BILL ANALYSIS Ó
AB 1195
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Date of Hearing: May 4, 2015
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Matthew Dababneh, Chair
AB 1195
(Ridley-Thomas) - As Introduced February 27, 2015
SUBJECT: California Debt Limit Allocation Committee: American
Recovery and Reinvestment Act of 2009
SUMMARY: Makes changes to the California Debt Limit Allocation
Committee (CDLAC) to reflect the American Recovery and
Reinvestment Act (ARRA) of 2009. Specifically, this bill:
1)Revises the definition of "private activity bond" to include
Section 142 (k) of the Internal Revenue Code (IRC). (refer to
existing federal law below)
2)Revises the definition of "state ceiling" to include the
amount specified by Section 142 (k) of the IRC. (refer to
existing federal law)
3)Amends the findings and declarations to include:
a) Sections 1112 and 1401 of the ARRA establish an
aggregate amount of bond authority that can be issued in
each state. Said amount may be determined from time to
time by federal law, federal notice, or both federal law
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and notice;
b) Section 142(k) of the IRC establishes a volume ceiling
on the aggregate amount of qualified education facility
bonds that can be issued in each state. The qualified
educational facilities volume ceiling is the product of ten
dollars ($10) multiplied by the state population in each
calendar year;
c) Section 142(k)(5)(B)(i) of the IRC authorizes each state
to allocate the qualified educational facilities volume
ceiling in the manner the state determines appropriate;
and,
d) A substantial public benefit is served by constructing
educational facilities for the state's children.
EXISTING STATE LAW establishes the CDLAC which states in the
findings and declarations:
1)The Tax Reform Act of 1986 (Public Law 99-514) establishes a
unified volume ceiling on the aggregate amount of private
activity bonds that can be issued in each state. The unified
volume ceiling is the product of seventy-five dollars ($75)
multiplied by the state population in 1987 and fifty dollars
($50) multiplied by the state population in each succeeding
calendar year.
2) The federal act requires each state to allocate its volume
ceiling according to a specified formula unless a different
procedure is established by Governor's proclamation or state
legislation.
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3)Therefore, it is necessary to designate a state agency and
create an allocation system to administer the state unified
volume ceiling.
4)A substantial public benefit is served by promoting housing
for lower income families and individuals.
5)A substantial public benefit is served by preserving and
rehabilitating existing governmental assisted housing for
lower income families and individuals.
6)A substantial public benefit is served by providing federal
tax credits or reduced interest rate mortgages to assist
teachers, principals, vice principals, assistant principals,
and classified employees who are willing to serve in high
priority schools to purchase a home. (Government Code, Section
8869.90 et seq.)
EXISTING FEDERAL LAW:
1)Establishes Section 142(k) of the IRC which provides for a
separate volume ceiling, also apportioned to the states, for
Qualified Public Education Facility Bonds (QPEFB). QPEFBs are
designed to provide tax-exempt conduit financing for turnkey
private development of public elementary and secondary school
facilities. (26 U.S.C. Sec. 42 (k))
a) Defines "qualified public educational facility" as any
school facility which is:
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i) part of a public elementary school or a public
secondary school, and
ii) owned by a private, for-profit corporation pursuant
to a public-private partnership agreement with a State or
local educational agency.
2)Created, on February 13, 2009, in direct response to the
economic crisis and at the urging of President Obama, Congress
passed the ARRA of 2009. The three immediate goals of the
ARRA were: create new jobs and save existing ones, spur
economic activity and invest in long-term growth, foster
unprecedented levels of accountability and transparency in
government spending. In 2011, the original expenditure
estimate of $787 billion was increased to $840 billion to be
in line with the President's 2012 budget and with scoring
changes made by the Congressional Budget Office since the
enactment of the ARRA. In addition to offering financial aid
directly to local school districts, expanding the Child Tax
Credit, and underwriting the computerization of health
records, the ARRA was targeted at infrastructure development
and enhancement. (26 U.S.C. Secs. 54a and 1400U-1)
FISCAL EFFECT: None.
COMMENTS:
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AB 1195 designates the CDLAC as the state agency authorized to
administer the QPEFBs and authorizes the CDLAC to allocate
federal bond funds to finance public school facilities.
Government Code, Section 8869.80 establishes that CDLAC will be
the state's allocating agency for the award and administration
of the limited federal private activity bond authority, called
the Private Activity Volume Ceiling. Section 142 (k) of the
federal IRC provides for a separate volume ceiling, also
apportioned to the states, for QPEFB. As with the Private
Activity Volume Ceiling, the federal IRC requires CDLAC to be
authorized by Governor's proclamation or state legislation to
administer and allocate the QPEFB Volume Ceiling. AB 1195 will
permit CDLAC to allocate this federal resource for the
development of public education schools and related
improvements.
Need for the bill:
According to the author,
"Public elementary and secondary schools have limited financing
options for the construction or improvement of their facilities.
In contrast, private developers have more flexibility in their
ability to finance transaction and access to resources. In
acknowledgement of these differences, Section 142 (k) of the
federal IRC created a type of tax-exempt private activity bond
that can be used to finance school facilities called QPEFB.
