BILL ANALYSIS SB 1040 Page 1 Date of Hearing: June 30, 2010 ASSEMBLY COMMITTEE ON APPROPRIATIONS Felipe Fuentes, Chair SB 1040 (Padilla) - As Amended: June 23, 2010 Policy Committee: UtilitiesVote:9-3 Urgency: Yes State Mandated Local Program: No Reimbursable: SUMMARY This bill increases, by $125 million, the amount the Public Utilities Commission (PUC) is authorized to collect, through a surcharge on telephone customers, for the purpose of deploying broadband facilities in un-served and under-served areas of the state. Specifically, this bill: 1)Authorizes the commission-in addition to the $100 million already authorized for collection prior to January 1, 2011-to collect up to $25 million annually from 2011 through 2015, and to deposit these moneys in the following new accounts within the California Advances Services Fund (CASF): a) Broadband Infrastructure Account ($100 million). b) Rural and Urban Regional Broadband Consortia Grant Account ($10 million), for broadband activities other than capital costs. c) Broadband Infrastructure Revolving Loan Account ($15 million), for broadband facilities not funded by a grant from the Broadband Infrastructure Account. 2)Allows the PUC to exceed the $25 million annual collection limit in (1) if the commission determines that collecting a higher amount in any year will not increase total surcharges collected from telephone customers. 3)Requires the PUC to conduct final financial audit of the CASF program and report its findings by April 1, 2017, including data on the types and numbers of jobs created through the program. SB 1040 Page 2 FISCAL EFFECT 1)Up to $125 million in additional special fund program expenditures over six years, and possibly longer. 2)Administrative costs to the PUC will be as follows: current annual costs of $175,000 for two positions will be extended at least five more years; one-time costs of $110,000 for one position in 2011-12 associated with a rule-making for the consortia grant program and the revolving loan program; ongoing costs of $350,000 beginning in 2011-12 and continuing for at least five years for three positions associated with the new grant and loan programs. COMMENTS 1)Background . In September 2007, the PUC completed a proceeding to reform the California High Cost Fund-B (CHCF-B) program. (The California High Cost Fund-A (CHCF-A) and CHCF-B programs subsidize the cost of providing telephone service to rural and other high-cost areas through surcharges on telephone bills.) As a result, the PUC reduced the annual allocation of money to the CHCF-B by $315.4 million (74%) and implemented a phased-in reduction in the ratepayer surcharge from 1.3% on all intrastate calls to .25%. In the same decision, the commission announced it would create the CASF to fund deployment of broadband infrastructure in unserved areas of the state. The PUC created this program and assessed a surcharge on telephone ratepayers to fund the program, but the commission did not have clear legislative authority to assess the surcharge or to expend the funds. SB 1193 (Padilla)/Chapter 393 of 2008, provided statutory authority for the CASF, but prohibited the PUC from collecting more than $100 million. Following enactment of the federal American Reinvestment and Recovery Act of 2009 (ARRA), the PUC revised the CASF program to allow California companies to use CASF grants as a match for ARRA broadband grants. AB 1555 (Perez)/Chapter 24 of 2009, expanded CASF eligibility to any entity applying for CASF funding in conjunction with an ARRA funding request. 2)Purpose . The commission indicates there will be increased demand for CASF funds due to the matching requirements of ARRA SB 1040 Page 3 grants. To date, the PUC has awarded about $54 million in grants, and is reviewing an additional 13 grants estimated at $30 million. The commission believes that the remaining authorized funds will be insufficient to provide the matching grants. SB 1040 allows for the collection of an additional $125 million for the program, but spreads the collection over five years in order to minimize the impact of telephone customers. Analysis Prepared by : Chuck Nicol / APPR. / (916) 319-2081