BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                               AB 311
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       Date of Hearing:   April 9, 2013

          ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT AND THE ECONOMY
                                 Jose Medina, Chair
             AB 311 (V. Manuel Pérez) - As Introduced:  February 12, 2013
        
       SUBJECT  :   Bi-National Development Bank 

        SUMMARY  :   Expands the role of the California Infrastructure and  
       Economic Development Bank (I-Bank) to include facilitating  
       infrastructure and economic development financing activities within  
       the California and Mexico border region.  Specifically,  this bill  :

       1)Expresses legislative intent stating, among other things, that: 

          a)   The lack of economic development along the border region with  
            Mexico has caused economic challenges to the state and that the  
            existence of an economic development authority that can address  
            these challenges serves a public purpose.

          b)   That a fundamental purpose of the I-Bank should be to use its  
            authority to facilitate private sector investment.

          c)   There is a need for the federal government to re-capitalize  
            the North American Development Bank (NAD Bank) in order to be a  
            more effective financing partner within the border region.

       2)Authorizes the I-Bank to facilitate and finance infrastructure and  
         economic development projects within the border region.  The "border  
         region" is defined as the area within 125 miles on each side of the  
         California-Mexico border, including areas along the north-south and  
         east-west transportation networks on both sides of the border.

       3)Expands the definition of a "participating party" for the purpose of  
         financing a project to include international entities.

       4)Expands and clarifies the types of goods movement related  
         infrastructure necessary to more competitively place California and  
         the border region within existing and future supply chains.

       5)Prohibits the use of General Fund moneys from being used to  
         implement this measure.  This is consistent with all I-Bank  
         programs.  Each program and activity is exclusively capitalized  
         through the I-Bank. 









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        EXISTING LAW  :

       1)Creates the I-Bank within Business, Transportation and Housing  
         Agency (BTH), to promote economic revitalization, enable future  
         development, and encourage a healthy climate for jobs in California.  
          

       2)Authorizes the I-Bank to contract for engineering, architectural,  
         accounting, or other services that are necessary for the successful  
         development of a project.

       3)Authorizes the I-Bank to receive subventions, grants, loans,  
         advances, and contributions from any source of money, property,  
         labor, or other things of value. The sources may include bond  
         proceeds, dedicated taxes, federal appropriations, federal grant and  
         loan funds, and public and private sector retirement system funds.

       4)Defines "project" to mean the designing, acquiring, planning,  
         permitting, entitling, constructing, improving, extending,  
         restoring, financing, and generally developing public development  
         facilities or economic development facilities within the state.

        FISCAL EFFECT  :   Unknown

        COMMENTS  :    

        1)Author's Purpose  :  According to the author, "With Mexico being  
         California's largest trading partner, the two economies are highly  
         integrated with a substantial dependence on cross-border trade.  One  
         barrier to the expansion of trade and bi-national commerce is the  
         deficit in border infrastructure, which has not kept pace with  
         increases in trade and transit since ratification of the North  
         American Free Trade Agreement (NAFTA).  The long-term success of the  
         bi-national region is dependent on attracting more private sector  
         investment.  Attracting private capital, however, will require  
         innovative financing structures and a commitment to the border's  
         economic success, which the I-Bank is qualified to undertake."

        2)Oversight Hearings  :  The Assembly Committee on Jobs, Economic  
         Development and the Economy (JEDE) held three oversight hearings  
         examining the relationship between infrastructure and the state's  
         economic recovery.  The first hearing, March 2011, examined how the  
         I-Bank could be better utilized as a tool for statewide economic  
         development.  The second and third hearing, November 2011 and 2012,  
         took a more focused look at how infrastructure, trade, and business  








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         development affected the economic prosperity of the border region. 

         One of the key findings from these hearings related to the  
         importance of modern logistical networks in linking rural border  
         manufacturers and businesses to a global supply chain and consumer  
         base.  Examples of the high priority border infrastructure projects  
         included the strategic development, upgrade, and expansion of air  
         and land port of entry facilities, as well as the continued  
         development of the region's geothermal, solar, and biomass capacity.  
          Financing these infrastructure linkages was reported to be  
         challenging and that there was need for a quality facilitator to  
         help put infrastructure financing packages together.  AB 311 was  
         developed in response to testimony and research from these hearings.

        3)Goods Movement Infrastructure  :  Goods movement supports employment,  
         business profit, and state and local tax revenue.  California  
         businesses rely heavily on the state's ports and their related  
         transportation systems to move manufactured goods.  Firms rely on  
         fast, flexible, and reliable shipping to link national and global  
         supply chains and bring products to the retail market.   
         Transportation breakdowns and congestion can idle entire global  
         production networks.  As a result, the capacity and efficiency of  
         land ports, seaports, and airports have become critical factors in  
         global trade.

