BILL ANALYSIS Ó
AB 359
Page 1
Date of Hearing: April 30, 2013
ASSEMBLY COMMITTEE ON JUDICIARY
Bob Wieckowski, Chair
AB 359 (Holden) - As Introduced: February 14, 2013
As Proposed to be Amended
SUBJECT : AIRPORTS: RENTAL CAR FACILITY FEES
KEY ISSUES :
1)SHOULD THE AUDIT REQUIRMENT FOR AIRPORT USES OF CUSTOMER
FACILITY CHARGES BE LESSENED?
2)SHOULD THERE BE CRITERIA BY WHICH AIRPORTS EXERCISE THEIR
AUTHORITY TO SET CUSTOMER FACILITY CHARGES, SUCH AS THE
CRITERIA OF PRIOR LAW THAT WERE INEXPLICABLY DELETED LAST
YEAR?
FISCAL EFFECT : As currently in print this bill is keyed
non-fiscal.
SYNOPSIS
This bill is sponsored by the California Airport Council to
reduce the audit obligation for customer facility charges
imposed by the airports on rental car customers. Customer
facility charges (CFCs) fund consolidated rental car facilities
at airports. For many years these CFCs were set at $10 per
rental. In 2010, the airports sponsored legislation that became
law (SB 1192 (Oropeza)) to increase the amount of the fee to a
level each airport is allowed to set, and to use it for new
purposes, subject to certain conditions and oversight, including
review by the State Controller. These controls were believed to
be appropriate in light of the new funding levels and
discretionary authority that bill allowed, and were the result
of a negotiated agreement with this Committee. The Controller
conducted three reviews in 2011, finding that two airports had
overcharged while one could have charged more. The airports
were unhappy with the Controller's appraisal, and in 2012 the
Controller's role was eliminated in a budget trailer bill
without review by a policy committee. As proposed to be
amended, this bill would reduce the audit obligations and their
associated costs. However, it is not clear what standards
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should guide the auditor's review regarding the reasonableness
of the CFC fee rate chosen by each airport. The analysis
suggests restoration of the SB 1192 standards, which were
established by consensus not long ago, or some other appropriate
standards if the SB 1192 criteria are shown to be unduly
onerous.
SUMMARY : Clarifies and limits existing law regarding
independent audits, paid for by airports, to determine
reasonable costs of customer facility charges used to finance,
design, construct, and operate consolidated airport rental car
facilities. Specifically, this bill :
1)Clarifies that an airport does not need to have an additional
and separate audit regarding the customer facility charge
fees.
2)Limits the existing requirement to conduct periodic audits at
three-year intervals.
EXISTING LAW :
1)Permits a customer facility charge (CFC) to be imposed on a
rental car renter and defines "customer facility charge" as a
fee required by an airport to be collected from a renter for
either: (1) financing, designing, and constructing
consolidated airport car rental facilities; (2) financing,
designing, constructing, and providing common-use
transportation systems that move passengers between airport
terminals and the car rental facilities; or (3) to finance,
design, and construct terminal modifications solely to
accommodate and provide customer access to common-use
transportation systems. (Civil Code Section 1936(a).)
2)Requires the aggregate amount to be collected not to exceed
the reasonable costs of these purposes, as determined by an
independent audit paid for by the airport. (Civil Code
Section 1936(a)(4)(B).)
3)Requires airports to complete the independent audit prior to
initial collection of the customer facility charge, prior to
any increase, and every three years after initial collection
and any increase until the fee authorization has become
inoperative. (Civil Code Section 1936 (I).)
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COMMENTS : The author explains the bill as follows: "AB 359
streamlines the Airport Rental Car Facility charge audit process
by permitting California's airports, many of which are financed
and operated by local governments, to submit to the Legislature
the same facility information contained in mandatory disclosures
currently required by other regulatory agencies. This bill will
remove the financial burden of duplicative audits while
maintaining all existing consumer protections enacted by the
Legislature."
Background information provided by the author states:
In 2010, the Legislature passed SB 1192 (Oropeza)
authorizing California airports to increase airport
customer facility charges in order to pay for expanded on
and off site consolidated rental car facilities and
common-use transportation systems between terminals and the
facilities. To prevent abuses of the new fee authority, the
Legislature placed numerous conditions on the charges. One
such condition, aimed at safeguarding the reasonableness of
the fees collected, required any airport increasing
consumer facility charges to conduct an independent audit
and have the results verified by the State Controller's
Office. Once the audit was verified, the information is to
be shared with the Judiciary and the Transportation
Committees of each legislative house.
