BILL ANALYSIS Ó AB 39 Page 1 Date of Hearing: April 15, 2013 ASSEMBLY COMMITTEE ON NATURAL RESOURCES Wesley Chesbro, Chair AB 39 (Skinner) - As Amended: April 9, 2013 SUBJECT : Proposition 39: implementation SUMMARY : Establishes a program to be administered by the California Energy Commission (CEC) for the distribution of funds allocated by the Clean Energy Jobs Act (Prop 39) to clean energy projects undertaken by public schools. EXISTING LAW , Prop 39, an initiative approved by the voters at the November 6, 2012 statewide general election: 1)Repeals existing law allowing multistate businesses to choose a formula for calculating their California income or franchise tax liability and, instead, requires those businesses, starting in 2013, to utilize the "single sales factor" (SSF) method of determining their taxable income. 2)Establishes a Citizens Oversight Board (COB), composed of nine members appointed by the State Treasurer, the State Controller and the Attorney General, whose expertise may contribute to the effective execution of energy projects. The COB is intended to ensure that funds are used appropriately, and to evaluate the cost effectiveness of projects. 3)Dedicates $550 million, or 50 percent of the annual increase in revenues from the SSF, whichever is less, annually for five fiscal years (2013-13 through 2017-18) to the Clean Energy Job Creation Fund (Fund) for projects that create energy efficiency and clean energy jobs in California, upon appropriation by the Legislature. The funding may include: a) Energy efficiency and clean energy installations at public schools, universities and colleges, and other public buildings; b) Job training and workforce development on clean energy and energy efficiency programs; and, c) Financing and technical assistance to fund Property Assessed Clean Energy (PACE) programs. AB 39 Page 2 THIS BILL : 1)Defines "eligible institution" as a K-12 public school or school district, or a community college (i.e., K-14) 2)Requires the CEC to administer grants, loans or other financial assistance to K-14 recipients for eligible energy efficiency, clean energy or other energy system improvement projects. 3)For each fiscal year that Prop 39 revenue is deposited in the Fund (i.e., the next five years), requires: a) 75 percent for grants to K-14 recipients for eligible projects; and, b) 25 percent for low- or no-interest revolving loans to K-14, public universities or public buildings for eligible projects and technical assistance. 4)Requires the CEC to ensure that each region of the state receives a share reasonably equivalent to its proportion of statewide average daily attendance (ADA). 5)Requires K-14 applicants to propose projects to the CEC and consider the following factors: a) Potential for energy demand reduction. b) Proportion of students receiving free and reduced-price meals. c) School facilities' age. d) Whether facilities have been modernized recently. e) Whether facilities are operated year-round. f) School facilities' rating from Energy Star or another energy rating system. g) Ability to facilitate matriculation into certified apprenticeship programs. AB 39 Page 3 6)Requires K-14 recipients to report energy and cost savings to the CEC according to a schedule and in a manner established by the CEC. 7)Requires the CEC to ensure that adequate energy audit, measurement and verification procedures are employed to ensure funded projects result in energy savings and GHG reductions. 8)Requires the Fund to be available, upon appropriation by the Legislature, to support: a) Energy-related job training and workforce development by the California Conservation Corps or other specified workforce development programs. b) PACE or similar programs. 9)Requires all recipients to submit a specified report to the COB within one year, and requires the COB to report this information to the Legislature and the public annually. 10)Establishes related definitions, findings and declarations. FISCAL EFFECT : Unknown COMMENTS : 1)The voters give Props. In November 2012, California voters approved Prop 39 to close a corporate tax loophole that previously allowed multi-state corporations operating in California to choose between two methods of determining taxable income. This shift to a single sales factor method is estimated to increase the state's annual corporate tax revenues by as much as $1.1 billion. Prop 39 also specified how a portion of this new revenue should be spent. First, half of the revenue generated from 2013-2018, up to $550 million, should be transferred to the Fund. The Fund should support energy efficiency and alternative energy projects at public schools, colleges, universities and other public buildings, as