BILL ANALYSIS                                                                                                                                                                                                    




                   Senate Appropriations Committee Fiscal Summary
                           Senator Christine Kehoe, Chair

                                           672 (Bass/Eng)
          
          Hearing Date:  08/17/2009           Amended: 06/02/2009
          Consultant: Mark McKenzie       Policy Vote: T&H 10-0
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          BILL SUMMARY:  AB 672 would establish a process that allows a  
          local or regional lead agency for a transportation project  
          funded with specified state bond funds to receive approval from  
          an administering state agency, through a letter of no prejudice  
          (LNOP), that the expenditure of local funds on that project may  
          be reimbursed from future allocations of bond proceeds  
          programmed for that project.  Specifically, this bill would:
           Authorize a local or regional agency to apply for an LNOP with  
            the state agency responsible for administering a Proposition  
            1B transportation bond fund program.
           Authorize the administering agency to approve an LNOP for a  
            project that has been programmed to receive bond funds.  
           Prescribe the contents and conditions for issuance of an LNOP.  
             The letter would specify the amount of local expenditures  
            that may be eligible for reimbursement from future allocations  
            of bond proceeds.  The timing and amount of reimbursement  
            would be dependent on the terms of the agreement and  
            availability of bond funds, and the final amount reimbursed  
            may be less than the amount stated in the LNOP.
           Require the California Transportation Commission (CTC) to  
            identify projected target amounts of bond funds to be  
            distributed under the State-Local Partnership Program  
            authorized by Proposition 1B, and to update those figures  
            annually.
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                            Fiscal Impact (in thousands)

           Major Provisions         2009-10      2010-11       2011-12     Fund
           LNOP administration    potential costs, probably less than  
          $100Bond*
                                 annually (see staff comments)

          Prop.1B project costs  potential avoidance of cost  
          escalationBond*
                                 that would result from delays, absent  
          LNOPs










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          * Various Proposition 1B bond funds
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          STAFF COMMENTS: 
          
          This bill is intended to provide a mechanism that allows local  
          and regional transportation agencies to use their own funds on a  
          project that is scheduled to receive bond funds to maintain  
          project delivery schedules and prevent any potential work  
          stoppages that may be caused by unforeseen interruptions in the  
          distribution of bond funds.  AB 672 would provide some assurance  
          of repayment for local expenditures on bond-funded projects,  
          subject to terms and conditions of the LNOP approved by the  
          administering agency.  AB 1335 (Cohn), Chapter 908 of 2001,  
          authorized the use of an LNOP process for projects receiving  
          state funding under the Traffic Congestion Relief Program.

          Page 2
          AB 672 (Bass/Eng)

          This bill would authorize an administering agency to develop  
          guidelines for implementation of an LNOP process.  These costs  
          would likely be minor.  Once a process is established, the  
          administering agency would analyze requests for letters of no  
          prejudice and draft agreements with local and regional agencies  
          that apply.  Depending on the level of interest in using this  
          mechanism for fronting projects with local funds, this bill may  
          result in some increased staffing costs at CTC, the Department  
          of Transportation, and other administering agencies.  If the  
          demand for LNOPs increases in future years, these costs may  
          reach $100,000 annually.  Considering current economic  
          conditions, few local agencies are likely to have significant  
          resources available to dedicate local funds to transportation  
          projects that are scheduled to receive state bond funds.   
          Initial demand for LNOPs will likely be low.

          To the extent that the LNOP process keeps a transportation  
          project on schedule and prevents work stoppages, thereby  
          avoiding potential cost escalations, this bill could result in  
          project cost savings.

          CTC indicates that costs to calculate annual projections of bond  
          funds to be distributed under the State-Local Partnership  
          Program authorized by Proposition 1B, and annual updates of  










          those figures would be absorbable.