Burbank, Fresno and San Jose airports were the first
airports subject to the audit requirement. The independent
audit cost Burbank airport approximately $80 thousand
dollars in addition to $45,000 required to reimburse the
State Controller for its work.
After an initial review of the airports' independent
audits, the State Controller's Office better equipped
focusing on state funding projects and requested they be
removed from the audit process. SB 1006, a 2012 budget
trailer bill, removed the State Controller from the audit
process. As a result of SB 1006, airports seeking to enact
customer facility charges must now submit an independent
audit to the Judiciary and Transportation legislative
committees of each house.
Currently, various regulatory agencies at the city and
county level require all airports to conduct annual
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financial and operations audits. The information contained
in these audits is identical to the information required to
be submitted to the Legislature pursuant to Civil Code
section 1936.
ARGUMENTS IN SUPPORT : This bill is supported by the California
Airports Council, which states:
Collectively, three airports spent over $250,000 to pay for
the outside audits AND the State Controller to review those
audits. The California Airport Council asserts this was an
extremely costly endeavor for airports at a time when local
government finances are and continue to be under tremendous
strain.
California commercial airports are among the most regulated
of government entities. All are owned and operated by
local governments or special districts and hence
accountable to their local governments. Financial
decisions, planning, capital and safety projects, community
relations and other matters are all managed by airports and
their local government elected officials. ? Prior to SB
1192, airport financial oversight was exclusively the
domain of local government.
Also in support, the City of San Jose airport states:
Independent audits can be costly. The audit required
before Mineta San Jose International airport could
implement the daily CFC cost $70,000. The Airport paid an
additional $40,000 to the State Controller's Office to
review the audit. The two other airports that have
implemented the daily CFC (Burbank and Fresno) experienced
similar expenditure. Each future independent audit will
cost the Airport between $50,000 and $70,000, if required
to be performed. The city would like to eliminate this
unnecessary expenditure.
Brief Explanation of Airport Customer Facility Charges. In
recent years, many airports have constructed rental car
facilities, often in consolidated facilities that house all car
rental companies in one location. These facilities may be
served by common-use transportation systems, including bus
shuttle systems, which transport rental car customers to and
from terminals and the consolidated rental car facility.
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These facilities and systems are made possible by rental car
user fees for customers who choose to rent from an on-airport
rental car company. The authority to collect these customer
facility fees began in 1999 when the Legislature passed and the
Governor signed SB 1228, which permitted San Jose International
Airport to collect a customer facility charge of $10.15 to
finance and construct a consolidated rental car facility and
common-use transportation systems, subject to certain
conditions. San Francisco and San Diego were also permitted
similar statutory authority.
In 2001, AB 491 (Frommer) authorized other public airports to
collect a $10 fee per contract to finance, design, and construct
consolidated rental car facilities and common-use transportation
systems. In 2007, SB 641 (Corbett) repealed the special
authorization for San Jose International Airport and instead
applied the more general provisions enacted by AB 491 to San
Jose International Airport, thus permitting it to collect a $10
per-contract CFC. These fees were subject to an audit
requirement.
SB 1192 of 2010 Was Substantially Amended In This Committee To
Give Airports New CFC Fee Authority To Be Accompanied By New
Financial Controls. At the request of the airports, SB 1192 was
enacted in 2010 to permit new CFC fee authority. According to
the airports, the then-existing CFC rate of $10 per contract was
inadequate to fund some proposed consolidated rental car
facilities, including a proposed facility at LAX. The bill was
negotiated and substantially amended by this Committee.
SB 1192 allowed airports to collect a CFC calculated on an
alternative basis - a varying amount per day during each day of
the rental period, rather than the $10 rate per-contract - and
allowed the CFC to be increased at the covered airports over a
period of time. SB 1192 also expanded the uses of CFC revenue
to allow for the acquisition of vehicles to be used for the
transportation of customers in a common-use transportation
system, and to allow for terminal modifications for the purpose
of accommodating and providing access to a common-use
transportation system.
In order to ensure that this new fee authority was necessary,
and that the fee level selected by each airport was appropriate,
SB 1192 required the higher CFC to be collected after a review
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and approval process, beginning with a public hearing at the
airport and subject to a further review of audits by the State
Controller to substantiate the need for and amount of the fee
request. Contrary to the representation of the Airports Council
quoted above, SB 1192 did not enact a CFC audit requirement.