well as related public-private partnerships and workforce training. Second, the funds can only be appropriated to agencies with established expertise in managing energy projects and programs. And third, programs must be coordinated with the AB 39 Page 4 CEC and Public Utilities Commission (PUC) to avoid duplication among agencies, and leverage existing efforts. An increase in state corporate tax revenues due to Prop 39, however, can also affect the state's funding obligations under Proposition 98. Approved by voters in 1988, Prop 98 assures local school districts and community colleges that they would receive at least a minimum level of funding from the state and local governments (roughly equivalent to 40 percent of General Fund revenues). Because an increase in corporate tax revenues from Prop 39 can increase overall General Fund revenues, the Prop 98 minimum guarantee for public education would increase as well. In his 2013-2014 proposed budget, Governor Brown proposes to count all Prop 39 revenue, including funds allocated to energy projects, towards the Prop 98 calculations, effectively raising the minimum guarantee. The same budget plan would also apply all revenue towards meeting the minimum guarantee: Estimated Prop 39 energy project revenue for the next five years, $450 million in 2013-2014 and $550 million for each of the next four years, would be distributed to K-12 school districts and community colleges exclusively. The proposal would allocate funds on a per student basis, which would be equivalent to $65 for each K-12 student and $45 for each community college student. The Legislative Analyst's Office (LAO) has raised a number of concerns with Governor Brown's Prop 39 proposal. Specifically, LAO argues that: 1) voter-approved limitations prohibit the use of all Prop 39 funds for Prop 98 purposes; 2) the Governor's proposed treatment of funds, which is based on the accounts the funds are deposited into, is prone to manipulation; and 3) the proposed allocation of funds is inefficient and does not maximize potential benefits. Instead, LAO suggests that Prop 39 revenue required for transfer to the Fund should be excluded from the Prop 98 minimum guarantee. The LAO also suggests designating the CEC as the lead agency for administering Prop 39's energy funds and directing the CEC to promulgate a competitive grant process for fund distribution. 2)Related legislation. In addition to the Governor's budget proposal described above, the following bills propose various approaches to distributing Prop 39 energy funds. Each of the AB 39 Page 5 bills has policy and technical conflicts with the rest. AB 29 (Williams), pending in this committee, appropriates $152 million per year to public higher education clean energy projects from Prop 39 clean energy funds, with 50 percent to be awarded as grants and 50 percent to fund loans. AB 114 (Salas), pending in this committee, establishes the Clean Energy Jobs and Workforce Development Program within the Labor Agency and continuously appropriates an unspecified amount from Prop 39 clean energy funds. AB 239 (Hagman), pending in this committee, transfers 50 percent of Prop 39 clean energy funds to the Clean Energy School Fund to be expended by the Office of Public School Construction (OPSC) to fund energy efficiency retrofit or clean energy installation projects at public schools, with 60 percent reserved for grants and 40 percent for loans. AB 293 (Allen), pending in this committee, requires the CEC to develop a program to award funding on a competitive bases for the purposes of Prop 39. SB 39 (De Leon), pending in the Senate Education Committee, requires OPSC to distribute Prop 39 clean energy funds to K-12 public schools through competitive grants for energy efficiency upgrade projects, with priority given to "disadvantaged school communities." SB 64 (Corbett), pending in the Senate Energy, Utilities and Communications Committee, requires the CEC to provide financial assistance to K-12 public schools or municipal facilities. 3)Double referral. This bill has been double-referred to the Assembly Utilities and Commerce Committee. REGISTERED SUPPORT / OPPOSITION : Support Albany Unified School District California Energy Efficiency Industry Council California School Board Association California State Association of Counties AB 39 Page 6 City of Emeryville City of Oakland Coalition for Adequate School Housing County School Facilities Consortium Metropolitan Education District School Energy Coalition Small School Districts' Association South Coast Air Quality Management District TerraVerde Renewable Partners Opposition None on file Analysis Prepared by : Lawrence Lingbloom / NAT. RES. / (916) 319-2092