BILL ANALYSIS                                                                                                                                                                                                    






           SENATE TRANSPORTATION & HOUSING COMMITTEE       BILL NO: AB 798
          SENATOR ALAN LOWENTHAL, CHAIRMAN               AUTHOR:  Nava
                                                         VERSION: 6/24/09
          Analysis by:  Jennifer Gress                   FISCAL:  yes
          Hearing date:  July 7, 2009








          SUBJECT:

          California Transportation Financing Authority

          DESCRIPTION:

          This bill establishes the California Transportation Financing  
          Authority to assist transportation agencies in obtaining  
          financing, primarily through issuing bonds backed by specified  
          sources of revenue, to develop transportation projects.  In  
          doing so, this bill allows the authority to permit agencies to  
          impose tolls for use of facilities constructed.

          ANALYSIS:

          Existing law regarding the authority to impose and collect tolls  
          for the use of a highway contains a hodgepodge of disparate  
          authorities, all of which are limited either in number, scope,  
          duration, or geographic area. Toll facilities authorized under  
          existing law fall under three categories:  publicly-operated  
          toll roads and bridges, privately-operated toll roads, and  
          high-occupancy toll (HOT) lanes.

           Publicly-operated toll roads
           Existing law allows the County of Orange or a city therein to  
          enter into a joint exercise of powers agreement with other local  
          agencies for the purpose of developing and operating toll roads.  
           The result of that statute is two joint powers authorities  
          collectively known as the Transportation Corridor Agencies,  
          which operate four toll roads on the state highway system in  
          Orange County.

          Existing law also establishes the Bay Area Toll Authority to  




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          operate seven state-owned bridges and the Golden Gate Bridge,  
          Highway and Transportation District to operate the Golden Gate  
          Bridge connecting the City and County of San Francisco to Marin  
          County.
           
          Privately-operated toll roads  
          In 1989, AB 680 (Baker), Chapter 107, authorized the California  
          Department of Transportation (Caltrans) to enter into up to four  
          lease agreements with private entities for the design, finance,  
          construction, maintenance, or operation of transportation  
          projects (i.e., public-private partnerships or PPPs).  Only two  
          projects have been constructed with this authority:  The State  
          Highway Route (SR) 91 Express Lanes in Orange County, the rights  
          to which the Orange County Transportation Authority subsequently  
          acquired, and SR 125 in San Diego County.  

          AB 1010 (Correa), Chapter 688, Statutes of 2002, reduced the  
          number of PPP agreements authorized under AB 680 from four to  
          two and prohibited Caltrans from entering into any new  
          agreements after January 1, 2003.  

          In 2006, AB 1467 (N??ez), Chapter 32, Statutes of 2006,  
          authorized up to four transportation facilities to be developed  
          through PPPs with the condition that projects "be primarily  
          designed to improve goods movement."  This authority was then  
          expanded with the passage of SB 4xx (Cogdill), Chapter 2,  
          Statutes of 2009, Second Extraordinary Session.  This measure  
          allows regional transportation agencies and Caltrans to enter  
          into an unlimited number of PPPs for highway, street, or rail  
          projects, subject to specified terms and conditions.  The  
          authority to enter into these PPPs sunsets on January 1, 2017. 

           HOT lanes
           HOT lanes are high-occupancy vehicle lanes located in the median  
          or adjacent to free lanes that single-occupant vehicles may  
          access for a fee. California's first HOT lane was on Interstate  
          15 in San Diego, authorized by AB 713 (Goldsmith), Chapter 962,  
          Statutes of 1993.  The project was part of a federal  
          demonstration program to assess the application of congestion  
          pricing and to increase revenues for transit development in the  
          I-15 corridor.

          In 2004, AB 2032 (Dutra), Chapter 418, authorized the Sunol  
          Smart Carpool Lane Joint Powers Authority, the Alameda County  
          Congestion Management Agency, the Santa Clara Valley  
          Transportation Authority, and SANDAG to develop and operate HOT  




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          lane facilities using value or congestion pricing on a specified  
          number of transportation corridors within their jurisdictions,  
          subject to certain conditions.  AB 574 (Torrico), Chapter 498,  
          Statutes of 2007, authorized those agencies to issue bonds  
          backed by projected toll revenues in order to pay for the costs  
          of developing the facilities. 

          AB 1467 (N??ez), Chapter 32, Statutes of 2006, allowed, until  
          January 1, 2012, regional transportation agencies, in  
          cooperation with Caltrans, to apply to the California  
          Transportation Commission (CTC) to develop and operate HOT  
          lanes, including the administration and operation of a value  
          pricing program and exclusive or preferential lane facilities  
          for public transit.  The number of projects that may be approved  
          is limited to four, two in Northern California and two in  
          Southern California, and are subject to approval by the  
          Legislature.

