BILL ANALYSIS                                                                                                                                                                                                    




                   Senate Appropriations Committee Fiscal Summary
                           Senator Tom Torlakson, Chairman

                                           118 (Nunez)
          
          Hearing Date:  9/10/07          Amended: 9/7/07
          Consultant:  Miriam Barcellona IngenitoPolicy Vote: T&H 6-3; EQ  
          5-2; T&H 6-3




































                                      -1-








          AB 118 (Nunez)
          PageB
          _________________________________________________________________ 
          ____
          BILL SUMMARY:   AB 118, as re-written on the Senate Floor, would  
          establish the Fleet Modernization Program, the Alternative and  
          Renewable Fuel and Vehicle Technology Program, and the Air  
          Quality Improvement Program.  Additionally, AB 118 would  
          increase various existing fees for use by the new programs.  
          _________________________________________________________________ 
          ____
                            Fiscal Impact (in thousands)

           Major Provisions         2007-08      2008-09       2009-10     Fund
           Enhanced Fleet Modernization      $130        $260       
          $130SF<1>              
            Program (admin. CARB)
          Enhanced Fleet Modernization      $0          $0        $650SF
            Program (admin. BAR)
          Enhanced Fleet Modernization                             
          $16,500SF
            Program (grants)
          Advisory body          unknown, potentially significant GF/SF<2>
          DMV: adjust fees       $200                             SF<3>
          Alt/Renew Fuel program $360       $720        $720      SF<4>
            (admin. CEC)
          Alt./Renewable Fuel (grants)                  >$100,000  
          >$100,000              SF
          Air Quality Improvementunknown, potentially significant SF<5>
            Program (admin. CARB)
          Air Quality Improvement (grants)  >$50,000    >$50,000  SF
          Cost pressure to fund grants      unknown, potentially  
          significant            SF<6>
          Revenue generation     (>$75,000) (>$150,000) (>$150,000)SF
          _________________________________________________________________ 
          ---------------------------
          <1> Enhanced Fleet Modernization Subaccount in the High Polluter  
          Removal and Repair Account, created in the bill. 
          <2> Alternative and Renewable Fuel and Vehicle Technology Fund,  
          created in the bill.
          <3> DMV costs are paid with the fees it would collect in the  
          bill, upon appropriation by the Legislature.
          <4> Alternative and Renewable Fuel and Vehicle Technology Fund.
          <5> Air Quality Improvement Fund, created in this bill.
          <6> Alternative and Renewable Fuel and Vehicle Technology Fund  
          and the Air Quality Improvement Fund.

                                        








          AB 118 (Nunez)
          PageC
          ____

          STAFF COMMENTS: This bill meets the criteria for referral to the  
          Suspense file. 
           
          Enhanced Fleet Modernization Program
           AB 118 would authorize the State Air Resources Board (CARB), in  
          consultation with the Bureau of Automotive Repair (BAR), to  
          adopt a program that would be effective starting January 1,  
          2010, that would allow for the voluntary retirement of passenger  
          vehicles and light-duty and medium-duty trucks that are high  
          polluters.  The program would be administered by BAR pursuant to  
          guidelines adopted by CARB.  Staff was not able to contact CARB  
          or BAR to obtain estimates on how much it would be to develop  
          the guidelines or administer this program.  Staff estimates  
          that, based on other guidelines developed by CARB, costs could  
          be about two positions for two years, or about $260,000 per  
          year. If BAR were to administer programs as efficiently as CARB,  
          its administrative costs would be about $1.3 million annually.  

           Funding:  Enhanced Fleet Modernization Subaccount
           AB 118 would create the Enhanced Fleet Modernization Subaccount  
          in the High Polluter Removal and Repair Account (funded from a  
          smog impact fee and a portion of DMV registration fees); monies  
          in the subaccount would be available upon appropriation by the  
          Legislature.  The monies to be deposited into the account would  
          come from a $1 increase in the vehicle registration fee and  
          would generate about $33 million annually.  
           
          California Alternative and Renewable Fuel, Vehicle Technology,  
          Clean Air, and Carbon Reduction Act of 2007
           AB 118 would establish the California Alternative and Renewable  
          Fuel, Vehicle Technology, Clean Air, and Carbon Reduction  
          Program, administered by the State Energy Resources Conservation  
          and Development Commission (CEC), to provide grants, revolving  
          loans, loan guarantees, or loans, or "other appropriate  
          measures."  Staff notes that given the amount of monies that  
          would be available for this program, the Committee may wish to  
          amend the bill to be more specific about the distribution of  
          monies made available between grants or loans and loan  
          guarantees. 

          AB 118 would give CEC and CARB the authority to determine  

                                        








          AB 118 (Nunez)
          PageD
          definitions of terms used in the provisions of this chapter,  
          establish goals of the two programs (both this program and the  
          Air Quality Improvement Program discussed below), "identify  
          revenue streams" for the programs, and undertake numerous other  
          activities that are normally spelled out in statute.  This is a  
          significant delegation of legislative authority to the executive  
          branch limits the Legislative authority on the expenditure of  
          more than $100 million annually.  

