BILL ANALYSIS Ó
AB 1195
Page 1
ASSEMBLY THIRD READING
AB
1195 (Ridley-Thomas)
As Introduced February 27, 2015
Majority vote
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|Committee |Votes |Ayes |Noes |
|----------------+------+----------------------+----------------------|
|Banking |12-0 |Dababneh, Travis | |
| | |Allen, Achadjian, | |
| | |Brown, Chau, Gatto, | |
| | |Hadley, Kim, Low, | |
| | |Perea, Ridley-Thomas, | |
| | |Mark Stone | |
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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
Internal Revenue Code (IRC) Section 142(k). (Refer to existing
federal law below.)
2)Revises the definition of "state ceiling" to include the amount
specified by IRC Section 142(k). (Refer to existing federal
law.)
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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 and notice;
b) IRC Section 142(k) 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 $10 multiplied by
the state population in each calendar year;
c) IRC Section 142(k)(5)(B)(i) 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 $75 multiplied by the state
population in 1987 and $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
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legislation.
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 IRC Section 142(k) 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 United States Code Section 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 United States
Code Sections 54a and 1400U-1.)
FISCAL EFFECT: None
COMMENTS:
This bill 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
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federal private activity bond authority, called the Private
Activity Volume Ceiling. IRC Section 142(k) 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. This bill will permit CDLAC to allocate this federal
resource for the development of public education schools and
related improvements.
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
capita or $5 million 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.
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Purpose:
The purpose of CDLAC is to implement Section 1301 of the Federal
Tax Reform Act of 1986 and IRC Section 146 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). IRC
Section 146(d), as amended by the Community Renewal Tax Relief Act
of 2000, permits a state to set its annual ceiling at $187.5
million 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 million 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 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.
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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.
Analysis Prepared by:
Kathleen O'Malley / B. & F. / (916) 319-3081 FN:
0000274