           This bill  establishes the California Transportation Financing  
          Authority (authority) to assist transportation agencies in  
          obtaining financing to construct transportation projects.  In  
          doing so, this bill allows the authority to permit agencies,  
          subject to specified conditions, to impose tolls for use of  
          facilities constructed through the authority.  More  
          specifically, this bill:
          
           Establishes the authority within the Office of the Treasurer  
            and specifies the membership, as follows:
               o      The Treasurer, who shall serve as the chair of the  
                 authority
               o      The Director of Finance
               o      The Controller
               o      The Director of Transportation
               o      The executive director of the California  
                 Transportation Commission
               o      A local agency representative appointed by the  
                 Senate Committee on Rules
               o      A local agency representative appointed by the  
                 Speaker of the Assembly

           States as the objective of the authority "to increase the  
            construction of new capacity or improvements for the state  
            transportation system in a manner that is consistent with and  
            will help meet the state's greenhouse gas reduction goals, air  
            quality improvement goals, and natural resource conservation  
            goals, through the issuance of, or the approval of the  




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            issuance of, bonds" that are backed, in whole or in part, by  
            specified transportation-related revenues.

           Specifies the powers of the authority as they pertain to  
            accepting moneys; employing, contracting for, and fixing  
            compensation for professional services; making loans; issuing  
            debt; charging administrative fees; obtaining insurance;  
            entering into agreements; and investing moneys.

           Allows the authority to borrow moneys as necessary for the  
            purposes of initial organization.  Any moneys borrowed,  
            including interest, shall subsequently be charged to and  
            apportioned among project sponsors in an equitable manner.

           Defines "project" to mean all or a portion of the planning,  
            design, development, finance, construction, reconstruction,  
            rehabilitation, improvement, acquisition, lease, operation, or  
            maintenance of highway, public street, rail, bus, or related  
            facilities.

           Defines "costs" to include items that are necessary or  
            incident to the construction, rehabilitation, acquisition, or  
            financing of any project.

           Defines "project sponsor" to include Caltrans, a regional  
            transportation planning agency, county transportation  
            commission, any other local or regional transportation entity  
            designated in statute as a regional transportation agency, a  
            joint exercise of powers authority, or an agency designated to  
            provide the county transportation plan in the Bay Area region.

           Provides that all expenses incurred by the authority for a  
            project shall be payable solely from funds received for the  
            project.  Under no circumstances shall the authority create  
            any debt, liability, or obligation on the part of the state.

           Specifies the revenue sources that may be pledged as security  
            for revenue bonds issued by the authority, including:  

                  o         Local transportation funds, including, but not  
                    limited to, fuel taxes, Proposition 42 moneys, local  
                    transportation sales taxes, state revenues approved  
                    for this purpose by the Legislature or by initiative,  
                    and developer fees.
                  o         Tolls





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           Provides that revenues sources within the control of a state  
            agency may only be pledged with approval by Caltrans or CTC.

           Specifies the requirements that a project must meet in order  
            to be financed or refinanced by the authority, including:

                  o         The project complies with all relevant  
                    statutes applicable to the planning, programming, and  
                    construction of transportation projects.
                  o         The project is contained in the constrained  
                    portion of a conforming regional transportation plan  
                    that is consistent with the greenhouse gas reduction  
                    targets assigned by the Air Resources Board.
                  o         For highway projects, the project sponsor has  
                    secured the support of Caltrans and is consistent with  
                    the needs and requirements of the state's highway  
                    system.
                  o         The project is financially and technically  
                    feasible.
                  o         The project meets or exceeds environmental  
                    requirements and has all necessary permits approved.
                  o         Performance measures have been developed for  
                    the project to monitor its progress.
                  o         The project has community support, which shall  
                    be demonstrated through a public review and comment  
                    process.
                  o         For highway projects, the project sponsor  
                    submits to CTC a plan that demonstrates how transit  
                    service or alternative modes of transportation will be  
                    enhanced in the corridor concurrent with the operator  
                    of a toll facility.

           Prohibits the authority from assuming any planning,  
            programming, or allocation authority possessed by Caltrans or  
            CTC.

           Requires the authority to determine that the revenues and  
            other moneys available for a project will be sufficient to pay  
            debt service on the bonds and to operate and maintain the  
            project over the life of the bonds.