         Changes in U.S. and global trade patterns since the enactment of  
         NAFTA have placed increased challenges on California's goods  
         movement system.  For California's border region, the increased  
         tourism, as well as the expanded supply chains for manufacturing and  
         product distribution have resulted in significant delays at border  
         crossings, decreased regional air quality, and border crossings that  
         are difficult to secure.

         U.S. firms with significant business passing through the Imperial  
         and San Diego County port of entry report that their  
         logistics-supply chains are highly time sensitive.  Long wait times  
         at border crossings result in delays in receiving intermediary goods  
         and ultimately lead to problems in the manufacturing chain.  Long  
         wait times (as high as three to four hours) between Mexico and the  
         U.S. along the Imperial County - Baja California border  accounted  
         for an estimated output loss of $1.4 billion and 11,600 lost jobs  
         nationally in 2007.  In California losses were estimated at $436  
         million and 5,639 jobs for 2007.  By 2011, the negative economic  
         impact on California grew to $620 million, according to the Southern  
         California Association of Governments.








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        4)Bi-National Economic Development and Migration :  Outward migration  
         from Mexico to the U.S. has historically been a complex and  
         controversial issue.  For a select group of workers in Mexico,  
         coming to California appears as a good economic choice for them and  
         their families given the sometimes limited alternatives where they  
         live.  While migration from Mexico has benefitted many economic  
         sectors in California, the issue of immigration has consistently  
         been on the state's public policy agenda.  

         One often overlooked and under-funded element to this discussion are  
         proactive bi-national economic development policies, which could  
         help to re-balance the drivers of immigration.  The "maquiladoras,"  
         a by-product of NAFTA, are manufacturing and assembly facilities  
         located in Northern Mexico, including Mexicali.  With cross border  
         supply chains, these facilities have become important players within  
         extended and sometimes global supply chains.  

         The NAD Bank, another entity created through the enactment of NAFTA,  
         provides project financing and construction oversight for projects  
         initiated through the U.S. Environmental Protection Agency's  
         U.S.-Mexico Border Water Infrastructure Program.  The program serves  
         communities within 62 miles, north and south, of the border.  By  
         providing cleaner water and improved infrastructure, the quality of  
         life is improved and jobs are created on both sides of the border.   
         AB 311 proposes the recapitalization of the NAD Bank and to expand  
         the activities of the I-Bank to serve as a catalyst for improving  
         infrastructure within the border region.

        5)Infrastructure:  A Major Challenge to California's Competitiveness  :  
         World class infrastructure plays a key role in business attraction,  
         as multinational companies consistently rank the quality of  
         infrastructure among their top four criteria in making investment  
         decisions.  Research shows that as U.S. infrastructure has been in  
         decline, infrastructure in other countries is rapidly increasing.   
         The 2010-11 Global Competitiveness Report by the World Economic  
         Forum places U.S. infrastructure 23rd in the world, a drop from its  
         rank of 7th in 2000.   

         California's infrastructure is in a similar state, according to the  
         American Society of Civil Engineers, California Infrastructure  
         Report Card 2012, with an estimated $65 billion a year investment  
         gap.  The impact of this lack of investment is compounded by the  
         substantial new investments made in other states and nations,  
         including the expansion of the Panama Canal.  With the logistics  








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         sector alone employing over 73,000 workers, failing to remain  
         competitive will impact California jobs.

         Institutional investors have responded to the U.S.'s infrastructure  
         shortfall and the lack of sufficient public finance opportunities by  
         adopting new investment mandates to privately finance public  
         infrastructure.  As an example, the California Public Employee's  
         Retirement System (CalPERS) currently has over $525 million invested  
         in a combination of physical infrastructure investments,  
         infrastructure-targeted private equity funds, and credit enhancement  
         for infrastructure bonds.  This is addition to an outstanding $800  
         million mandate for project finance including transportation,  
         energy, natural resources, utilities, water, communications and  
         other social support services.

         The challenges facing the deployment of institutional capital was  
         particularly highlighted at November 2012 hearing in Calexico when  
         CalPERS discussed a study it had completed as part of its deployment  
         of $800 million in California infrastructure investments.  Among  
         other findings, their study found that increased information flow  
         and greater consistency of deal structure is essential to greater  
         public pension fund infrastructure investments.  AB 311 was  
         developed in response to testimony and research from all three of  
         the JEDE hearings.  The bill proposes to have the I-Bank use its  
         expertise in infrastructure finance to facilitate public and private  
         finance-ready infrastructure along the border region.  

