BILL ANALYSIS
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THIRD READING
Bill No: AB 2560
Author: Brownley (D)
Amended: 8/20/10 in Senate
Vote: 27 - Urgency
SENATE EDUCATION COMMITTEE : 5-2, 06/23/10
AYES: Romero, Alquist, Liu, Price, Simitian
NOES: Huff, Emmerson
NO VOTE RECORDED: Hancock, Wyland
SENATE APPROPRIATIONS COMMITTEE : 7-4, 8/12/10
AYES: Kehoe, Alquist, Corbett, Leno, Price, Wolk, Yee
NOES: Ashburn, Emmerson, Walters, Wyland
ASSEMBLY FLOOR : 76-0, 5/13/10 (Consent) - See last page
for vote
SUBJECT : Education finance: federal tax credit bond
volume cap
SOURCE : Author
DIGEST : This bill authorizes the California Department
of Education and the California School Finance Authority to
distribute the states 2010 volume cap for the Qualified
School Construction Bonds (QSCB) tax credit program
authorized through the federal American Recovery and
Reinvestment Act of 2009.
Senate Floor Amendments of 8/20/10 expand eligibility to
CONTINUED
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receive a QSCB allocation.
ANALYSIS : The American Recovery and Reinvestment Act of
2009 (ARRA) has authorized $22 billion in Qualified School
Construction Bonds (QSCBs) nationally, providing for the
issuance of $11 billion of QSCBs by states and large local
educational agencies in 2009 and $11 billion in 2010. The
ARRA provides for an allocation to each state, along with
separate allocations for large local educational agencies
with the amount of the allocation determined via a
statutory formula based upon each state's share of Title I
Basic Grant funds. The 2010 allocations include $6.6
billion of bonding authority to the 50 states and the
remaining $4.4 billion (40 percent) of volume cap directly
to 103 large local educational agencies. States with large
local educational agencies that receive QSCB allocations
directly from the federal government have the overall state
allocation reduced by that amount. A large local
educational agency that receives a direct allocation may
reallocate any of its unused QSCB allocations to its state.
If an allocation to a state is unused for a calendar year,
the state may carry it forward to the next calendar year.
QSCBs are subsidized by the federal government. Investors
who buy these bonds receive federal income tax credits at
prescribed tax credit rates in lieu of interest that would
normally be paid by states and districts to holders of
these taxable bonds. These tax credits essentially allow
state and local governments that issue bonds to borrow
without incurring interest costs.
QSCBs can be used for the construction, rehabilitation, or
repair of a public school facility. In addition, a portion
of the proceeds of such a bond may be used for the
acquisition of land on which a public school facility is to
be constructed.
This bill:
1.Authorizes the assignment and distribution of the state's
2010 federal tax credit bond volume cap for QSCBs.
Specifically it:
A. Authorizes the California Department of Education
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(CDE) to assign and distribute $651 million of the
state's 2010 federal tax credit bond volume cap for
QSCBs to, or for, the benefit of school districts and
county offices of education.
B. Authorizes the California School Finance Authority
(CSFA) to assign and distribute, or to further assign
and distribute to one or more issuers in the state,
$68 million of the state's 2010 federal tax credit
bond volume cap for QSCBs to, or for, the benefit of
charter schools.
2.Establishes the following conditions on the assignment
and distribution of the 2010 QSCBs by the CDE:
A. Requires a school district or county office of
education may apply for the federal tax credit bond
volume cap for qualified school construction bonds if
project is funded by local voter-approved bonds
issued by the school district or bond anticipation
notes pursuant to existing law.
B. Provides that a school district or county office
of education that received a 2009 allocation but did
not make any issuance may apply for 2010 federal tax
credit bond volume cap for QSCBs nine months after
the effective date of this bill.
C. Requires the CDE to post the application form on
its Internet Web site five business days after the
enactment of this bill and additionally requires an
application be submitted via certified mail
postmarked no sooner than 30 business days after the
enactment of the bill and include the total overall
enrollment for the 2008-09 school y ear and the total
number of these students that qualify for the federal
free and reduced priced meal program.
D. Requires the return of an application to an
applicant not meeting these conditions.
E. Requires that applications meeting these
conditions be accepted on a first come first served
basis by date of postmark.
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F. Provides that, in the event the program is
oversubscribed, order of allocation shall be based
first upon the earliest date of postmark, second upon
prior approval by the Division of the State
Architect, and third upon the greater percentage of
students enrolled in the 2008-09 school year that
qualify for free and reduced meals, to be certified
as specified.
