Legal cloud over QSCB lottery gets quick action

The California Department of Education and the governors office moved quickly this week to resolve potential legal complications related to the award of $700 million in Qualified School Construction Bonds.

Months after the August lottery conducted by the CDE to select winning applicants for portions of the highly coveted bond program, questions were raised by a well-known bond counsel law firm over the departments authority to oversee the bonds given federal legislative language that might be open to interpretation.

But a letter from Gov. Arnold Schwarzenegger to the State Superintendent of Public Instruction released Monday, attempts to clear away ambiguity by formally recognizing the CDE as Californias allocating entity for issuing the bonds.

At issue is a passage in the American Recovery and Reinvestment Act that seems to suggest that the state and not any specific department must oversee the sale of the QSCB bonds. Attorneys questioned whether that wording means that the Legislature itself must act to distribute the bonds or the governor.

Although insiders said the question over bond authority seemed to have been raised out of an abundance of caution, there was nonetheless recognition that even minute details can sidetrack complex financial transactions.

The QSCBs were offered as part of the stimulus package, providing federal tax credits to bondholders as a way of reducing interest costs to school districts.

With the federal government covering most or all of the interest on the bonds, school districts and charter schools will receive a substantial benefit, because interest payments typically equal about 50 percent of the economic cost of a bond.

Although there was some uncertainty about how much interest there would be among school districts for the bond program, a surprisingly large number of districts applied.

To fairly distribute the limited bond capacity, the CDE held a lottery last August in which 45 school districts were awarded shares.

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