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: SB 594 (Steinberg) Page 1 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 SB 594 (Steinberg) Page 2 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 SB 594 (Steinberg) Page 3 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 SB 594 (Steinberg) Page 4 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 SB 594 (Steinberg) Page 5 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.