          AB 118 would require CEC to create an advisory body to help in  
          the development of an investment plan to determine priorities  
          and opportunities for the Alternative and Renewable Fuel and  
          Vehicle Technology Program. Staff notes that the size of the  
          committee, how often it is to meet, where it is to meet, and if  
          the members are to be compensated or receive per diem or  
          reimbursement for travel or other expenses are not specified in  
          the measure.  Without knowing this information, costs associated  
          with the advisory committee are unknown, but could be  
          significant. Staff recommends amending the bill to make the  
          advisory committee provisions consistent with Government Code  
          Section 1337.3.

          AB 118 would give the CEC the authority to issue "sole-source"  
          grants, which could include for-profit companies, without usual  
          public oversight process.  Sole-source contracts are contracts  
          let without the usual competitive bid and public review process  
          under law.  Sole source contracts have been authorized in a very  
          limited way for public interest energy research due to the  
          limited number of public parties doing research and possessing  
          the requisite expertise. The commission would be required to  
          provide notice, at least 60 days prior to taking an action as  
          specified, to the Joint Legislative Budget Committee and the  
          relevant policy committees in both houses of the Legislature, in  
          writing, of its intent to take the proposed action.  If the  
          Joint Legislative Budget Committee either approves or does not  
          disapprove the proposed action within 60 days from the date of  
          notification, the CEC may enter into the sole-source or single  
          source contract.  Staff notes that should the Legislature be  
          given this notice during the interim recess, the Legislature may  
          not have sufficient time to review the request.  Staff  
          recommends deleting the provisions that would authorize sole  
          source grants for this program.  


                                        








          AB 118 (Nunez)
          PageE
          CEC estimates its costs to implement and administer this program  
          would be about $720,000 annually and would require four  
          additional technical staff, one attorney, and one administrative  
          staff.  

           Funding:  Alternative and Renewable Fuel and Vehicle Technology  
          Fund
           AB 118 would establish this fund in the Treasury with funds to  
          be available, upon appropriation by the Legislature, to  
          implement the Alternative and Renewable Fuel and Vehicle  
          Technology Program, as specified, and the fund would be  
          administered by CEC.  As drafted, this measure states that  
          alternative renewable fuel funds shall be spent to develop and  
          deploy fuels "without adopting any one preferred fuel or  
          technology." The bill neither includes a definition of  
          "renewable fuel" nor prohibits subsidization of carbon-based  
          fuels.  As such, it is unclear if these funds could be used to  
          subsidize upgrading of oil refineries (which currently use small  
          amounts of "renewable fuel" or other petroleum related  
          infrastructure).

          The funding made available from this program would be for public  
          agencies, vehicle and technology consortia, California-based  
          businesses and projects, public-private partnerships, workforce  
          training partnerships, fleet owners, consumers, recreational  
          boaters, and academic institutions to develop innovative  
          technologies that transform California's fuel and vehicle types  
          to help attain the state's climate change policies.  AB 118  
          specifies 10 different types of projects that could be funded  
          through this program, with preference being given to those  
          projects that maximize the "goals" of the program.  Staff notes  
          that there are no goals explicitly outlined in the bill.   
          Additionally, preference would be given to projects that are  
          consistent with existing and "future" state climate change  
          policy and low-carbon fuel standards.  Staff notes that (1)  
          state monies are generally not used for to bring projects up to  
          compliance with existing regulations or requirements in law, but  
          rather exceed it; and (2) it is unclear how a proposed project  
          would be consistent with "future state climate change policy and  
          low-carbon fuel standards." 

          AB 118 would transfer $10 million annually from the Public  
          Interest Research, Development, and Demonstration Fund.  Monies  

                                        








          AB 118 (Nunez)
          PageF
          in this fund are derived from surcharges paid on utilities by  
          ratepayers. AB 118 would require CEC to make a determination  
          that the proposed projects will provide benefits to electric or  
          natural gas ratepayers, as specified.  Staff notes, however,  
          that many of the grants are likely have direct benefits to  
          industry and may not have sufficient nexus to the Public  
          Interest Research, Development, and Demonstration Fund's rate  
          payers.  

          Until January 1, 2016, AB 118 would also receive annual revenues  
          from the smog abatement fee, vehicle registration fees (about  
          $66 million), and license plate fees. (See discussion below  
          under "General funding provisions.")

           Air Quality Improvement Program  
          AB 118 would create this program to be administered by CARB, in  
          consultation with the districts. The program would provide  
          competitive grants for air quality improvement projects relating  
          to fuel and vehicle technologies. The primary purpose of the  
          program is to fund projects that reduce criteria air pollutants,  
          improve air quality, and provide funding for research, as  
          specified. AB 118 specifies how projects are to be evaluated and  
          what types of projects can be funded.

          CARB estimates its administration costs would be about four  
          percent of the total amount to be awarded in grants.   

          Funding:  Air Quality Improvement Fund
           AB 118 would establish this fund in the State Treasury and  
          monies in the fund would be available, upon appropriation by the  
          Legislature, to CARB to implement the Air Quality Improvement  
          Program or to be transferred to the Carl Moyer Memorial Air  
          Quality Standards Attainment Trust Fund.    Until January 1,  
          2016, the fund would receive annual revenues from the smog  
          abatement fee, boat registration fee, and a trailer plate fee.   
          (See discussion below under "General funding provisions.")  
           