These bonds are designed to provide tax-exempt conduit financing
for turnkey private development of public elementary and
secondary school facilities. The tax-exempt private activity
bond proceeds can be used to fund the following project: school
buildings, any functionally related and subordinate facility and
land with respect to a school building, including any stadium or
other facility primarily used for school events, and any
property subject to accelerated depreciation under Section 168
of the IRC for use in a school facility. QPEFBs are apportioned
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to the states but fall outside the current limits the federal
government places on private activity bond authority. Federal
law requires that each state designate an entity to administer
QPEFBs in order to allocate the bonds."
Background:
The CDLAC is a three-member body comprised of the State
Treasurer as Chair, the Governor, and the State Controller.
CDLAC was created in 1985 by a Governor proclamation in response
to the 1984 Tax Reform Act, which imposed an annual limit on the
dollar amount of tax-exempt private activity bonds that may be
issued in a state. Private activity bonds included student loan
bonds and industrial development bonds (including exempt
facility bonds, small-issue industrial development bonds, and
bonds for industrial parks). The annual limit was derived by
multiplying the state's population by $150, resulting in a $3.8
billion ceiling at that time. The Act also required each state
to designate an entity to allocate the state's ceiling among
various state and local issuers.
The 1986 Tax Reform Act made major changes to the allocation of
private activity bond authority. It reduced the annual volume
cap to $75 per capita in 1986 and 1987 and $50 per capita
thereafter. The Act also brought bonds for single-family and
multifamily housing under the state ceiling. As a result, a new
Governor's proclamation was issued in 1986 re-affirming CDLAC as
the state's sole entity responsible for allocating the annual
ceiling, and expressly authorizing CDLAC to establish procedures
and reserve amounts of the ceiling for certain purposes or
issuers. In 1987, the California State Legislature statutorily
established CDLAC by enacting Chapter 943.
The 1998 Omnibus Budget Act raised the volume cap on private
activity bonds to $75 per capita or a minimum of $225 million.
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However, the increase would take place incrementally over the
years 2003 through 2007.
The Community Renewal Tax Relief Act of 2000 accelerates the
scheduled increase contained in the 1998 Act by raising the
volume cap to $62.50 per capita of the state's population or
$187.5 million, whichever is higher, for calendar year 2001 and
$75 per capita or $225 million, whichever is higher, in calendar
year 2002 and thereafter. The 2000 Act also allows for the
volume cap to be indexed for inflation starting in calendar year
2003.
QPEDB:
A qualified public educational facility is any school facility
which is part of a public elementary school or a public
secondary school that is owned by a private, for-profit
corporation pursuant to a public-private partnership agreement
with a State or local education agency. A public-private
partnership agreement is required under the IRC for each QPEFB
issuance. The IRC defines this as an agreement under which the
corporation agree to construct, rehabilitate, refurbish, or
equip a school facility, and at the end of the term of the
agreement, to transfer the school facility to such agency for no
additional consideration, and the term of which does not exceed
the term of the issue to be used to provide the school facility.
Essentially, the bond proceeds are loaned to a private
for-profit developer, who builds the school and/or provides the
depreciable assets. The school is then leased to the school
district on a long-term basis. At or before the maturity date
of the bonds, the developer must transfer the assets to the
public school agency at no cost.
QPEFBs do not fall under the private activity volume cap that
the CDLAC administers. These bonds have their own
federally-determined allocation which is the great of $10 per
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capita or $5million dollars for each state. California is
eligible to receive approximately $380 million per year. States
may further allocate the amounts provided in the manner that the
state deems appropriate.
Purpose:
The purpose of CDLAC is to implement Section 1301 of the Federal
Tax Reform Act of 1986 and Section 146 of the IRC which impose a
limit on the amount of tax-exempt private activity bonds which a
state may issue in a calendar year (i.e. the annual state
ceiling). Section 146(d), as amended by the Community Renewal
Tax Relief Act of 2000, permits a state to set its annual
ceiling at $187,500,000 or an amount equal to $62.50 per capita
of its population, whichever is higher, in calendar year 2001.
In calendar year 2002 and thereafter, the ceiling will rise to
$225,000,000 or an amount equal to $75 per capita, whichever is
higher. Beginning in calendar year 2003, the ceiling will be
adjusted annually for inflation.
The actions of CDLAC are fundamentally defined and limited by
federal tax law. Federal tax law defines the term "private
activity bond"; limits the volume of private activity bonds
which a state may issue in a calendar year; defines the types of
programs and projects which qualify for tax-exempt bond
financing under the volume cap; and specifies recordkeeping
requirements.
CDLAC responsibilities include:
1)To set the annual state ceiling: CDLAC is required to
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establish the state ceiling as soon as practical after the
start of each calendar year.
2)Allocate the State Ceiling: CDLAC is granted the sole
authority for allocating the annual ceiling.
3)Other Administrative Functions: CDLAC is authorized to prepare
forms, establish procedures, set priorities, require a
performance deposit, assess fees, and perform other
administrative functions as necessary.
REGISTERED SUPPORT / OPPOSITION:
Support
California State Treasurer (Sponsor)
Opposition
None on file.
Analysis Prepared by:Kathleen O'Malley / B. & F. / (916)
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