           Allows a project sponsor to be the issuer of bonds if the  
            authority determines the revenues available for the project  
            will be sufficient to pay debt service on the bonds and to  
            operate and maintain the project over the life of the bonds.





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           Allows the authority to authorize a project sponsor to impose  
            and collect tolls as one source of funding, if the project  
            meets the following requirements:

                  o         The governing body of the project sponsor  
                    approves the imposition of tolls by a majority vote of  
                    the governing body, or if Caltrans is the sponsor by a  
                    majority vote of the CTC, or the majority of voters  
                    within the jurisdiction of the project sponsor has  
                    approved a ballot measure authorizing tolls.
                  o         Each highway project for which tolls are  
                    imposed has nontolled alternative lanes available for  
                    public use in the same corridor as the toll project.   
                    A project sponsor may not convert any existing  
                    nontolled lane into a tolled lane, except for the  
                    conversion of an HOV lane into a HOT lane.
                  o         For highway projects, the project is on the  
                    state highway system.
                  o         Tolls are set and maintained at a level  
                    expected to be sufficient to pay debt service,  
                    operations, and maintenance of the project over the  
                    life of the bonds.
                  o         The project's financial pro forma incorporates  
                    life-cycle costs, including maintenance, operation,  
                    and rehabilitation.  
                  o         Excess revenues from the project shall be used  
                    exclusively in the corridor from which the revenue was  
                    generated to pay for the following expenditures:
                                     Acquisition, construction,  
                         improvements, maintenance, or operation of  
                         high-occupancy vehicle facilities
                                     Other transportation purposes
                                     Transit service, including transit  
                         operations
                  o         The project sponsor, in consultation with  
                    Caltrans, adopts an expenditure plan, updated  
                    annually, that describes the transportation  
                    improvements planned for the corridor, including the  
                    projected costs, use of toll revenues, and a proposed  
                    completion schedule.
                  o         Tolls are not set to generate more revenue  
                    than is necessary to pay debt service, fund reserves,  
                    operate, maintain, repair, or rehabilitate the  
                    project, and provide funding for transportation  
                    improvements identified in the expenditure plan.





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           Allows a project sponsor to implement variable or dynamic  
            pricing to manage congestion on the tolled facilities.

           Requires the authority and CTC to develop a cooperative  
            process for approving projects such that a project is approved  
            by CTC and the project's financing is approved by the  
            authority at approximately the same time.  Both CTC and the  
            authority are required to work with project sponsors to ensure  
            that projects are brought forward in a manner that is  
            consistent with the CTC's project requirements and the  
            authority's financing requirements.

           Requires CTC and the authority to make available for public  
            review and comment a description of the project and its  
            financing plan.

           Establishes provisions regarding the issuance and purchase of  
            bonds, as well as the management of bond sale proceeds and any  
            net earnings the authority may accrue.

           Requires the authority to report to CTC, beginning June 30,  
            2011 and annually thereafter, regarding actions it has taken,  
            to be included in the CTC's annual report to the Legislature.

           This bill  also deletes the requirement that HOT lane projects  
          authorized under AB 1467 be approved by the Legislature.
          
          COMMENTS:

           1.Purpose  .  By establishing the California Transportation  
            Financing Authority, the author and sponsor, the State  
            Treasurer's Office, argue that this bill creates a method for  
            local, regional, and state agencies to finance projects in the  
            municipal bond market and to ensure that projects and funding  
            are consistent with state transportation policy objectives and  
            public finance criteria that reflect "best practices."  The  
            bill recognizes the need for transportation funding and  
            provides a way for those willing and able to pay for new  
            capacity to build it.  Explaining why the bill is needed, the  
            author and sponsor state:
                  
                Capacity demands of transportation infrastructure in our  
               state combined with declining revenue streams for  
               transportation project financing have severely eroded our  
               transportation systems. Population increases of the state  
               have far outpaced transportation project construction. The  




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               state gasoline excise tax, the major state source of  
               transportation construction funding, has depreciated in  
               value and remains unchanged since 1994 at 18 cents per  
               gallon. New and creative funding sources to meet our  
               transportation funds must be found.

           2.Previous legislation  .  This bill is nearly identical to the  
            version of AB 3021 (Nava) that passed this committee last year  
            on an 8 to 1 vote.  That bill was subject to the Governor's  
            blanket veto in which he applied this generic message:

               The historic delay in passing the 2008-2009 State Budget  
               has forced me to prioritize the bills sent to my desk at  
               the end of the year's legislative session.  Given the  
               delay, I am only signing bills that are the highest  
               priority for California.  This bill does not meet that  
               standard and I cannot sign it at this time.
          
