BILL ANALYSIS                                                                                                                                                                                                    ”

                   Senate Appropriations Committee Fiscal Summary
                           Senator Christine Kehoe, Chair

                                          AB 1292 (Hernandez)
          Hearing Date: 08/22/2011        Amended: 07/12/2011
          Consultant: Mark McKenzie       Policy Vote: G&F 9-0
          BILL SUMMARY: AB 1292 would authorize the issuance of revenue 
          bonds for deposit into the Safe Drinking Water State Revolving 
          Fund (SDWSRF) to satisfy federal matching requirements under the 
          Safe Drinking Water Act.  Specifically, this bill would:
           Authorize the Department of Public Health (DPH) to contract 
            with the California Infrastructure and Economic Development 
            Bank (I-Bank) to issue taxable or tax-exempt revenue bonds for 
            use as the 20% state match for federal grant funds.
           Authorize bond proceeds to be deposited into the SDWSRF or to 
            refund bonds previously issued, and to fund necessary 
            reserves, capitalized interest, or issuance costs.
           Require revenue bonds to be repaid from, and secured by, 
            revenues in the SDWSRF, including loan repayments and interest 
            earned on loans.
           Require biennial DPH reports on SDWSRF activities submitted 
            after January 1, 2013 to include: (1) results of a federal 
            survey of California's public water infrastructure needs; (2) 
            amount of funds available in the fund to finance those needs; 
            (3) amount of all funding agreements executed since the last 
            report; (4) the fund utilization rate; (5) amount of 
            unliquidated obligations; and (6) the total dollar amount paid 
            to funding recipients since the last report.
                            Fiscal Impact (in thousands)

           Major Provisions         2011-12      2012-13       2013-14     Fund
           Financial services contract       $55         $110      

          Enhanced reporting     absorbable costs to include 
                                 information on future biennial reports
          * Safe Drinking Water State Revolving Fund, Administration 


          AB 1292 (Hernandez)
          Page 1


          STAFF COMMENTS: 
          Existing law creates the I-Bank within the Business, 
          Transportation and Housing Agency, to promote economic 
          revitalization, enable future development, and encourage a 
          healthy climate for jobs in California.  The I-Bank also serves 
          as the state's only general purpose financing authority with 
          broad statutory authority to issue revenue bonds, loans, and 
          loan guarantees.

          Existing law establishes the SDWSRF and continuously 
          appropriates the funds to DPH to provide grants or revolving 
          fund loans for the design and construction of projects for 
          public water systems that enable suppliers to meet safe drinking 
          water standards.  The SDWSRF receives annual capitalization 
          grants from the U.S. Environmental Protection Agency (EPA), for 
          which the state must provide a 20% match.  Federal grants have 
          ranged from $66 million to $126 million, and state matching 
          funds have historically been provided by the General Fund and 
          general obligation bond funds.  The award for 2011-12 is $86 
          million, so the state will need to provide a match of $17.2 
          million to receive the full federal grant.  DPH indicates that 
          current state match resources are insufficient to cover the full 
          match required for the 2011 federal grant or in subsequent 

          AB 1292 would authorize DPH to contract with the I-Bank to issue 
          revenue bonds for deposit into the SDWSRF for use as the 20% 
          match for federal Clean Water Act capitalization grants.  Under 
          current federal law, the principal and interest payments that 
          are repaid into the SDWSRF cannot be used as state matching 
          funds, but this bill would allow those payments to be used to 
          repay the revenue bonds.  DPH indicates that it currently 
          receives approximately $40 million annually in principal and 
          interest payments on outstanding loans.

          DPH would incur costs of approximately $110,000 annually to 
          contract for financial expertise related to the revenue bonding 
          authority provided by this bill.  Currently, 4% of federal 
          grants may be used for administrative purposes related to the 
          SDWSRF.  DPH indicates that there is sufficient capacity in the 
          administrative set-aside to cover the annual financial contract 


          AB 1292 (Hernandez)
          Page 2


          The bill authorizes the use of revenue bond proceeds for deposit 
          into the SDWSRF, to refund previously issued revenue bonds, and 
          to fund any necessary reserves, capitalized interest, or costs 
          of issuance.  All I-Bank issuance costs and fees would be 
          included in the bond issuance.

          Staff notes that this bill would relieve future pressure on the 
          General Fund, to the extent that revenue bonds are used as a 
          state match to maximize federal clean drinking water funds, 
          rather than direct General Fund appropriations or proceeds of 
          general obligation bonds, which must be repaid from the General