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H.R. 5530, HBCU Capital Financing Improvement Act

Floor Situation

On Monday, July 11, 2016, the House will consider H.R. 5530, the HBCU Capital Financing Improvement Act, under suspension of the rules. H.R. 5530 was introduced on June 20, 2016, by Rep. Alma Adams (D-NC), and was referred to the Committee on Education and the Workforce, which ordered the bill reported, as amended, by voice vote on June 22, 2016.


Summary

H.R. 5530 would improve access to and allow for financial counseling in the Historically Black Colleges and University (HBCU) Capital Financing Program by:

  • Requiring institutions to pay into a “bond insurance fund,” rather than a pooled escrow account as in current law, to better reflect the purpose of the withheld funds;
  • Authorizing the Secretary of Education to provide financial counseling to eligible institutions to prepare them to qualify, apply for, and maintain a capital improvement loan; and
  • Requiring the program’s Advisory Board to provide an annual report to Congress, giving an overview of all the loans awarded by the program, the status and financial condition of at least 10 institutions participating in the program, and any administrative and legislative recommendations they may have for improving the program.

Background

According to the Committee on Education and the Workforce, HBCUs have a poorer financial outlook than other institutions of similar size and age due to many factors. Presently, the cost of capital is a roadblock that prevents many HBCUs, some of which have physical plants over 150 years old, from making improvements to their campuses. The HBCU Capital Financing Program was created by the Higher Education Amendments of 1992 to address these factors by helping fund capital projects at a lower cost to these institutions.

The HBCU Capital Financing Program acts as a federal loan guarantee program. The program allows institutions to finance, or refinance, the repair, renovation, and construction of capital projects. Funded projects can range from the construction of classroom facilities to the repair of sewer and drainage systems.

Since the program is based on bonds, participating schools are required to place 5 percent of their loans into a pooled escrow account that helps cover payments to bondholders should any institution default on its loan obligation. This account acts as bond insurance to ensure the payments of principal and interest on the bonds are covered and bondholders are made whole.  Public HBCUs have not participated in the program due to states’ concerns over the requirement that 5 percent of the loan funds, which the states view as state funds, must go into the escrow account.

To better reflect the intention and purpose of the escrow account, the HBCU Capital Financing Improvement Act renames this account a “bond insurance fund.” This change will help more public HBCUs access the program by easing the concerns of some state governments who are unsure of the account’s purpose. In addition, this re-classification will reinforce with participating institutions that their 5 percent contributions are not a regulatory burden but a necessary protection for bondholders who participate in the program.

According to the bill’s sponsor, “Many HBCUs lack the large endowments often found at other institutions. Programs such as the HBCU Capital Financing Program supplement smaller endowments and provides HBCUs with funding for much needed upgrades and maintenance to their campuses. The purpose of my bill is to create greater access to this program for all HBCUs so that we can better level the playing field for our HBCUs and their students.”[1]


Cost

The Congressional Budget Office (CBO) estimates that implementing H.R. 5530 would have a negligible additional effect on discretionary spending. Enacting the bill would not affect direct spending or revenues; therefore, pay-as-you-go procedures do not apply. CBO estimates that enacting H.R. 5530 would not increase net direct spending or on-budget deficits in any of the four consecutive 10-year periods beginning in 2027.


Staff Contact

For questions or further information please contact Molly Newell with the House Republican Policy Committee by email or at 2-1374.

114th Congress