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 $110Special* Enhanced reporting absorbable costs to include additionalSpecial* information on future biennial reports ____________ * Safe Drinking Water State Revolving Fund, Administration Account _________________________________________________________________ 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 years. 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 costs. 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 Fund.