G. Prohibits authorization of the 2010 federal tax
credit bond volume cap by the CDE prior to December
1, 2010.
H. Requires the CDE to maintain a waiting list of
eligible applicants pursuant to the ordering criteria
established by this bill.
I. Caps the amount that an applicant may request at
$25 million from the 2010 federal tax credit bond
volume cap.
J. Requires an applicant to certify in its
application that it will fulfill all of the federal
program bond requirements, including both of the
following requirements:
(1). Within six months of the date of issuance,
the school district or county office of education
shall enter into a contract or contracts for use
of an amount of bond proceeds equal to 10 percent
of the authorization.
(2) Within three years of the date of issuance,
the school district or county office of education
shall spend 100 percent of the bond proceeds for a
qualified purpose.
K. Requires issuance of all federal QSCBs within six
months of the date of authorization, requires
reversion of any unused authorizations to the CDE,
and prohibits provision of any extensions.
3.Established the following conditions on the assignment
and distribution of the 2010 QSCBs by the CSFA:
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A. Provides that a charter school may apply for the
federal QSCBs volume cap if it meets all of the
following criteria:
(1) The charter school is operated as, or is
operated by, a nonprofit entity.
(2) The charter school has an approved charter
in place that is current at the time of
application and continuously through the date of
bond issuance.
(3) The chartering authority certifies that the
charter schools is in good standing and is in
compliance with the terms of its charter.
(4) The charter school provides the level of
class-room based instruction specified in current
law.
(5) The applicant must have completed at least
three full school year of instructional operation
as a charter school as of the end of the previous
school year.
B. In the event that the program is oversubscribed,
priority will be assigned first tot hose charter
schools that are best able to demonstrate to the CSFA
that they will be capable of accessing the capital
markets or be privately placed with an investor. The
order of allocation shall be established using the
following criteria:
(1) Applicants who are able to obtain credit
enhancement for a QSCB financing, including a bank
letter of credit, who contribute substantial
equity to a project, or who are otherwise able to
obtain investment-grade credit ratings shall
receive priority over the applicants.
(2) In the event that multiple applicants
satisfy the criteria above, priority shall be
assigned to applications with the earliest
postmark date. An application that is hand
delivered and does not have a postmark date will
be ranked based on the time the application is
received by the CSFA.
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C. Prohibits applicants from applying for more than
$25 million of QSCB authorization per project.
D. Provides that subsequent application cycles may be
considered if borrowing authority for QSCBs remains
available after the initial application period.
E. Specifies that, subject to the sole discretion of
the CSFA, any authorization to borrow qualified
school construction bond proceeds is contingent on
the issuance of QSCBs by December 31, 2011, after
which time the authorization expires and the
authority may allocate the authorization to another
qualified applicant.
F. Allows the CSFA to allocate reverted federal QSCB
authorization as it becomes available and until all
of the authorization is issued.
G. Specifies that if an applicant sues any federal
tax credit bond volume cap in conjunction with a bond
that will serve as a local match for purposes of the
Charter School Facilities Program established in
current law, the applicant, in addition to the
requirements above, shall comply with all of the
requirements of the Charter School Facilities
Program.
4.Declares the act to be an urgency statute.
Comments
California has been allocated $720 million of the QSCBs
authorized nationally by the federal government for
distribution by the state in 2010 as part of the federal
ARRA for 2009. Although the ARRA authorizes "the state" to
make these federal tax credit allocations, it does not
specify which entity in the state is the responsible
entity. In response to concerns raised by school district
bond counsel over the sale of QSCBs in 2009, statutory
clarification by the state was necessary in order to ensure
that local educational agencies had received them from a
legally authorized entity and could legitimately be sold by
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them. The CDE was granted the authority to distribute the
2009 tax credits to school districts and county offices of
education while the CSFA was granted authority to
distribute them to charter schools. This bill provides
statutory authority for the CDE and CSFA to issue the 2010
program tax credits and administer the QSCB program. It
also establishes new criteria to be met by applicant local
educational agencies and charter schools to receive these
allocations in 2010.
2009 vs. 2010 . Of the $22 billion in QSCBs authorized by
the federal government under ARRA, California received
authorization for $1.3 billion in tax credits in 2009 and
$1.26 billion in 2010.
For 2009, with requests of over $3 billion for the $00
million available, the CDE conducted a lottery and made
allocations of QSCBs to 43 school districts. This bill
proposes a different process for CDE's allocation of the
2010 tax credits. It requires that projects be
"construction ready," be built to "green" standards, and
use local voter-approved debt instruments (local bonds or
Mello-Roos). Allocations will be made on a first come,
first served basis based on postmark date. In the event
that the program is oversubscribed, second priority will be
assigned based upon the proportion of students eligible for
free and reduced price meals. Projects will continue to be
limited to a maximum $25 million allocation per district.
