agencies and community colleges that  
               serve areas that have an unemployment rate above the  
               statewide average, as measured by the Employment  
               Development Department, or a high school graduation rate  
               lower than the statewide average, as measured by the  
               California Longitudinal Pupil Achievement Data System.
                 Local educational agencies and community colleges that  
               include in their applications significant amount of private  
               funding support.
                 Local educational agencies and community colleges that  
               include in their applications articulated pathways  
               connecting high school and postsecondary certificate and  
               degree programs in their region,
                 Local educational agencies and community colleges that  
               are not seeking state funding for existing activities.   
               However, priority shall be given to applicants that seek to  
               expand or augment existing investments in career pathways  
               programs.

          The Superintendent of Public Instruction, the Chancellor of the  








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          Community 
          Colleges and the California Workforce Investment Board shall  
          enter into a memorandum of understanding to allocate staff  
          resources to the committee.  The costs to these entities shall  
          be offset by fees charged to applicants for Career Pathways Tax  
          Credits.  

          The Committee can grant financial assistance, which is any  
          combination of tax credits, grants, loans, and workforce  
          development "bonds."  

          II.  Lease Revenue Bonds.  SB 594 allows local education  
          agencies or community college districts to issue lease revenue  
          bonds secured by the lease of any of its property, or enter into  
          other arrangements to lease or loan agreements not subject to  
          California's Constitutional debt limit.  The measure exempts  
          school districts from any law that may restrict them from  
          entering into agreements or execute any other documents  
          necessary to carry out the purposes of the bill, such as  
          restrictions on rental payments exceeding a percentage of the  
          value of taxable property, number of years on the lease, and  
          wage payments.  The local education agency or community college  
          district may enter into contracts or agreements with banks,  
          insurers, or other financial institutions that it determines are  
          necessary and desirable to improve the security and desirability  
          of the lease revenue bonds.
          
          III.  Trust Funds.  The measure creates a Career Pathways  
          Investment Trust Fund in each local education agency or  
          community college district to finance program and administrative  
          costs resulting from operating career pathways programs.  The  
          trust fund may accept money from any source, including property  
          tax resulting from the dissolution of assets formerly held by  
          now-defunct redevelopment agencies.  The trust fund is  
          administered by each local education agency or community college  
          district.  The administering agency shall use moneys in the fund  
          for qualified expenditures, administrative costs, as well as  
          grants, loans, and program costs with career pathways programs.
          
          IV.  Workforce Development "Bonds."  SB 594 allows the Committee  
          to issue workforce investment "bonds" to applicants that have  
          entered into a memorandum of understanding with a local  
          education agency.  The measure defines them as contracts between  
          the Committee and an applicant who agrees to provide capital to  








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          fund a career pathways program jointly operated by the applicant  
          and a school district of community college district, or a  
          consortium of school districts and community college districts.   
          Proceeds from the "sale," or amounts delivered from the  
          applicant to the school district under the terms of the  
          contract, may vary according to the measured level of  
          performance, and may be used for specified purposes in the bill,  
          including:
                 Career pathways program operation,
                 Development of rigorous and career-relevant curriculum,
                 Paid internships,
                 Post-high school financial aid for college,
                 Licensing and credentialing programs,
                 Wage subsidies for full-time employment for pupils who  
               successfully complete a career pathways program.
          
          The bill requires the committee to develop performance criteria  
          for determining financial returns to private investors in  
          workforce development "bonds," including, but not limited to:
                 High school graduation.
                 Completion of post-secondary programs that culminate in  
               a certificate or degree.
                 Attainment of industry-recognized credentials that are  
               valued in high-growth, high-need or emerging economic  
               sectors.
                 Provision of high school pupil and community college  
               student internships.
                 Provision of paid summer jobs for high school pupils and  
               community college students.
                 Provision of high school teacher and community college  
               faculty externships.
                 Provision of scholarships or other financial assistance  
               for students pursuing post-secondary education or training  
               in a relevant career pathway.
                 Offers of paid employment or apprenticeship to high  
               school pupils or college students who are program  
               participants or graduates.

          V.   Revolving Fund.  The bill creates the California Career  
          Pathways State Revolving Fund, a continuously appropriated fund  
          without regard to fiscal years that constitutes the sole source  
          of funds for the program.  The measure states that the state has  
          no liability or obligation beyond the extent to which money is  
          provided under the program.  Within the Fund, SB 594 creates the  








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          Career Pathways Financing Account to repay workforce investment  
          "bonds," a Career Pathways Grant Account to fund grants, and a  
          Career Pathways Loan Account to make loans.  

          VI.  Career Pathways Investment Tax Credit.  The bill enacts tax  
          credits against the Personal Income Tax and the Corporation Tax  
          in an amount equal to the amount the Committee allocates to a  
          taxpayer.  Taxpayers can carry forward credits until exhausted.   
          The committee can allocate Career Pathways Investment Tax  
          Credits in an amount authorized in the Budget Act for that  
          calendar year.  The Committee can allocate credits that  
          taxpayers can use for five calendar years as long as authorized  
          amounts don't exceed amount authorized in the Budget Act.  The  
          bill directs the Committee to give priority to applications  
          where:
                 Applicants have entered into contracts or memorandums of  
               understanding with local educational agencies, community  
               colleges, or workforce investment boards in:
                  o         Communities with unemployment rates above the  
                    statewide average,
                  o         High school graduation rates below the  
                    statewide average,
                  o         Proportions of private funding support that  
                    exceed a one-to-one match,
                  o         Not seeking tax credits for existing  
                    activities, except for those that seek to expand or  
                    augment existing investments in career pathways  
                    programs,
                 To the maximum extent practicable, the Committee shall  
               give priority when allocating tax credits to applicants  
               that seek to expand or augment existing career pathways  
               program investments.
                 The Committee shall not give priority to applicants by  
               virtue of the date of application except to break a tie  
               between two applicants with the same rating.

          The applicant must enter into an enforceable contract or  
          memorandum of understanding with the Committee to comply with  
          the bill.  The contract or memorandum of understanding shall  
          provide for legal action to obtain specific performance or  
          monetary damage for breach of contract.  The contract shall also  
          provide for periodic audits.

          The Committee shall also adopt criteria that awards credits to  








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          applicants that demonstrate that either it or the local  
          education agency, community college, or workforce investment  
          board that consider:
                 The effectiveness of the career pathway program toward  
               preparing students for productive, high-wage employment in  
               growing or high-need sectors of the California economy,  
               including:
                  o         Pathway completion rates,
                  o         High school or community college graduation  
                    rates,
                  o         Percentage of students transitioning  
                    successfully to postsecondary education or  
                    apprenticeship,
                  o         Employment and earnings after high school,
                 The level of the applicant's investment, oversight, and  
               ability to leverage and sustain current career pathways  
               applications.

          The Committee shall also develop and provide forms to  
          applicants.  The amount of credit reserved for a calendar year  
          shall not exceed 50% of the applicant's estimated expenditures.   
          The Committee shall report to FTB once each year regarding the  
          identity of the taxpayers to whom they allocate credits.  The  
          Committee may consult with the Treasurer or the Tax Credit  
          Allocation Committee regarding allocation, of credits, and they  
          must aid the Committee upon request.  The Committee shall also  
          adopt audit requirements.

          Staff Comments: Staff recommends deleting the continuous  
          appropriation authority in the bill, as it reduces legislative  
          oversight.