SAN FRANCISCO — A California Senate committee has approved a bill designed to clear up legal concerns that have prevented the issuance of more than $770 million of qualified school construction bonds.
Last summer, the state’s Department of Education allocated $700 million in QSCB authority to 43 local school districts through a lottery, after receiving applications from 231 districts seeking $3.7 billion in authorization.
But a legal cloud over the process has prevented any of them from issuing the tax-credit bonds, according to a Senate Appropriations Committee staff analysis of SB 205, which cleared the committee unanimously Thursday.
The QSCB program, which was part of the federal stimulus legislation last year, allows school districts that receive an allocation to issue bonds that provide bondholders with a 100% tax credit. That means districts that have issued QSCBs so far have achieved otherwise unattainably low-cost capital, ranging from zero interest to a small supplementary coupon.
The stimulus bill authorized $11 billion of QSCBs in 2009. That included the $700 million the California Department of Education distributed to districts through the lottery, in addition to $73.5 million for charter schools to be distributed by the California School Finance Authority.
But attorneys for the Education Department, the School Finance Authority, the governor’s office, and the attorney general’s office have all expressed concerns regarding the legal authority of the department and authority to allocate tax-credit authority to school districts and charter schools, according to the staff analysis of the bill.
“Therefore, approved school districts and charter schools have not issued bonds due to the legal concerns regarding the state’s ability to issue QSCB tax credits,” according to the analysis.
The bill is written to provide statutory authority affirming the QSCB allocation process that was used last year, thereby addressing those legal concerns.
“This bill gets the money out on the street so that people can be put to work,” the bill’s sponsor, Sen. Loni Hancock, D-Berkeley, said in a news release. “It’s a win-win situation; we create new jobs by building better schools.”
The 43 California districts that received allocations through the lottery have remained on the sidelines while school districts around the country issued more than $2.5 billion in QSCBs, including more than $400 million from five California districts that received allocations directly from the federal Treasury, bypassing the state allocation process.
According to the staff report, 39 of the 43 affected districts have applied for and received extensions from the Education Department. The other four returned their allocations.
As it stands now, they have until the end of March to issue bonds, but the bill would extend that timeline by 120 days.
Lawmakers inserted the QSCB language into an existing bill through a “gut-and-amend” process that effectively creates new legislation, which must pass both the Senate and the Assembly.
The staff report warned that the bill, as currently drafted, lacks an urgency clause, an oversight that could defeat the bill’s purpose, as the legislation would have to take effect quickly to have the desired effect before the QSCB authorizations lapse.
The urgency clause would allow the bill to take effect immediately after approval by the governor. Such bills must pass with two-thirds super-majorities in each house of the Legislature.