        6)The I-Bank and Reorganization  :  The I-Bank was established in 1994  
         to promote economic revitalization, enable future development, and  
         encourage a healthy climate for jobs in California.  Housed within  
         BTH, it is governed by a five-member board of directors comprised of  
         the BTH Secretary (Chair), State Treasurer, Director of the  
         Department of Finance, Secretary of State and Consumer Services  
         Agency, and a Governor's appointee.  

         The day-to-day operations of the I-Bank are directed by the  
         Executive Director who is an appointee of the Governor and is  
         subject to confirmation by the California State Senate.  Currently,  
         the I-Bank has authority for 24 staff members.  The I-Bank does not  
         receive any ongoing General Fund support, rather it is financed  
         through fees, interest income and other revenues derived from its  
         public and private sector financing activities.  

         The I-Bank administers two categories of programs:  1) The  
         Infrastructure State Revolving Fund which provides direct low-cost  








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         financing to public agencies for a variety of public infrastructure  
         projects; and 2) Bond Financed Programs which provide financing for  
         manufacturing companies, nonprofit organizations, public agencies  
         and other eligible entities.  There is no commitment of I-Bank or  
         state funds for any of the category #2 conduit revenue bonds.  Even  
         in the case of default, the state is not liable.

         Since its inception, the I-Bank has loaned over $400 million to  
         local agencies, developing a high-level of expertise in the  
         financing of public infrastructure.  The I-Bank also serves as the  
         state's only general purpose financing authority with broad  
         statutory powers to issue revenue bonds.  Over $30 billion in  
         conduit revenue bonds have been issued by the I-Bank since 2000.  

        7)Reorganization  :  In March 2012, the Governor initiated a  
         reorganization process to realign the state's administrative  
         stricture.  Key changes were proposed and agreed to by the  
         Legislature including the dismantling of BTH and the shifting of a  
         number of key programs and services to GO-Biz including the I-Bank.   
         In addition, the Secretary of BTH is replaced by the Director of  
         GO-Biz as Chair of I-Bank and the newly established Secretary of  
         Transportation replaces the Secretary of State and Consumer Services  
         on the I-Bank board.

         Programmatic approval of the reorganization was granted in July 2012  
         and will become effective July 2013.  The necessary statutory  
         changes are being made in AB 1317 (Frazier), which recently passed  
         the Assembly Committee on Accountability and Administrative Review  
         and is pending in Assembly Appropriations Committee.

        8)Related legislation  :  Below is a list of related bills.

           a)   AB 696 (Hueso) Economic Development Mandate for Infrastructure  
            Projects  : This bill would have required projects selected for  
            funding under the Infrastructure State Revolving Fund Program,  
            administered through the California Infrastructure and Economic  
            Development Bank, to only be funded if the project meets  
            specified land use and economic development criteria.  Status:   
            Vetoed by Governor in 2011.   

           b)   AB 893 (V. Manuel Pérez) Technical Assistance for  
            Infrastructure Development  :  This bill would have authorized the  
            I-Bank to provide technical assistance outreach to small and  
            rural communities, and adding new reporting requirements to the  
            appropriate fiscal and policy committees of the legislature.   








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            Status:  Held on Suspense File of the Senate Committee on  
            Appropriations in 2011.

           c)   AB 1094 (John A. Pérez) Board Membership of the California  
            Infrastructure Bank  :  This bill, as it was heard by JEDE, would  
            have added a member of the Assembly and a member of the Senate as  
            advisory members to the board of administration of the I-Bank.   
            Amendments were taken to remove the I-Bank provisions and the  
            bill was related to a different topic and a different author at  
            the time the bill was pulled into the Senate Committee on Rules.   
            Status: Held in the Senate Committee on Rules in 2012.

           d)   AB 1545 (V. Manuel Perez) Bi-National Infrastructure and  
            Economic Development Bank  :  This bill would have expanded the  
            role of the California Infrastructure and Economic Development  
            Bank (I-Bank) to include facilitating infrastructure and economic  
            development financing activities within the California and Mexico  
            border region.  Status:  Held in the Assembly Committee on  
            Appropriations in 2012.

        REGISTERED SUPPORT / OPPOSITION  :   

        Support 
        
       County of Imperial
       California Asian Pacific Chamber of Commerce 

        Opposition 
        
       None received 
        

       Analysis Prepared by  :  Toni Symonds / J., E.D. & E. / (916) 319-2090