BILL ANALYSIS
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|SENATE RULES COMMITTEE | SB 205|
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UNFINISHED BUSINESS
Bill No: SB 205
Author: Hancock (D), et al
Amended: 4/14/09
Vote: 21
SENATE VOTE NOT RELEVANT
SUBJECT : Education Finance
SOURCE : State Superintendent of Public Instruction
Jack OConnell
State Treasurer Bill Lockyer
DIGEST : Assembly Amendments delete the Senate version of
the bill authorizing a countywide transportation planning
agency to impose, upon a majority vote of the electorate,
an annual fee of up to $10 on motor vehicles registered in
a county for transportation-related programs and projects
which became SB 83 (Hancock) and was signed into law.
The bill now provides statutory authority for the
California Department of Education and the California
School Finance Authority to administer the federal
Qualified School Construction Bonds tax credit program
authorized by the federal American Recovery and
Reinvestment Act of 2009.
ANALYSIS : In February 2009, the federal government
passed American Recovery and Reinvestment Act (ARRA), which
allocated approximately $100 billion nationwide for
CONTINUED
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education programs with the purpose of stimulating the
economy, including $22 billion in tax credits over two
years under the Qualified School Construction Bonds (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 California
Department of Education (CDE), interest payments typically
equal about 50 percent 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 percent
of which are allocated directly by the federal government
to large school districts and the remaining to be allocated
to school districts by the state. California received a
total of $1.3 billion for 2009 and will receive another
$1.3 billion for 2010. Of the amount for 2009, $582
million was allocated directly to 11 large school districts
and $773.5 million is reserved for school districts, county
office of educations (COEs), and charter schools. CDE, in
collaboration with the Governor's Office and the State
Treasurer, designated $73.5 million of the state's $773.5
million allocation for charter schools, to be administered
by the California School Finance Authority (CSFA). This
amount was determined based on charter schools receiving
approximately 10 percent of new construction funding in the
last two statewide education school facility bonds.
CDE developed an administrative process for implementing
this program, including parameters for participation.
There is not a minimum bond authorization amount in order
for local educational agencies (LEAs) to participate in
this program. LEAs, however, are 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.
CSFA was granted authority to administer the QSCB program
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for charter schools due to its existing expertise in
administering federal and state funds for charter school
facilities. Similar to CDE, CSFA developed parameters and
procedures for this program; the eligibility criteria are
similar to criteria used for the Charter School Facility
Program. This bill also requires the CSFA parameters to be
consistent with the Charter Schools Act of 1992. CSFA
received 28 applications from charter schools. The CSFA
guidelines prioritize charters that are deemed "credit
worthy" and that are "shovel ready" and awarded $19.2
million in tax credits to six charter schools. The 22
remaining applicants are being further evaluated by CSFA.
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
this bill came 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. Thus far, no school district
that received its bond tax credits from the state has
issued bonds, despite a deadline of December 31, 2009 to do
so.
This bill provides statutory authority for the CDE and CSFA
to administer the QSCB program and issue 2009 program tax
credits to approved school districts and charter schools.
The bill also provides an extension of 120 days from the
effective date of this bill for districts to issue bonds,
provided that they received an extension from the CDE
through March 31, 2010. The CDE granted extensions to 39
of the 43 districts on a case-by-case basis. Four LEAs
returned their allocations. The bill authorizes charter
schools to retain their allocations as established by the
CSFA. Any allocations that do not ultimately result in
issuance of bonds and are therefore not used will revert
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back to the CDE and the CSFA for reallocation in 2010.
Federal law requires large districts that received the
federal tax credit allocations directly from the IRS to
issue QSCBs by December 31, 2009. Federal law also allows
large districts that do not issue their allotted QSCBs to
reallocate the credits to the state for reallocation. Five
districts out of the 11 large districts did not issue QSCBs
within the required timeframe. The most recent amendments
to the bill establish a process whereby the CDE reassigns
to these school districts their federal tax credit bond
volume cap for QSCBs if the districts reallocate their
credits to the state within 30 days after the enactment of
this bill. The amendments also require the CDE to allow
these districts to issue the QSCBs within 120 days after
the enactment of this bill and further provide that if the
districts do not issue the bonds within the 120 days, the
credits will revert back to the state and shall be
reallocated by the CDE in accordance with the process for
allocating 2010 federal tax credit bond volume cap for
QSCBs. This provision will enable large school districts
to take advantage of the federal tax credits and ensure
that any credits not utilized by the large districts can be
reallocated to other districts.
