BILL ANALYSIS Ó
SENATE JUDICIARY COMMITTEE
Senator Noreen Evans, Chair
2013-2014 Regular Session
AB 359 (Holden)
As Amended May 13, 2013
Hearing Date: July 2, 2013
Fiscal: No
Urgency: No
TH
SUBJECT
Vehicle Rental Agreements: Customer Facility Charge
DESCRIPTION
Under existing law, California airports are authorized to
collect a Customer Facility Charge (CFC) to be used for the
financing, design, and construction of airport car rental
facilities, common-use transportation systems that move
passengers between airport terminals and car rental facilities,
and terminal modifications made solely to provide customer
access to common-use transportation systems. Airports are
required by statute to justify the collection of a CFC through
an independent audit prior to the initial collection of the CFC,
prior to any increase in the CFC, and every 3 years after the
initial collection of the CFC.
This bill would provide guidelines regarding the scope of a CFC
audit, and would require the audit to be posted on the airport's
Internet Web site.
This bill would remove the requirement that an airport conduct
the audit every 3 years after the initial collection of the CFC,
and instead require an airport to conduct an audit every 3 years
after the initial collection of the CFC only if the charge is
used for the purpose of operating a common-use transportation
system or to acquire vehicles for use in such a system. The
bill would also provide that any audit of an airport's CFC may
be included as a part of a larger audit of the airport's
finances.
BACKGROUND
(more)
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In recent years, many airports have adopted the practice of
locating rental car services in consolidated facilities that
house all car rental companies in one location. Common-use
transportation systems, including shuttle bus systems and
automated trains, are often used to transport rental car
customers to and from terminals and the consolidated rental car
facility. These facilities and their associated transport
systems are financed largely via Customer Facility Charges (CFC)
collected from rental car patrons who choose to rent a vehicle
from a company housed in the consolidated rental facility.
The authority to collect CFC charges began in California in 1999
when the Legislature passed and the governor signed SB 1228
(Vasconcellos, Ch. 760, Stats. 1999), which permitted San Jose
International Airport to collect a customer facility charge of
$10.15 per rental contract to finance and construct a
consolidated rental car facility. In 2001, AB 491 (Frommer, Ch.
661, Stats. 2001) authorized other public airports in California
to collect a $10 fee per contract to finance, design, and
construct consolidated rental car facilities. In 2007, SB 641
(Corbett, Ch. 44, Stats. 2007) 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.
For approximately ten years, the allowable CFC fee was set at
$10 per rental contract, regardless of the duration of the car
rental. In 2010, the Legislature revised the CFC fee structure
in response to feedback from the airports that the existing $10
per contract fee was inadequate to fund some proposed
consolidated rental car facilities. SB 1192 (Oropeza, Ch. 642,
Stats. 2010) permitted airports to impose a CFC calculated on an
alternative basis, which, under current law, allows up to $6 per
day for a maximum of five days per rental contract to be
collected. The new CFC fee structure allows an airport to
increase its daily CFC according to a statutory schedule which
would permit the collection of up to $45 over the length of a
rental contract by January 1, 2017. SB 1192 also expanded the
range of uses for which CFC revenue could be spent, including
purchasing vehicles for a common-use transport system that would
shuttle passengers between the consolidated rental facility and
the airport terminals, and for terminal modifications undertaken
to provide access to a common-use transport system.
However, in order to protect customers and ensure that the CFC
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charged by an airport was appropriately and necessarily spent on
consolidated rental facilities and associated common-use
transport systems, SB 1192 also imposed an audit requirement,
directing airports to complete independent audits of CFC funded
projects prior to the initial charge of a CFC, prior to any
increase in the CFC, and every three years after its initial
collection or any increase. SB 1192 initially required the
State Controller's Office to review these audits, but SB 1006
(Senate Budget and Fiscal Review Committee, Chapter 32, Statutes
of 2012) eliminated this requirement. SB 1006, a budget trailer
bill, also struck language in existing law that set out
guidelines regarding the scope of a CFC audit and the standards
for determining whether an airport's chosen CFC rate was
necessary and justified based on how the funds were being spent.
Since the new CFC fee structure went into effect, airports have
found that the independent audit requirements are or will cause
them to have to complete separate audits of CFC funded projects
despite the fact that these projects and the expenditure of CFC
funds are already analyzed under other required audits. This
bill, sponsored by the California Airports Council, would
eliminate the requirement that an independent audit be conducted
every 3 years after the initial collection of the CFC. It would
instead mandate the completion of an audit every three years
only 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. The bill would also replace
the guidelines regarding the scope of this audit that were
removed by SB 1006, and would require all CFC audits to be
posted on the airport's Internet Web site. The bill would
further provide that any audit of an airport's CFC may be
included as a part of an audit of the airport's finances.
CHANGES TO EXISTING LAW
Existing law defines a "Customer facility charge" as any fee,
including an alternative fee, required by an airport to be
collected by a rental company from a renter for any of the
following purposes:
to finance, design, and construct consolidated airport car
rental facilities;
to finance, design, construct, and operate common-use
transportation systems that move passengers between airport
terminals and those consolidated car rental facilities, and
acquire vehicles for use in that system; or
to finance, design, and construct terminal modifications
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solely to accommodate and provide customer access to
common-use transportation systems. (Civ. Code Sec.
1936(a)(4)(A).)
