BILL ANALYSIS
AB 2560
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 2560 (Brownley)
As Amended August 20, 2010
2/3 vote. Urgency
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|ASSEMBLY: |76-0 |(May 13, 2010) |SENATE: |35-0 |(August 24, |
| | | | | |2010) |
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Original Committee Reference: ED.
SUMMARY : Authorizes the California Department of Education
(CDE) and the California School Financing Authority (CSFA) to
assign and distribute the state's 2010 federal tax credit bond
volume cap for qualified school construction bonds (QSCB).
Specifically, this bill :
1)Makes findings and declarations regarding the availability of
$720 million in federal tax credit volume cap for QSCBs that
can be used to lower the cost of financing the construction,
rehabilitation or repair of a public school facility or for
the acquisition of land where a school will be built.
2)Authorizes the CDE to assign and distribute $651,652,000 of
the state's 2010 federal tax credit bond volume cap for QSCBs
to school districts and county offices of education (COEs) if
the project is funded by local voter-approved bonds issued by
the school district or bond anticipation notes as authorized
by Education Code (EC) Section 15150. Specifies that COEs and
a school district with an enrollment of 2,500 or less may use
other forms of financing with the submission of a resolution
adopted by the county board of education or governing board of
the school district authorizing the issuance of the financing.
3)Authorizes a school district or COE that received a 2009
allocation but did not make any issuance to apply for 2010
federal tax credit bond volume cap for QSCBs nine months after
the effective date of the bill.
4)Specifies that a school district or COE that received a 2009
or 2010 federal tax credit bond volume cap for QSCB allocation
from the United States Department of the Treasury is not
eligible to apply.
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5)Requires the CDE to post the application form on its Internet
Web site five business days after the enactment of this bill.
6)Specifies the following in regards to the applications:
a) An application must be submitted via certified mail;
b) An application shall not be postmarked until 30 business
days after the enactment of this bill;
c) An application shall include the total number of
enrolled pupils who qualify for the federal free and
reduced priced meal program and the total overall pupil
enrollment for the 2008-09 school year; and,
d) An application not meeting the specified conditions
shall be returned to the applicant.
7)Specifies the following process for distribution of the 2010
QSCBs to school districts and COEs:
a) Applications that meet the eligibility criteria shall be
accepted on a first-come-first-served basis by date of
postmark.
b) If this program is oversubscribed, order of allocation
shall be established using the following criteria:
i) First, earliest date of postmark;
ii) Second, the project for which the federal QSCB
authorization will be applied received approval from the
Division of the State Architect before the application
was submitted; and,
iii) Third, the greater percentage of pupils who qualify
for the federal free and reduced priced meals program and
are enrolled in the applying school district or COE in
the 2008-09 school year. Requires the CDE to certify the
number of pupils who qualify and the overall enrollment
and calculate the percentage to the nearest one-hundredth
of 1%.
c) Requires the CDE to authorize the 2010 federal tax
credit bond volume cap for QSCBs no sooner than December 1,
2010.
d) Requires the CDE to maintain a waiting list of eligible
school districts and COEs that did not receive an
allocation.
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e) Specifies that an applicant may not apply for more than
$25 million of 2010 federal tax credit bond volume cap for
QSCBs.
8)Requires a school district or COE applying for 2010 federal
tax credit bond volume cap for QSCB authorization to do the
following:
a) Certify in its application that it will fulfill all of
the federal qualified school construction bond program
requirements, including both of the following requirements:
i) Within six months of the date of issuance, the
school district or COE shall enter into a contract or
contracts for use of an amount of bond proceeds equal to
10% of the authorization; and,
ii) Within three years of the date of issuance, the
school district or COE shall spend 100% of the bond
proceeds for a qualified purpose.
b) Submit to the CDE a copy of the appropriate federal
Internal Revenue Service Form, Information Return for
Tax-Exempt Bonds, as confirmation of issuance 15 days after
bond issuance.
c) Submit a completion report to the CDE 30 days after the
completion of the expenditure. Requires the completion
report to be certified by the bond counsel of the school
district or COE.
9)Specifies that if any or all of the federal QSCB
authorizations to a school district or COE are not issued
within six months from the date of authorization, any or all
unused federal QSCB authorizations shall revert to the CDE.
Specifies that no extensions shall be provided. Requires the
CDE to reallocate any remaining federal QSCB allocation to
school districts or COEs that were eligible and applied but
did not receive an allocation based on the priorities if the
program is oversubscribed until all allocations are issued.
10)Authorizes the CSFA to assign and distribute $68,406,000 of
the state's 2010 federal tax credit bond volume cap for QSCBs
for the benefit of charter schools, or to be further assigned
and distributed to one or more issuers in the state for the
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benefit of charter schools, as determined by CSFA.
11)Specifies the following eligibility criteria and requirements
for charter schools:
a) The charter school is operated as, or is operated by, a
nonprofit entity;
b) 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;
c) The chartering authority certifies that the charter
school is in good standing and is in compliance with the
terms of its charter;
d) The charter school provides the level of classroom-based
instruction specified EC Section 47612.5(e)(1);
e) The applicant has completed at least three full school
years of instructional operation as a charter school as of
the end of the previous school year;
f) An application shall not be postmarked until 30 business
days after the effective date of this bill; and,
g) Applicants shall not apply for more than $25 million of
QSCBs per project.
12)Requires the CSFA to do the following:
a) Post the application form and fee schedule on its
Internet Web site five business days after the effective
date of this bill;
b) Ask applicants to provide additional information as
necessary for the issuance of the bonds following a review
of all applications and a preliminary award of borrowing
authority; and,
c) Consider applications that meet eligibility criteria on
a first-come-first-served basis by date of postmark.