Due to time constraints and to enable school districts and
the CSFA to issue bonds as soon as possible, this bill
contains an urgency clause and waives the requirement for
the CDE and the CSFA to adopt regulations.
Specifics of SB 205:
1.Assigns $700 million of the state's 2009 federal tax
credit bond volume cap for the QSCB program to CDE for
further assignment and distribution to school districts
and COEs.
2.Assigns $73.5 million of the state's 2009 federal tax
credit bond volume cap for the QSCB program to CSFA to be
issued for the benefit of charter schools.
3.Provides that any of the state's 2009 federal tax credit
volume cap for QSCB assigned to CDE or CSFA that has not
resulted in the issuance of bonds by December 31, 2009 be
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added to the state's volume cap for 2010.
4.Extends school districts and COEs ability to issue bonds
by 120 days from the effective date of this bill,
provided these entities received an assignment of tax
credits under the QSCB program from CDE prior to December
31, 2009 and an extension to issue bonds through March
31, 2010.
5.Requires any of the state's federal 2009 tax credit bond
volume cap for the QSCB program originally allocated to
CDE that does not result in the issuance of bonds within
120 days from the effective date of this bill to revert
to the state and be reallocated in accordance with the
process established pursuant to state law for allocating
the 2010 federal tax credit bond volume cap.
6.Requires the CDE to reassign to a school district any
2009 federal tax credit bond volume cap for QSCBs that
was directly allocated to the district by the United
States Internal Revenue Service (IRS) that did not result
in the issuance of QSCBs by December 31, 2009 and was
reallocated by the district to the state no later than 30
days after the effective date of this bill. Requires the
CDE to grant the school district 120 days from the
effective date of this bill to issue the QSCBs. Provides
that any of the federal tax credit bond volume cap for
QSCB that was reallocated to the district pursuant to
this provision that does not result in the issuance of
QSCBs within 120 days from the effective date of this
bill shall revert to the state and shall be reallocated
by the CDE in accordance with the process to be
established in state law for allocating the 2010 federal
tax credit bond volume cap for QCSBs.
7.Requires any charter school that received an allocation
from CSFA prior to December 31, 2009 to retain its
allocation pursuant to a CSFA resolution.
8.Requires any of the state's federal 2009 tax credit bond
volume cap for QSCB originally allocated to CSFA that
does not result in the issuance of bonds by December 31,
2010 to be retained by CSFA and reallocated in accordance
with the QSCB program parameters established by the CSFA.
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Specifies that all parameters and conditions for receipt
of tax credits under the tax credit bond volume cap to be
allocated by the CSFA shall be in accordance with the
Charter Schools Act of 1992 and any related regulations.
9.Exempts the assignment and distribution of tax credit
bond volume cap by CDE and CSFA from the rulemaking
provisions of the Administrative Procedures Act (APA) in
order to further the purposes of the ARRA and allow
school districts to issue federal tax credit bonds as
expeditiously as possible.
10.States the intent of the Legislature that the parameters
and conditions adopted by the CDE and the CSFA be
comparable where practical and applicable in order to
ensure consistency and equity in the state level
assignment and distribution of the federal tax credit
bond volume cap, including, but not limited to, maximum
tax credit amounts per project or school district.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
These are federal tax credits and not bonds and therefore
pose no impact on the state's general fund.
SUPPORT : (Verified 2/17/10)
State Superintendent of Public Instruction Jack O'Connell
(co-source)
State Treasurer Bill Lockyer (co-source)
Aspire Public Schools
California Charter Schools Association
Coalition for Adequate School Construction
HTH Learning
Oak Grove Union School District
Perris Union High School District
Sacramento City UDS
Small School Districts' Association
Vaughn Next Century Learning Center
ARGUMENTS IN SUPPORT : The author's office states that by
clarifying the role of the CSFA and CDE in the allocation
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of these tax credits, California can help to ensure that
(1) districts and charter schools can issue locally
authorized school bonds with the attached tax credits, (2)
both borrowers and bond investors will benefit from the
federal tax credit attached to the bonds, and (3)
California will benefit from the economic and educational
growth created by the building and renovation of schools.
>
DLW:do 2/17/10 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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