BILL ANALYSIS �
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|SENATE RULES COMMITTEE | AB 1163|
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THIRD READING
Bill No: AB 1163
Author: Brownley (D)
Amended: As introduced
Vote: 21
SENATE EDUCATION COMMITTEE : 9-0, 6/22/11
AYES: Lowenthal, Alquist, Blakeslee, Hancock, Huff, Liu,
Price, Simitian, Vargas
NO VOTE RECORDED: Runner, Vacancy
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
ASSEMBLY FLOOR : 70-0, 5/12/11 (Consent) - See last page
for vote
SUBJECT : California Educational Facilities Authority
SOURCE : California State Treasurer Bill Lockyer
DIGEST : This bill changes the definition of a
participating private college or participating college to
allow the California Educational Facilities Authority to
act as a conduit issuer of tax exempt bonds for private
religious colleges, as specified.
ANALYSIS : The California Educational Facilities
Authority (CEFA), established in 1973 and administered by
the State Treasurer's Office, was created for the purpose
of issuing revenue bonds to assist private non-profit
institutions of higher learning, in the expansion and
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construction of educational facilities. 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 under 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.
Proceeds from CEFA financings may be used for project
related costs including, construction, remodeling and
renovation, land acquisition (as part of the proposed
project), purchase of or lease of equipment, refinancing or
refunding of prior debt, costs of bond issuance and
reimbursement of prior expenses.
In order to be eligible for financing through CEFA, a
"private college" must be a nonprofit private or
independent degree-granting educational institution that is
regionally accredited and empowered to provide a program of
education beyond the high school level. In addition,
current law requires that the private college neither
restricts entry on racial or religious grounds nor requires
students gaining admission to receive instruction in the
tenets of a particular faith.
Article 16, Section 5 of the California Constitution
prohibits the Legislature, any county, city and county,
township, school district, or other municipal corporation,
from making an appropriation, or paying from any public
fund whatever, or grant anything to or in aid of any
religious sect, church, creed, or sectarian purpose, or
help to support or sustain any school, college, university,
hospital, or other institution controlled by any religious
creed, church, or sectarian denomination whatever; nor
shall any grant or donation of personal property or real
estate ever be made by the state, or any city, city and
county, town, or other municipal corporation for any
religious creed, church, or sectarian purpose whatever.
This section also provides that the Legislature is not
prohibited from granting aid pursuant to Section 3 of
Article XVI which provides for the granting of state
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assistance to institutions which are not under the control
or management of the state, for specified purposes.
This bill:
1. Deletes the requirement that a "participating private
college" or "participating college" for purposes of
eligibility for financing through CEFA must not restrict
entry on religious grounds nor require students gaining
admission receive instruction in the tenets of a
particular faith.
2. Prohibits the provision of financing for a
"participating private college" or "participating
college" through CEFA if such financing would violate
Article 16, Section 5 of the California Constitution or
the establishment clause of the First Amendment of the
United States Constitution.
Comments
Need for the bill . In 2007, the California Supreme Court
ruled, in California Statewide Communities Development
Authority v. All Persons , 40 Cal. 4Th 788, that government
financiers may act as conduit issuers of tax-exempt bonds
for religious colleges without violating federal or state
constitutional provisions so long as certain conditions are
met.
How did CEFA get here ? According to the State Treasurer's
Office, CEFA's statute contains language from 1972 that
reflects the United States' Supreme Court's 1971 decision
in Lemon v. Kurtzman (403) U.S. 602. While competing
government financing authorities are subject to the same
constitutional restrictions on the provision of public
funding to sectarian colleges as CEFA, the Government Code
provisions applicable to these entities do not contain the
additionally restrictive language in the Education Code
which applies to eligibility for CEFA financing.
In the recent court case ( California Statewide Communities
Development Authority v. All Person , 40 Cal. 4Th 788) bond
financing agreements between a public entity and three
religiously affiliated schools were challenged as violating
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state constitutional provisions because the institutions
were "pervasively sectarian." The California Supreme Court
concluded that the pertinent inquiry should center on the
substance of the education provided and not on the
religious character of the institution. The validity of
the program was based upon two questions:
1. Do each of the recipient schools offer a broad
curriculum in secular subjects?