Rather, it sought to ensure that the existing audit requirement
was followed. As the Committee's analysis of SB 1192 noted:
According to a survey by the sponsor, six airports are
currently collecting a CFC, but none of the six has
completed the audit required by existing law, apparently
without consequence. They would be required to comply with
this existing requirement as a condition of exercising any
new authority. The new review and approval process is
designed to ensure that there is better oversight and
accountability.
In an effort to ensure that airports began to comply with the
audit requirement - and in recognition of the discretion that SB
1192 gave to each airport to set the amount of the CFC, and to
use it for new and ongoing purposes - SB 1192 provided that the
audits were to be conducted at specific intervals, and that the
State Controller was to review the audits. Because the chosen
fee level is required to be set at a reasonable rate, SB 1192
established criteria for making that determination.
Specifically, the law as amended by SB 1192 provided:
The airport shall complete the independent audit required
by subparagraph (B) of paragraph (4) of subdivision (a)
prior to initial collection of the customer facility
charge, prior to any increase pursuant to paragraph (2),
and every three years after initial collection and any
increase until such time as the fee authorization becomes
inoperative pursuant to subparagraph (C) of paragraph (4)
of subdivision (a). The Controller shall review those
audits and independently examine and substantiate the
necessity for and the amount of the customer facility
charge. The Controller's costs shall be reimbursed by the
individual airport being audited. Notwithstanding Section
10231.5 of the Government Code, the Controller shall report
to the Legislature on its conclusions, including whether
the airport's actual or projected costs are supported and
justified, any steps the airport may take to limit costs,
potential alternatives for meeting the airport's revenue
needs other than the collection of the fee, and whether and
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to what extent car rental companies or other businesses or
individuals using the facility or common-use transportation
system may pay for the costs associated with these
facilities and systems other than the fee from rental
customers, or whether the airport did not comply with any
provision of this subparagraph.
Controller's Review of Audits Reportedly Found Overcharges in
2011. Controller's Review Was Quickly Eliminated in 2012. The
Assembly Budget Subcommittee on State Administration reported
last May on the events that followed implementation of SB 1192.
The subcommittee report states:
Under SB 1192 (Oropeza), Chapter 642, Statutes of 2010, the
Legislature expanded the definition of customer facility
charge to include a fee to be collected for the purpose of
financing common-use transportation facilities and thus
allowed the collection of an alternative fee, if necessary,
for funding purposes. The bill also requires that airports
that collect the fee to report certain information to the
Legislature and complete a specified independent audit at
particular intervals. The Controllers' Office is to
independently examine the audits and substantiate the
necessity for the customer facility charge. The Controller
is to report the finding to the Legislature and expenses of
the review are paid by the airports.
Under the program, each airport is required to complete an
independent audit to ensure the aggregate amount of fee
revenue does not exceed the reasonable costs paid by the
airport to finance the design and construction of
consolidated car rental facilities and common-use
transportation systems. In 2010, the Legislature required
that SCO review the audits and independently examine and
substantiate the necessity of the customer facility fee.
Thus, the audits will ensure that the fee (not to exceed
$10 per contract) charged to airport car renters is not
excessive.
The SCO proposed to continue the funding in order to
fulfill the independent review required by statute. The
Administration has proposed TBL to eliminate the review
requirement.
To date, the SCO has conducted an independent review of
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three independent CPA audits of the charges. The reviews
reviewed undercharges and overcharges. For the
Burbank-Glendale-Pasadena Airport Authority Audit, the
review revealed that the Authority could have charged $4.4
million more than it actually did. Two other reviews - San
Jose Intonation Airport and Fresno-Yosemite International
Airport - reveal overcharges of $19.5 million and $7.0
million, respectively. The overcharges were the result of
unrecognized income and overstated costs.
The results of the SCO's independent review of the
independent audits indicates the presence of discrepancies
between justifiable charges and fees actually collected.
Given that over $25 million was collected that should not
have been, it would seem premature that the statute be
changed and the SCO no longer given a role in the program.
Staff recommends that the trailer bill language be rejected
and the SCO provide information and proposal for continued
funding of the oversight on a limited-term basis. (See
Agenda, Assembly Budget Subcommittee no. 4, State
Administration, May 9, 2012
(http://abgt.assembly.ca.gov/sites/
abgt.assembly.ca.gov/files
/May%209%20Sub%204.pdf. Emphasis added.)
