BILL ANALYSIS                                                                                                                                                                                                    Ó

                            Senator Lois Wolk, Chair

          BILL NO:  AB 1292                     HEARING:  7/6/11
          AUTHOR:  Roger Hernández              FISCAL:  Yes
          VERSION:  6/28/11                     TAX LEVY:  No
          CONSULTANT:  Ewing                    

                          INFRASTRUCTURE BANK'S BONDS

            Authorizes the Infrastructure Bank to sell bonds for the 
                          Department of Public Health.

                           Background and Existing Law
           The California Infrastructure and Economic Development Bank 
          (I-Bank) supports economic development and public and 
          private infrastructure investments through its authority to 
          issue bonds, make loans, and provide credit enhancements.  

          The I-Bank manages the following programs:
                 The Infrastructure State Revolving Fund Program 
               (ISRF) provides low-cost financing to local agencies 
               for public infrastructure projects.
                 The Industrial Development Revenue Bond Program 
               (IDB) provides tax-exempt revenue bond financing for 
               eligible manufacturing companies.
                 The 501(c)(3) Revenue Bond Program offers 
               tax-exempt revenue bond financing for certain 
               nonprofit, public benefit corporations.
                 The State School Fund Apportionment Lease Revenue 
               Bond Program offers tax-exempt revenue bond financing 
               for school districts needing emergency apportionment 
                 The Public Agency Revenue Bond Program provides 
               tax-exempt revenue bond financing for governmental 
                 The Infrastructure Guarantee Program guarantees 
               bonds issued by other governmental entities.

          Housed within the Business, Transportation and Housing 
          Agency (BTH), the I-Bank has a five-member board of 
          directors that approves projects.  The board includes the 
          BTH Secretary, who serves as the chair, State Treasurer, 
          director of the Department of Finance, Secretary of the 


          AB 1292 -- 6/28/11 -- Page 2

          State and Consumer Services Agency, and an appointee of the 
          Governor.  The I-Bank's Executive Director is appointed by 
          the Governor and confirmed by the Senate.

          The I-Bank does not receive direct state funding.  Funding 
          comes from fees, interest income, and revenues tied to 
          financing activities.   

          The California Department of Public Health administers an 
          array of programs to promote public health, including the 
          Safe Drinking Water State Revolving Fund (SDWSRF) program 
          (SB 1307 Costa, 1997).  Federal grants from the U.S. 
          Environmental Protection Agency capitalize the Fund.  As a 
          condition of receiving those grants, the Department must 
          provide 20% matching funds on top of the federal 
          allocation.  The Department uses the Fund to provide loans 
          to public and private entities to maintain and improve 
          public water systems and promote the goals of the federal 
          Safe Drinking Water Act.  

          The amount of funding available from the EPA is based on 
          Congressional allocations and evolving state needs.  In 
          2010, California received $127 million.  The Department 
          anticipates receiving $87 million in 2011.  In prior years, 
          annual funding averaged about $67 million.  

          To meet its match requirement, the Department initially 
          relied on the State General Fund, but since has relied on 
          proceeds from various bonds, including Propositions 50 and 
          84.  As those bond proceeds are exhausted, the Department 
          wants to use a new financing mechanism in partnership with 
          the Infrastructure Bank. 

          According to 2010 audits by the State Controller and the 
          U.S. EPA, the Fund has $133 million in unallocated cash and 
          pooled reserves, and $537.8 million in allocated but 
          unspent obligations.  The Department spends that money as 
          loan recipients submit claims.  There have been no reported 
          defaults on loans issued through the Fund since its 


          AB 1292 -- 6/28/11 -- Page 3

                                   Proposed Law  

          Assembly Bill 1292 authorizes the California Infrastructure 
          and Economic Development Bank to sell bonds on behalf of 
          the Department of Public Health and deposit those proceeds 
          into the Safe Drinking Water State Revolving Fund and 
          authorizes the California Department of Public Health to 
          repay those bonds from the Safe Drinking Water State 
          Revolving Fund.

                               State Revenue Impact
          No estimate. 


          1.   Purpose of the bill  .  AB 1292 allows the California 
          Department of Public Health to partner with the 
          Infrastructure Bank to sell bonds and use the resulting 
          revenues to meet federal match requirements under the Safe 
          Drinking Water State Revolving Fund (SDWSRF) program.  
          Federal estimates from 2007 suggest that California has $39 
          billion in unmet water infrastructure needs.  In prior 
          years, the Department used State General Funds and other 
          bond funds to meet the state's match requirements.  AB 1292 
          enables the Department to partner with the Infrastructure 
          Bank to issue revenue bonds and ensure that California can 
          maximize access to federal funding to meet its drinking 
          water needs without putting additional demands on the State 
          General Fund or other bond funds.

