BILL ANALYSIS
SENATE TRANSPORTATION & HOUSING COMMITTEE BILL NO: ab 672
SENATOR ALAN LOWENTHAL, CHAIRMAN AUTHOR: bass
VERSION: 6/2/09
Analysis by: Jennifer Gress FISCAL: yes
Hearing date: July 7, 2009
SUBJECT:
Proposition 1B: letter of no prejudice
DESCRIPTION:
This bill allows, under specified conditions, an agency
responsible for administering a Proposition 1B program to issue
a "letter of no prejudice" to a local agency providing an
assurance that the administrative agency will reimburse the
local agency for expenditures it makes on a Proposition 1B
project that has been programmed but for which funds have not
yet been allocated.
ANALYSIS:
Proposition 1B
In November 2006, voters approved the Highway Safety, Traffic
Reduction, Air Quality and Port Security Bond Act of 2006, also
known as Proposition 1B, that established 14 funding programs
that serve a variety of transportation purposes.
Traffic Congestion Relief Act of 2000
AB 2928 (Torlakson), Chapter 91, Statutes of 2000, created the
Traffic Congestion Relief Program (TCRP), which established a
mechanism to provide funding for projects specified in statute.
The TCRP includes a process by which a lead applicant for a
project may apply to the California Transportation Commission
(CTC) for a letter of no prejudice to allow a local entity to
expend its own funds to be reimbursed by the state, provided the
following conditions are met:
The project is included in an adopted regional transportation
plan.
The department makes an allocation of TCRP funds.
AB 672 (BASS) Page 2
The expenditures made by the regional or local entity are
eligible for reimbursement in accordance with state and
federal laws and procedures.
The regional or local entity complies with all legal
requirements for the project, including the requirements of
the California Environmental Quality Act (CEQA).
This bill allows, under specified conditions, an agency
responsible for administering a Proposition 1B program to issue
a letter of no prejudice to a local agency providing an
assurance that the administering agency will reimburse the local
agency for expenditures it makes on a Proposition 1B project
that has been programmed but for which funds have not yet been
allocated. Specifically, the bill:
Defines a "letter of no prejudice" as an agreement between a
regional or local agency and the administrative agency that
makes expenditures of funds under the control of the local or
regional agency eligible for future reimbursement from bond
proceeds.
Allows a local or regional agency to apply for, and an
administering agency to approve, a letter of no prejudice for
a project that may be funded by Proposition 1B, with the
exception of the Highway-Railway Safety Account, under the
following conditions:
o The project or project component for which the letter of
no prejudice is requested has commenced, and local or
regional expenditures have been incurred.
o The expenditures made by the regional or local agency
are eligible for reimbursement in accordance with state and
federal laws and procedures. If expenditures made are
determined to be ineligible, then the state has no
obligation to reimburse those expenditures.
o The regional or local agency complies with all legal
requirements for the project, including the requirements of
CEQA.
o The expenditures are incurred after the project or
project component was programmed or otherwise approved for
funding by the administrative agency.
o There is in the applicable bond proceeds fund or account
AB 672 (BASS) Page 3
under Proposition 1B an appropriated amount sufficient to
make the reimbursement payment.
Provides that the timing and final amount of reimbursement is
dependent on the terms of the agreement and the availability
of bond funds and that the final amount of reimbursement may
be less than the amount stated in the letter of no prejudice.
This bill also requires the CTC to calculate, and revise
annually, projected targets for the distribution of bond funds
under the State Local Partnership Program (SLPP), as authorized
by Proposition 1B.
COMMENTS:
1.Purpose . According to the author, the recent instability of
the bond market and the Pooled Money Investment Board's freeze
on distributing funds has affected some of the projects funded
in part by Proposition 1B. Bond sale proceeds are currently
used to fund existing commitments; bonds are not being issued
to fund any new allocations for transportation (or other)
projects, slowing some projects that are otherwise ready to
move forward. Some local agencies, in particular the
Metropolitan Transportation Commission (MTC), would like to
spend its own funds to keep projects going but are concerned
that, once Proposition 1B funds do become available, the state
will not uphold its commitment to allocate those funds to the
Proposition 1B project. The letter of no prejudice provides
assurance that the local agency will be reimbursed for funds
it spends on a Proposition 1B project and in this way
represents a cash management strategy for transportation and
air quality projects funded under the bond initiative.
The author notes that AB 20xxx (Bass), Chapter 21, Statutes of
2009, authorized local agencies to use federal economic
stimulus funds (i.e., American Recovery and Reinvestment Act -
ARRA) to prevent a project from stopping, without jeopardizing
their eligibility to retain their commitment of bond funds
from the state.
2.State Local Partnership Program (SLPP) . This bill requires
CTC to establish funding targets for each eligible recipient
under the SLPP. The SLPP is a Proposition 1B program that
provides matching funds for projects by local entities that
have established a local source of transportation funding
(e.g., local sales tax on gasoline dedicated to transportation
AB 672 (BASS) Page 4
purposes). The majority of these funds (95 percent) are
distributed on a formula basis based on locally-derived
revenues and population. Because revenues may change from
year to year, CTC calculates a local entity's share annually
and programs projects in accordance with the entity's share
for that year.
According to CTC's guidelines, the annual SLPP program of
projects will also include multi-year programs of projects for
SLPP funding. CTC includes these multiyear programs for
informational purposes, acknowledging the future plans and
intent of the eligible applicants. The inclusion of a
multi-year project, however, does not constitute a programming
commitment by CTC for future year funding.
The bill requires CTC to establish funding targets for future
years because one project that MTC wants to advance using its
own funds is a project that has been programmed in the SLPP,
but that requires a multi-year allocation for which CTC has
not adopted funding shares and cannot commit to reimbursing.
For purposes of planning its expenditures, MTC (and likely
other agencies that would use the letter of no prejudice
instrument) would like some sense of the amount of funds it
can expect to receive. The bill specifies, however, that the
amount of reimbursement may be less than the amount stated in
the letter of no prejudice in the event the estimate proves
inaccurate. This is a risk that MTC is willing to assume.
Assembly Votes:
Floor: 78-0
Appr: 17-0
Trans: 13-0
POSITIONS: (Communicated to the Committee before noon on
Wednesday,
July 1, 2009)
SUPPORT: Metropolitan Transportation Commission (sponsor)
Santa Clara Valley Transportation Authority
OPPOSED: None received.