           General funding provisions 
           Until January 1, 2016, AB 118 would increase the smog abatement  
          fee by $8 (up to $20).  Under existing law, the entire $12 fee  
          is distributed as follows:  (1) $6 is deposited in the Air  
          Pollution Control Fund for expenditure, upon appropriation by  
          the Legislature, to fund the Carl Moyer Memorial Air Quality  

                                        








          AB 118 (Nunez)
          PageG
          Standards Attainment Program (Carl Moyer Program), as specified;  
          and (2) the remaining $6 is deposited in the High Polluter  
          Repair or Removal Account for vehicles that are registering for  
          the first time, as specified, otherwise $4 of the $6 goes to the  
          High Polluter Repair or Removal Account and $2 is deposited in  
          the Vehicle Inspection and Repair Account.  

          AB 118 would augment the smog abatement fee from July 1, 2008 to  
          January 1, 2016, by $8 and distribute $4 of it to the Air  
          Quality Improvement Fund and $4 to the Alternative and Renewable  
          Fuel and Vehicle Technology Fund.   

          Additionally, from July 1, 2008 to January 1, 2016, AB 118 would  
          increase the vehicle registration fee by $3.  Two dollars of  
          that increase would be deposited into the Alternative and  
          Renewable Fuel and Vehicle Technology Fund and $1 would be  
          deposited into the Enhanced Fleet Modernization Subaccount.  DMV  
          estimates this would generate about $100 million annually.

          Last, from July 1, 2008 to January 1, 2016, AB 118 would  
          increase fees for trailer license plates by $5 and the increased  
          revenues would be divided equally between the Alternative and  
          Renewable Fuel and Vehicle Technology Fund and the Air Quality  
          Improvement Fund.   

          From July 1, 2008 to January 1, 2016, AB 118 would increase boat  
          registration fees by $10 and the increased revenues would be  
          divided equally between the Alternative and Renewable Fuel and  
          Vehicle Technology Fund and the Air Quality Improvement fund.   
          DMV estimates this increase would generate about $3.5 million  
          annually.  

          The Department of Motor Vehicles (DMV) estimates it would  
          require about $200,000 for programming costs to adjust the  
          various fee increases in 2008 and another $200,000 (adjusted for  
          inflation) to reset the rates again to be effective January 1,  
          2016.  AB 118 states it is the intent of the Legislature to  
          appropriate monies from the Alternative and Renewable Fuel and  
          vehicle Technology Fund and the Air Quality Improvement Fund to  
          the DMV to cover any administrative costs of implementing the  
          fee increases created by this act.  Staff recommends amending  
          the bill to give DMV the authority to take the monies required  
          to collect and distribute this fee from the fee itself before it  

                                        








          AB 118 (Nunez)
          PageH
          is deposited into the fund; this would be consistent with how  
          other fees are collected by both DMV and other entities such as  
          the Board of Equalization.  

          Staff notes that the bill imposes new consumer fees in excess of  
          $150 million to subsidize industries that may be mandated by  
          regulation to produce clean fuels and already are very  
          profitable.  As recently amended, this measure imposes a set of  
          fee increases on consumers who drive motor vehicles and uses the  
          money to subsidize industry costs of research, construction, and  
          implementation of various clean air and alternative renewable  
          fuels activities.  Rather than subsidizing public interest  
          research and development that would benefit the entire state,  
          the bill appears to authorize these funds to be used to  
          subsidize project construction and investment normally paid for  
          by the industries that profit from those activities.  There are  
          no provisions for fees paid by industry, for public/state  
          royalty sharing for profits from such investments-simply a grant  
          program to private sector fuels and energy companies paid for by  
          the public. Additionally, staff notes that using motor vehicle,  
          boat, and operator fees for programs that do not directly  
          benefit them could raise a question as to whether these  
          additional fees are in fact taxes. 

           Other issues
           Staff notes that the programs established in AB 118 may be  
          duplicative with each other and with other programs already  
          authorized in statute and established by CARB, including the  
          Carl Moyer Program, the Accelerated Light-Duty Vehicle  
          Retirement Program, the Public Interest Energy Research,  
          Demonstration, and Development Program, the California  
          Alternative Energy and Advanced Transportation Financing  
          Authority Act, and the Strategic Clean Technology and Climate  
          Research, Development, among others.  The committee may wish to  
          consider amending one or more of these existing programs instead  
          of creating new programs.  This would reduce administrative  
          costs.

          Staff notes that while the operative language in the bill  
          sunsets on January 1, 2016, the bill includes Legislative  
          findings and declarations that state "this act will provide  
          ongoing funding for alternative fuel and vehicle technology  
          research, development, demonstration, and deployment ?."  As a  

                                        








          AB 118 (Nunez)
          PageI
          result, AB 118 would result in significant cost pressures,  
          potentially in excess of $150 million annually, continuing past  
          2016.