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.








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           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
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            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