Budget Trailer Bill Language Eliminated The Controller's
Oversight, But Inexplicably Also Deleted The Standards By Which
The Reasonableness of These Fee Is To Be Assessed, Leaving The
Determination Apparently Vague and Unguided . Despite the
concerns voiced by the Assembly Budget Committee, the
Controller's oversight was nevertheless eliminated in a budget
trailer bill last year, without consideration by this Committee
or any policy committee.
The deletion of the Controller leaves no outside check on the
determination of the CFC. What is more, the budget trailer bill
unaccountably deleted not just the Controller's oversight, but
also the standards by which the reasonableness of the CFC was to
be evaluated. Those criteria were:
Whether the airport's actual or projected costs are
supported and justified, any steps the airport may take to
limit costs, potential alternatives for meeting the
airport's revenue needs other than the collection of the
fee, and whether and to what extent car rental companies or
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other businesses or individuals using the facility or
common-use transportation system may pay for the costs
associated with these facilities and systems other than the
fee from rental customers, or whether the airport did not
comply with any provision of this subparagraph.
As a result, it is no longer clear what if any criteria apply to
the airports' determination. As mentioned above, these criteria
are significant because airports have discretion about the CFC
fee level, as well as what type of facility to build, whether to
build an additional transportation system, and if so of what
kind.
The Airports Object To Restoration of The SB 1192 Reasonableness
Standards . Despite agreeing to the SB 1192 reasonableness
standards in 2010, the airports now argue against them,
apparently on the basis of cost. The airports have not provided
the Committee with information explaining how these criteria
specifically add to the costs of the audits, or what the cost of
the audit would be without these criteria, nor have they
suggested alternative criteria or identified the criteria that
would be applied in the absence of the SB 1192 factors. In the
absence of some factors, it is not clear how an auditor would
determine the reasonableness of the CFC fee. The Committee may
wish to consider amending the bill to restore the SB 1192
criteria to which the airports previously agreed, or some other
appropriate standards that give meaning to the determination
airports are given the discretion to make regarding the
reasonableness of the CFC fee.
Elimination of Controller's Oversight Has Saved Money For
Airports; This Bill Would Result In Additional Savings By
Eliminating Any Redundancy In Required Audits. As proposed to
be amended, this bill would address the airports' concern about
audit costs by clarifying that the required audit is to be done
by an independent auditor but need not duplicate or be done in
addition to any other audit the airports may have done for
another purpose. Moreover, the proposed amendments would delete
the existing obligation to conduct an audit every three years,
except to the extent there are ongoing expenditures regarding
the operation of a transportation system. These savings are
believed to be significant.
Author's Proposed Amendments. To clarify and reduce the audit
obligation of SB 1192, the author proposes the following
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amendments in place of the amendments currently reflected in the
bill:
(B) The aggregate amount to be collected shall not exceed the
reasonable costs, as determined by an independent audit by an
independent auditor, paid for by the airport, costs to finance,
design, and construct those facilities. This audit may be
included in An audit of the consumer facility charge collections
and expenditures shall be conducted pursuant to this section
every three years. An Annual Audit of Airport Finances that
contains a review of Consumer Facility Charge collection and
expenditures shall satisfy the requirements of the section . In
the case of a transportation system, the audit also shall
consider the reasonable costs of providing the transit system or
busing network. Notwithstanding clause (iii) of subparagraph
(A), the fees designated as a customer facility charge shall not
be used to pay for terminal expansion, gate expansion, runway
expansion, changes in hours of operation, or changes in the
number of flights arriving or departing from the airport. Copies
of the audit shall be provided to the Assembly and Senate
Committees on Judiciary, the Assembly Committee on
Transportation, and the Senate Committee on Transportation and
Housing.
(ii)The airport shall complete the independent audit required by
subparagraph (B) of paragraph (4) of subdivision (a) prior to
initial collection of the customer facility charge, and prior to
any increase pursuant to paragraph (2). If the customer
facility charge is used for the purpose of operating a
common-use transportation system or to acquire vehicles for use
in such a system, an audit of those expenditures shall be
completed and every three years after initial collection. and
any increase This obligation shall continue until such time as
the fee authorization becomes inoperative pursuant to
subparagraph (C) of paragraph (4) of subdivision (a).
REGISTERED SUPPORT / OPPOSITION :
Support
California Airports Council
City of San Jose
Opposition
AB 359
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None on file
Analysis Prepared by : Kevin G. Baker and Kelsey Fischer / JUD.
/ (916) 319-2334