BILL ANALYSIS Ó SENATE TRANSPORTATION & HOUSING COMMITTEE BILL NO: AB 1770 SENATOR MARK DESAULNIER, CHAIRMAN AUTHOR: lowenthal VERSION: 2/17/12 Analysis by: Eric Thronson FISCAL: yes Hearing date: June 19, 2012 SUBJECT: California Transportation Financing Authority DESCRIPTION: This bill makes two minor, clarifying changes to the types of projects that the California Transportation Financing Authority (CTFA) may assist. ANALYSIS: Existing law establishes the CTFA within the California State Treasurer's Office to assist transportation agencies in obtaining financing for transportation projects. The objective of CTFA is to increase new capacity in the state transportation system in a manner consistent with the state's greenhouse gas reduction, air quality improvement, and natural resource conservation goals. CTFA will accomplish this through issuing bonds directly or through the approval of the issuance of bonds that are backed by specified transportation-related revenues. Further, existing law specifically defines parameters in which projects can be eligible for CTFA assistance. For example, a project sponsor is defined as either the California Department of Transportation (Caltrans), a regional transportation planning agency, a county transportation commission, any other local or regional transportation entity designated in statute as a regional transportation agency, or a joint powers authority. In addition, only highway, public street, rail, bus, or related facilities that are supplemental to or improvements upon existing facilities Caltrans or another project sponsor currently own and operate qualify for CTFA's assistance. Finally, existing law lays out specific requirements that a project must meet to qualify for CTFA assistance. Should a project meet all identified requirements, then CTFA may, among other things, authorize a project sponsor to impose and collect AB 1770 (LOWENTHAL) Page 2 tolls as one source of project funding. This bill makes two minor, clarifying changes to CTFA's enabling statutes which determine eligibility for CTFA assistance: 1.Specifies that a rail project may consist of, or include, rolling stock (i.e. buses, rail cars, or locomotives). 2.Specifies that a project must be a facility currently owned or operated by Caltrans or other project sponsor (as opposed to a facility owned and operated by Caltrans or other sponsor). COMMENTS: 1.Purpose . This bill clarifies definitions contained in CTFA enabling statutes. The author contends these clarifying changes to law are technical in nature but necessary to address some ambiguities identified by the Treasurer's staff. First, existing law is not clear whether rolling stock is an eligible expenditure, and this bill clarifies that it is. Second, because transportation projects are complex and often involve multiple entities, the author believes it is important to broaden the universe of eligible projects by requiring that a project sponsor is either the owner or operator of the facility (and not necessarily both). By resolving these ambiguities, CTFA will have maximum flexibility within its original statutory parameters in order to help finance viable transportation projects. 2.What impact might these changes have ? The clarifying changes this bill makes appear technical and non-controversial, but after only two years of existence it is still unclear what role CTFA will play in the state's transportation infrastructure development. Toll roads are feasible principally in urban areas where the transportation agencies are relatively sophisticated in their own right but also have the resources to contract for any additional financial and legal expertise they may need. Smaller transportation agencies in less populated areas of the state would perhaps benefit most from this bill, but these agencies are less likely to undertake a toll project. Because CTFA has yet to be called upon for assistance, it is difficult to know what impact the changes proposed in this bill may have on transportation financing and development. AB 1770 (LOWENTHAL) Page 3 3.Using bond funds responsibly . One way CTFA can assist a project sponsor to increase capacity in the transportation system is to issue bonds to fund upfront project costs. A basic principal of bond finance is to align repayment of the debt with an asset over its lifetime, giving those who benefit from the asset the opportunity to share its cost. Therefore, when issuing bonds, it is important to weigh the value the bond proceeds provide over time against the borrowing costs associated with the bond issuance. For example, it may not be prudent to issue bonds with 30-year terms in order to purchase items with an expected useful life of only 12 to 15 years, such as typical transit buses. In this case, it makes more sense to sell bonds with shorter terms in order to align the costs with the expected life of the purchased asset. By including rolling stock in the definition of eligible projects for CTFA assistance, this bill creates the possibility for shorter-life assets to be purchased with longer-termed bonds. It seems reasonable to expect the State Treasurer's office to understand the drawbacks of such an action. 4.Double-referral . The Rules Committee has referred this bill to both this committee and the Governance and Finance Committee. Therefore, if this bill passes this committee, it will be referred to the Committee on Governance and Finance. Assembly Votes: Floor: 69 - 4 Appr: 13 - 4 Trans: 14 - 0 POSITIONS: (Communicated to the Committee before noon on Wednesday, June 13, 2012) SUPPORT: California State Treasurer (sponsor) Santa Clara Valley Transportation Authority California Transit Association OPPOSED: None received. AB 1770 (LOWENTHAL) Page 4