2. Do the schools' secular classes consist of information
and coursework that is neutral with respect to religion?
The court concluded that if these conditions were met, the
state bond funding program would not violate the relevant
state or federal constitutional provisions.
What is the effect ? According to CEFA, it has been
determined that as many as 21 potential borrowers would be
considered ineligible for tax-exempt financing through
CEFA. These potential borrowers either elected not to
apply for financing through CEFA or were deemed ineligible
prior to submitting an application for financing. Thirteen
of these potential borrowers have issued bonds through
other authorities including the California Statewide
Communities Development Authority (CSCDA), California
Infrastructure and Economic Development Bank (IBANK),
California Municipal Financing Authority (CMFA), and the
Association of Bay Area Governments (ABAG). The CEFA
reports that, from 2008-2010, these borrowers issued
approximately $234 million in bonds through CEFA'S
competing authorities.
Expansion of CEFA financing eligibility . In recent
history, the Legislature has heard and passed several bills
which have expanded eligibility for CEFA financing,
including the following:
SB 280 (Scott), Chapter 345, Statutes of 2007, modified the
definition of "participating college" to maintain the
eligibility of research organizations that did not grant
degrees for CEFA financing, if they had received CEFA
financing in the past.
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AB 947 (Liu), Chapter 191, Statutes of 2005, expanded the
definition of a "private college", for purposes of CEFA
financing eligibility, to include nonprofit affiliates, as
specified, of nonprofit private or independent
degree-granting accredited colleges.
SB 1624 (Romero), Chapter 1081, Statutes of 2002,
authorized CEFA to finance the construction of faculty and
staff housing owned by private colleges, as specified, and
authorized CEFA to use up to $2 million of its fund
balance, on a one-time basis, to provide grants to private
colleges to support academic assistance programs to middle
and high school pupils attending schools in low-income
areas with low college going rates, as specified.
AB 1611 (Keeley), Chapter 569, Statutes of 2001, authorized
CEFA to enter into agreements with nonprofit entities to
finance construction costs for student, faculty, and staff
housing near the campuses of the University of California,
the Hastings College of Law, the California State
University, the California Community Colleges, or
participating private colleges.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
SUPPORT : (Verified 8/17/11)
California State Treasurer Bill Lockyer (source)
California State Controller John Chiang
Pepperdine University
ARGUMENTS IN SUPPORT : According to the bill's sponsor,
the California State Treasurer, as a result of the court's
ruling, CEFA's statutory definition of a "participating
college" results in a more restrictive standard than that
which now applies to other government financing authorities
that can also issue tax-exempt bonds for religious schools
and colleges. This bill deletes the more restrictive
statutory language and instead, reference relevant state
constitutional provisions, thereby placing the CEFA on an
equal playing field with other government financing
authorities. In addition, referencing the State
Constitution and the United State Constitution would ensure
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that any future court decisions in this area would
automatically apply, eliminating the need for statutory
changes in order to keep pace with case law.
ASSEMBLY FLOOR : 70-0, 5/12/11
AYES: Achadjian, Allen, Ammiano, Atkins, Beall, Bill
Berryhill, Block, Blumenfield, Bonilla, Bradford,
Brownley, Buchanan, Butler, Charles Calderon, Campos,
Carter, Chesbro, Cook, Davis, Dickinson, Donnelly, Eng,
Feuer, Fletcher, Fong, Fuentes, Furutani, Beth Gaines,
Galgiani, Gatto, Gordon, Grove, Hagman, Halderman, Hall,
Harkey, Hayashi, Hill, Huber, Hueso, Huffman, Jeffries,
Jones, Knight, Lara, Logue, Ma, Mansoor, Mendoza, Miller,
Monning, Morrell, Nestande, Nielsen, Norby, Olsen, Pan,
Perea, V. Manuel P�rez, Silva, Skinner, Smyth, Solorio,
Swanson, Valadao, Wagner, Wieckowski, Williams, Yamada,
John A. P�rez
NO VOTE RECORDED: Alejo, Cedillo, Conway, Garrick, Gorell,
Roger Hern�ndez, Bonnie Lowenthal, Mitchell, Portantino,
Torres
CPM:mw 8/17/11 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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