           3.Consistent with or alternative to public-private partnerships  
            (PPPs)  . The prospect of public entities entering into  
            agreements with private companies to develop and operate  
            transportation infrastructure has received much attention in  
            recent years.  The lure of such arrangements arises from their  
            potential to raise private capital at a time when public  
            sources of funding are diminishing.  In such arrangements,  
            investors are typically repaid through toll revenues.  Some  
            elected officials and public agencies are reluctant to embrace  
            PPPs due to the state's previous experience with such  
            arrangements, concerns about the restrictions imposed by  
            non-compete or just compensation clauses, and the potential  
            that drivers would be charged higher tolls to ensure that  
            investors earned their required rate of return.  
           
            Publicly-operated toll roads also have the ability to attract  
            private capital. According to the state's annual Debt  
            Affordability Report, issued by the Treasurer's Office, much  
            of state and local infrastructure is already financed by  
            private capital, capital which is typically raised by  
            governmental entities selling tax-exempt bonds to investors.   
            According to the report, private investors held $2.4 trillion  
            of state and local municipal debt at the end of 2006, which  
            represented a 50 percent increase over 2001.  In this way,  
            public toll roads, which would include those financed through  
            the financing authority, present an opportunity to harness  
            private capital for transportation projects without the  
            potential pitfalls that may accompany PPPs. 




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          4.Concerns about tolling  . In establishing a financing authority,  
            this bill permits the authority to authorize a project sponsor  
            to impose and collect tolls for transportation facilities.   
            The principal criticism of toll roads, relative to non-tolled  
            roads, is that users of the facility are being "double-taxed."  
             Members of the public have already paid taxes on fuel to  
            support transportation; by paying a toll, users would be  
            burdened by an additional fee.  Others are concerned about the  
            burden tolls place on low-income households, particularly in  
            today's economic climate with increased fuel and food costs.   
            Finally, by facilitating the movement of people and goods, an  
            effective transportation system supports the economy as a  
            whole.  Is it appropriate for individual users of a facility  
            to bear the full costs of a facility that ultimately benefits  
            the local, regional, and state economies?  

           5.Need for a financing authority  ?  The extent to which the  
            services of the financing authority would be utilized is  
            unclear.  Toll roads are feasible principally on roads that  
            attract high traffic volumes, which are typically located in  
            urban areas.  The transportation agencies in areas where there  
            is interest in tolling are relatively sophisticated in their  
            own right but also have the resources to contract for any  
            additional financial and legal expertise they may need.   
            Smaller transportation agencies in less populated areas of the  
            state would perhaps benefit most from this bill, but these  
            agencies are less likely to undertake a toll project.  

            On the other hand, the authority could ease the burden a  
            transportation agency may face in navigating the complex  
            financial landscape, making it easier for any local agency to  
            undertake a toll project.  More importantly, a financing  
            authority could help to ensure that toll facilities are in  
            fact financially feasible with a high likelihood of success.    


           6.Not impacted by state's current fiscal crisis  .  The state's  
            inability to adopt a balanced budget and the state's lowered  
            credit rating has challenged the state's ability to issue  
            general obligation bonds.  This situation will not affect the  
            financing authority's ability to issue bonds as authorized by  
            this bill because it will be the project sponsor's credit and  
            pledged revenue stream (e.g., tolls) that bond underwriters  
            will examine, not the state's.  Bonds issued by the authority  
            will not be considered state debt.  




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          RELATED LEGISLATION

          AB 744 (Torrico) authorizes BATA to finance and develop a  
          region-wide system of HOT lanes referred to as the Bay Area  
          Express Lane Network.

          AB 1175 (Torlakson), among other provisions, adds the Antioch  
          and Dumbarton bridges to the state toll bridge seismic retrofit  
          program and allows BATA to increase bridge toll rates for  
          purposes of completing those projects. 
          
          Assembly Votes:
               Floor:    51-25
               Appr: 12-5
               Trans:    11-3

          POSITIONS:  (Communicated to the Committee before noon on  
          Wednesday,  
                     July 1, 2009)

               SUPPORT:  State Treasurer Bill Lockyer (sponsor)
                         Associated General Contractors of California
                         California Association of Councils of Governments
                         California Labor Federation
                         Los Angeles County Metropolitan Transportation  
          Authority
                         Riverside County Transportation Commission
                                                                                Santa Clara Valley Transportation Authority
                         State Building and Construction Trades Council
                         Transportation Agency for Monterey County
                         Ventura County Transportation Commission
          
               OPPOSED:  None received.