Finally, a district must issue bonds within six months of
the date of the authorization or the credits revert to the
CDE for redistribution.
Consistent with the distribution of these credits in 2009,
about 10 percent of the state's allocation of QSCBs has
been made available to CSFA for charter schools. The
CSFA's process for allocations to charter schools remains
the same for both 2009 and 2010.
Status of 2009 Allocations . The total 2009 QSCB allocated
by the CDE was approximately $700 million. Of that amount,
about $81 million has been issued to the following five
districts: Windsor Unified, San Leandro Unified, Placentia
Yorba Linda Unified, Washington Unified, and San Dieguita
Union High. The remaining balance is approximately $693
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million. Districts have until July 23, 2010, to request
that their 2009 allocation be issued. After that time,
QSCB allocations made by the CDE will revert to the agency
for distribution.
The CSFA, although authorized to distribute approximately
$73.5 million has $19 million in QSCBs awaiting allocation.
About $20.5 million has been issued to three charter
school projects. Charter schools must enter into a binding
agreement for at least 10 percent of the proceeds of the
bonds within six months of the QSCBs issuance date, and are
required to spend the remainder within three years of this
date. Subject to CSFA's sole discretion, any authorization
to borrow QSCB proceeds is contingent on the issuance of
the QSCBs by December 31, 2010, after which time the
authorization expires and CSFA may give the authority to
another qualified applicant.
CSFA's Parameters . This bill makes reference to parameters
outlined in the CSFA's 2010 application for an allocation
of tax credits as the conditions to be met by an applicant
charter school. Eligible charter schools must be operated
as or by a non-profit entity, have an approved charter in
place current from the time of application to the date of
bonds issuance, must be in good standing with the
chartering authority and in compliance with the terms of
its charter, provide a level of classroom based instruction
consistent with requirements for participating in other
state funding programs, and have completed at least three
full school years of instructional operation as of June 30,
2009. The CSFA has set a minimum of $2 million and a
maximum of $25 million per project. If oversubscribed,
priority will be assigned to charters that are deemed
"credit worthy" and that are "shovel ready."
Prior Legislation
SB 205 (Hancock), Chapter 11, Statutes of 2010, an urgency
measure, provided statutory authority for the CDE and the
CSFA to administer the 2009 QSCBs federal tax credit
program authorized through the federal ARRA of 2009. The
bill assigned and specified amounts for distribution to
school districts and county offices of education and to
charter schools, and extended the timeframe for districts
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that were notified of eligibility for this program on or
before December 31, 2009, to issue qualifying local bonds
until 120 days after its enactment. Passed the Senate
Floor with a vote of 37-0 on March 22, 2010.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee:
Fiscal Impact (in thousands)
Major Provisions 2010-11 2011-12
2012-13 Fund
QCSB allocation Allows for allocation of $720
million Federal
in federal tax
credits
SUPPORT : (Verified 8/17/10) (Unable to reverify)
Coalition for Adequate School Housing
County School Facilities Consortium
Small School Districts Association
State Superintendent of Public Instruction Jack O'Connell
State Treasurer's Office
ASSEMBLY FLOOR :
AYES: Adams, Ammiano, Anderson, Arambula, Bass, Beall,
Bill Berryhill, Tom Berryhill, Blakeslee, Block,
Blumenfield, Bradford, Brownley, Buchanan, Charles
Calderon, Carter, Chesbro, Conway, Cook, Coto, Davis, De
La Torre, De Leon, DeVore, Emmerson, Eng, Evans, Feuer,
Fletcher, Fong, Fuentes, Fuller, Furutani, Gaines,
Galgiani, Garrick, Gilmore, Hagman, Hall, Harkey,
Hayashi, Hernandez, Hill, Huber, Huffman, Jeffries,
Jones, Knight, Lieu, Logue, Bonnie Lowenthal, Ma,
Mendoza, Miller, Monning, Nava, Nestande, Niello,
Nielsen, V. Manuel Perez, Portantino, Ruskin, Salas,
Saldana, Silva, Smyth, Solorio, Audra Strickland,
Swanson, Torlakson, Torres, Torrico, Tran, Villines,
Yamada, John A. Perez
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NO VOTE RECORDED: Caballero, Norby, Skinner, Vacancy
CPM:cm 8/23/10 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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