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.