13)Specifies that if the program is oversubscribed, priority
shall be assigned first to those charter schools that are best
able to demonstrate to the CSFA, in its sole discretion, that
they will be capable of accessing the capital markets or be
privately placed with an investor. Requires the order of
allocation to be established using the following criteria:
a) 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
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otherwise able to obtain investment-grade credit ratings
shall receive priority over other applicants; and,
b) In the event that multiple applicants satisfy the
criteria, 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.
14)Provides that subsequent application cycles may be considered
if borrowing authority for QSCBs remains available after the
initial application period.
15)Specifies that subject to the sole discretion of the CSFA,
any authorization to borrow QSCB proceeds is contingent on the
issuance of the QSCBs by December 31, 2011, after which time
the authorization expires and the CSFA may allocate the
authorization to another qualified applicant.
16)Requires the CSFA to allocate reverted federal QSCB
authorization as it becomes available and until all of the
authorization is issued.
17)Specifies that if an applicant uses 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 by EC Section 17078.52, the applicant, in
addition to the requirements of this bill, shall comply with
all of the requirements of the Charter School Facilities
Program.
18)Contains an urgency clause in order to access federal
stimulus tax credits at the earliest possible opportunity.
The Senate amendments establish eligibility criteria, stipulate
the process for allocating QSCB federal tax credit volume cap,
and add an urgency clause.
AS PASSED BY THE ASSEMBLY , this bill was substantially similar
to the version passed by the Senate.
FISCAL EFFECT : According to the Senate Appropriations
Committee, there is no General Fund impact.
COMMENTS : In February 2009, the federal government passed the
federal American Recovery
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and Reinvestment Act of 2009 (ARRA), which allocated
approximately $100 billion nationwide for education programs
with the purpose of stimulating the economy, including $22
billion in tax credits over two years under the QSCB program.
The QSCB program provides savings for school districts issuing
local bonds for the construction and renovation of school
facilities by lowering or eliminating interest payments. The
federal government will provide federal tax credits for
bondholders in lieu of interest normally paid by issuers.
According to the CDE, interest payments typically equal about
50% of the cost of a bond. The maximum term of a bond using
QSCB tax credits is determined by the United States Treasury
Department - currently at approximately 15 years.
ARRA provides for an allocation to each state based on the
state's Title 1 (poor, needy pupils) allocation, 40% of which
are allocated directly by the federal government to large school
districts and the remaining to be allocated to local educational
agencies (LEAs) by the state. California received $1.3 billion
for 2009 and another $1.3 billion for 2010. Of the amount for
2009 and 2010, $582 million and $547 million, respectively, were
allocated directly to 11 large school districts and $773.5 and
$720 million, respectively, were reserved for school districts,
COEs, and charter schools.
For the 2009 allocations, $73.5 million of the state's $773.5
million allocation was reserved for charter school facilities
and administered by the CSFA. This amount was determined based
on charter schools receiving almost 10% of new construction
funding in the last two statewide education school facility
bonds. There is not a minimum bond authorization amount in
order for LEAs to participate in this program. LEAs, however,
were limited to $25 million in tax credits per authorization
cycle. With requests from 231 school districts applications
totaling $3.6 billion in requests for $700 million, the CDE
conducted a lottery and allocated tax credits to 43 school
districts. The CDE reports that $214.7 million of the $700
million were not used by LEAs and has been returned to the state
for future allocations.
CSFA was granted authority to administer the QSCB program for
charter schools due to its existing expertise in administering
federal and state funds for charter school facilities. The CSFA
developed parameters and procedures for this program; the
eligibility criteria are similar to criteria used for the
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Charter School Facility Program. CSFA received an initial 28
applications from charter schools. The CSFA guidelines
prioritize charters that are deemed "credit worthy" and that are
"shovel ready" and awarded $29.2 million in tax credits to six
charter schools. Because charter schools do not have authority
to issue bonds, the CSFA will sell the bonds and provide low- or
no-interest loans to charter schools.
The problem that arose that prompted the introduction of a bill
occurred when school districts, in attempting to sell the bonds,
were informed by bond counsels that the federal law contained
ambiguity that requires statutory clarification by the state.
Specifically, the ARRA authorized "the state" to make federal
tax credit allocations, but did not specify which entity in the
state is the responsible entity. As a result, bond counsels
refused to issue bond opinions for school districts to sell
bonds fearing that a challenge can be made that a school
district did not receive the tax credits from a
legally-authorized entity.
SB 205 (Hancock), Chapter 11, Statutes of 2010, provided the
authorization for CDE and CSFA to assign and distribute the 2009
tax credits. This bill provides statutory authority for the CDE
and CSFA to administer the QSCB program and assign and
distribute 2010 program tax credits.
The difference between this bill and SB 205 is in the process
for allocating the QSCBs authorization to LEAs. SB 205
authorized the allocation through a lottery. This bill requires
a project to be funded by a voter approved debt instrument, such
as a local general obligation bond, Mello Roos, or a bond
anticipation note, due to concerns that nonvoter approved debt
such as Certificates of Participations endanger a LEA's general
fund. If the program is oversubscribed, the bill requires
priority to be based first on the date of submission of the
application, then whether the project has received approval from
the Division of State Architect (as an indication that it is
more construction ready), and lastly, the percentage of pupils
eligible for the federal free and reduced priced meal program
(as an indication poverty). The eligibility criteria for
charter schools are the same as those for the 2009 QSCB
allocations.
Analysis Prepared by : Sophia Kwong Kim / ED. / (916) 319-2087
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FN: 0006674