          2.   Authority vs. delivery  .  AB 1292 expands the financing 
          mechanisms available to the Department of Public Health to 
          meet federal match requirements.  But a June 2010 audit by 
          the U.S. EPA found that California is slow to spend the 
          money it already has.  The Fund has more than $133 million 
          in unspent funds plus another $538 million in allocated but 
          undistributed funds.  Before the Legislature gives the 
          Department access to new funding sources, legislators 
          should insist that the Department make better use of its 
          existing resources.


          AB 1292 -- 6/28/11 -- Page 4

          3.   Unmet needs  .  Every four years, the EPA surveys the 
          progress of states in meeting infrastructure needs to 
          comply with safe drinking water standards.  While some 
          states saw declines in unmet needs, in the last two 
          surveys, California's unmet needs grew.  The next survey is 
          due this year.  State officials think that California's 
          unmet needs will have grown even more in the new survey.  
          An EPA audit indicates that other states are more 
          aggressive in leveraging state revolving funds, on average 
          spending 86.7% of funding in 2009.  In that period, 
          California spent just 57% of its funds.  The EPA expressed 
          this concern because Congress has highlighted the economic 
          development potential of this program.  The Committee may 
          wish to consider amending AB 1292 to create clearer 
          expectations that the Department more assertively leverage 
          its authority to address unmet needs and spur economic 

          4.   Good advice  ?  EPA's recent audit noted that the 
          Department needs to increase the speed with which it spends 
          Fund proceeds and called for the Department to establish 
          "programmatic and financial milestones and goals so it can 
          reach an acceptable range of performance."  The Committee 
          may wish to consider amendments that direct the Department 
          to establish goals and milestones to ensure that it fully 
          leverages its authorities to meet unmet needs through the 
          Safe Drinking Water State Revolving Fund program.

          5.   Let's be clear  .  AB 1292 authorizes the Infrastructure 
          Bank to contract with the Department of Public Health and 
          with any agency as necessary to perform its mission, but 
          its language is ambiguous.  It's not clear if the bill 
          meant to permit the Infrastructure Bank to offer its 
          conduit financing services to any state agency, or if that 
          broad contracting authority only allows the Infrastructure 
          Bank to contract for technical assistance in performing its 
          mission.  The Committee may wish to consider amending AB 
          1292 to clarify that state agencies must seek legislative 
          authorization before accessing conduit financing through 
          the Infrastructure Bank, but that the Bank has broad 
          authority to enter into contracts when necessary to deliver 
          6.   Related legislation  .  A number of bills have passed 
          through the Committee relating to the Infrastructure Bank:  


          AB 1292 -- 6/28/11 -- Page 5

                     AB 696 (Hueso) directs the I-Bank to establish 
                 a methodology for determining the economic benefits 
                 of projects under consideration and, as of January 
                 1, 2013, restricts the I-Bank to approve only those 
                 projects that provide economic benefits and meet 
                 land use criteria.  

                     AB 700 (Blumenfield) requires the I-Bank to 
                 adopt two-year goals and measurable objectives, 
                 consistent with state infrastructure, economic 
                 development and environmental plans and authorizes 
                 the I-Bank to pursue streamlined administrative 

                     AB 893 (V. Manuel Pérez) directs the I-Bank to 
                 enhance outreach and technical assistance to small 
                 and rural communities to obtain financing for 
                 infrastructure projects. 

                     AB 1094 (John A. Pérez) adds two legislative 
                 members to the I-Bank's board of directors.  

          AB 1292 is modeled after AB 1571 (Costa, 2000), which 
          authorized the Infrastructure Bank to issues bonds and 
          deposit proceeds into the State Water Pollution Control 
          Revolving Fund Program in support of local projects under 
          the Clean Water Act.

                                 Assembly Actions  

          Assembly Environmental Safety and Toxic Materials 
          Committee:                                          8-0
          Assembly Appropriations Committee:              17-0
          Assembly Floor:                                 78-0

                         Support and Opposition  (6/30/11)

           Support  :  Association of California Water Agencies; 
          California Association of Environmental Health 
          Administrators; California Conference of Directors of 
          Environmental Health, California Department of Public 
          Health; California Water Association; City of Long Beach; 
          San Gabriel Valley Municipal Water District; Three Valleys 
          Municipal Water District; Upper San Gabriel Valley 


          AB 1292 -- 6/28/11 -- Page 6

          Municipal Water District; Valley County Water District; 
          Water Replenishment District of Southern California.

           Opposition  :  Unknown.