BILL ANALYSIS �
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Date of Hearing: April 12, 2011
ASSEMBLY COMMITTEE ON HIGHER EDUCATION
Marty Block, Chair
AB 1163 (Brownley) - As Introduced: February 18, 2011
SUBJECT : Education: California Educational Facilities
Authority.
SUMMARY : Recasts the definition of "private college" to allow
the California Educational Facilities Authority (CEFA) to
facilitate tax-exempt bond programs for religious colleges, as
specified, in conformance with a California Supreme Court
decision. Specifically, this bill :
1)Redefines "participating private college" or "participating
college" to mean a private college that:
a) Participates with CEFA in undertaking the financing and
construction or acquisition of a project.
b) Does not restrict admission based on a student's race or
ethnicity.
2)Deletes language from the definition of "private college" that
restricts CEFA participation by institutions that restrict
entry on racial or religious grounds or require students
gaining admission to receive instruction in the tenets of a
particular faith.
3)Provides that the financing may not violate Article XVI,
Section 5 of the California Constitution or the establishment
clause of the First Amendment to the United States
Constitution, which prohibit the use of public funds for
religious purposes.
EXISTING LAW establishes CEFA to provide higher education
institutions, including private colleges, with additional means
for specified construction projects. (Education Code � 94110 et
sec.)
FISCAL EFFECT : Unknown
COMMENTS : Background . CEFA, which is housed in the State
Treasurer's Office, was created in 1973 for the purpose of
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issuing revenue bonds to assist private non-profit postsecondary
education institutions in the expansion and construction of
educational facilities, in order to expand educational
opportunities in California. Because it is authorized to issue
tax-exempt bonds, CEFA may provide more favorable financing to
such private institutions than might otherwise be obtainable.
The law specifically provides that bonds issued by CEFA shall
not be a debt, liability, or claim on the faith and credit or
the taxing power of the State of California or any of its
political subdivisions. The full faith and credit of the
participating institution is normally pledged to the payment of
the bonds. The CEFA authority consists of 1) the Director of
Finance, 2) the Controller, 3) the Treasurer, who serves as
chairperson, and 4) two members appointed by the Governor for
four year terms, as specified.
Need for the bill . According to the sponsor, Treasurer Bill
Lockyer, current law is inconsistent with the California Supreme
Court case, California Statewide Communities Development v. All
Persons interested in the Matter of the Validity of a Purchase
Agreement (2007) 40 Cal. 4th 788 (Communities Development case),
in which the court held that government financiers, such as
CEFA, may facilitate tax-exempt bond programs for religious
colleges that limit entry on religious grounds or require
students gaining admission to receive instructions in the tenets
of faith so long as certain conditions are met (described
below). Current law is more stringent, preventing CEFA from
facilitating tax-exempt bonds for private colleges that restrict
entry on religious grounds or require students to receive
instruction in the tenets of a particular faith.
The Treasurer argues that this inconsistency holds CEFA to more
stringent standards than comparable financing authorities, which
are able to finance the borrowers ineligible for CEFA financing.
Without this statutory fix, the Treasurer states that CEFA is
unable to provide constitutionally permissible financing to
religious private schools that would expand educational
opportunities within California and provide state oversight of
financing for these programs, which can currently receive
financing from other municipal financing authorities.
Communities Development case . In essence, the court held that
conduit financing agreements between public entities and
pervasively sectarian institutions do not necessarily violate
Article XVI, Section 5 of the California Constitution,
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concluding that the pertinent inquiry should center on the
substance of the education provided by the schools in the case,
not on their religious character. In validating the agreements,
the court adopted a four-part test to determine whether a
conduit financing agreement between a public entity and
pervasively sectarian school violates the state Constitution.
Under this test, conduit financing agreements between public
entities and religiously affiliated schools do not violate the
state or federal Constitutions when the four following
conditions are met:
1)The bond program must serve the public interest and provide no
more than an incidental benefit to religion.
2)The bond program must be available to both secular and
sectarian institutions on an equal basis.
3)The bond program must prohibit use of bond proceeds for
"religious projects."
4)Must not impose a financial burden on the government.
CEFA-funding eligibility . In order to be eligible for CEFA
financing, an institution must meet the following requirements
of Title 4, Division 12 of the California Code of Regulations:
1)Be accredited by the Western Association of Schools and
Colleges. Colleges or universities offering legal education
must be accredited by the Committee of Bar Examiners of the
State Bar, or the American Bar Association.
2)Be non-sectarian, or if any college or university requires its
students to take courses in religion or theology, the
application must be accompanied by a factual showing that such
required courses a) are taught according to the academic
requirements of the subject matter, b) cover a range of human
religious experiences, c) are not limited to courses about a
particular faith, and d) are not taught in a manner or for the
purpose of indoctrinating or proselytizing students.
3)Have been functional for a minimum of three years prior to
submitting an application for financing and provide three
years of audited financial statements.
4)Have revenue or collateral sufficient to cover debt service on
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the proposed financing.
REGISTERED SUPPORT / OPPOSITION :
Support
Bill Lockyer, California State Treasurer (sponsor)
Pepperdine University
Opposition
None on file.
Analysis Prepared by : Sandra Fried / HIGHER ED. / (916)
319-3960