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 AB 798 (NAVA) Page 2 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 AB 798 (NAVA) Page 3 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 AB 798 (NAVA) Page 4 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 AB 798 (NAVA) Page 5 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. AB 798 (NAVA) Page 6 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. AB 798 (NAVA) Page 7 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 AB 798 (NAVA) Page 8 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. AB 798 (NAVA) Page 9 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. AB 798 (NAVA) Page 10 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.