Existing law states that the aggregate amount of CFC revenue to
be collected shall not exceed the reasonable costs, as
determined by an independent audit paid for by the airport, to
finance, design, and construct these facilities. (Civ. Code
Sec. 1936(a)(4)(B).)
Existing law requires, in the case of a transportation system,
the audit to also consider the reasonable costs of providing the
transit system or busing network. (Civ. Code Sec.
1936(a)(4)(B).)
Existing law further requires copies of audits of CFC funds to
be provided to the Assembly and Senate Committees on Judiciary,
the Assembly Committee on Transportation, and the Senate
Committee on Transportation and Housing. (Civ. Code Sec.
1936(a)(4)(B).)
Existing law requires an airport to complete the independent
audit required by the above provision prior to the initial
collection of the customer facility charge, prior to any
increase, and every three years after initial collection and any
increase until such time as the fee authorization becomes
inoperative. (Civ. Code Sec. 1936(m)(1)(I)(ii).)
Existing law prohibits fees designated as a customer facility
charge from being 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. (Civ. Code Sec. 1936(a)(4)(B).)
This bill would provide that an auditor shall independently
examine and substantiate the necessity for and the amount of the
customer facility charge, 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 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 complied with existing law
governing the collection and use of CFC revenue.
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This bill would require copies of CFC audits to be posted on an
airport's Internet Web site.
This bill would specify that any required CFC audit may be
included as a part of an audit of an airport's finances.
This bill would also specify that an audit shall be completed
every three years after the initial collection of CFC funds only
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.
COMMENT
1. Stated need for the bill
The author writes:
AB 359 clarifies the 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. This
bill permits airports to provide the legislature the CFC
information as a subset of the broader, annual, Audit of
Airport Finances. This bill limits the audit to every
increase in the CFC and those ongoing CFC costs related to a
transportation system. This bill is anticipated to save
airports, and their associated local taxpayers, hundreds of
thousands of dollars by limiting duplicative audits.
Currently, airports are required to produce an annual audit of
all facilities and associated costs and revenues for the local
government or JPA that oversees airport operations. As a part
of this audit all CFC information is required to be disclosed.
This audit is conducted in addition to the CFC audit required
by the Civil Code.
Furthermore, when the State Controller removed their oversight
in a 2012 budget trailer bill they deleted a portion of the
reasonableness requirements of the original SB 1192. This
bill returns those oversight requirements and clarifies the
law to permit the airports to submit to the Legislature the
broader facility audit containing the CFC information so long
as the SB 1192 factors are considered.
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2. Consumer protection
Existing law governing the collection and use of CFC funds
includes strong consumer protection provisions designed to
ensure that airports do not misuse or overcollect these funds.
Under existing law, an airport that imposes a CFC fee for the
first time or that increases its CFC fee must conduct an audit
that ensures the fees are necessary to construct consolidated
rental facilities and their associated transport systems, that
the fees would not or are not being used to fund unauthorized
airport construction, and that the chosen CFC fee level is
reasonable, taking into account alternate revenue sources for
constructing these facilities. The results of these audits are
sent to the Assembly and Senate Committees on Judiciary, the
Assembly Committee on Transportation, and the Senate Committee
on Transportation and Housing.
This bill modifies these protective measures and increases
transparency by requiring an airport to post its CFC audit on
its own Internet Web site, allowing consumers and rental car
patrons required to pay a CFC to see exactly how these funds are
being spent. The bill also re-codifies standards eliminated by
SB 1006 that clarify what an independent auditor must examine
during the course of an audit. Specifically, a CFC audit must
independently examine and substantiate the necessity for and the
amount of the CFC, 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 through the
collection of the fee, and whether and 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. An auditor must
also assess whether an airport did or did not comply with any of
these provisions.
3. Cost savings to airports
This bill would additionally make certain changes to airport CFC
audit requirements in order to reduce what one supporter calls
"unnecessary expenditures." This bill would require that
airports conduct CFC audits every three years, as in existing
law, but limits the scope of this requirement to only those
airports that use CFC revenues to operate a common-use
transportation system or acquire vehicles for use in such a
system. This change would remove the three-year audit
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requirement for airports that use CFC revenues only for other
purposes, saving those entities from having to spend funds to
conduct the audit. The costs of performing CFC audits are not
insignificant. Three airports - the Burbank Bob Hope Airport,
Fresno International Airport, and Norman Y. Mineta San Jose
Airport - conducted independent CFC audits in 2011 pursuant to
SB 1192 at a total cost of over $300,000, with almost $200,000
directly attributable to the cost of the three outside audits.
Unlike airports that operate a common-use transportation system
or acquire vehicles for use in such a system, an airport that
uses these funds to construct a combined rental facility or some
other form of fixed infrastructure is not continually deciding
how to spend CFC revenue - more than not the revenue simply goes
to extinguish construction-related bond debt. Oversight of
these airports and their use of CFC funds is accomplished at the
beginning of a project, when the airport seeks to impose for the
first time or to raise its CFC fee and has to justify the need
and reasonableness for imposing such fees on rental car
customers.
Further, as noted by the author:
various regulatory agencies at the city and county level
require all airports to conduct annual financial and
operations audits, typically referred to as the "Annual
Audit of Airport Finances." This audit, containing nearly
two hundred pages of finance information, includes the
information required by Civil Code [Sec.] 1936.
These annual audits arguably provide consumers with the same
level of oversight, if not more due to their higher frequency,
than is currently provided by the three-year CFC audits required
under existing law.
Finally, this bill eliminates existing requirements that CFC
audits be "independent." The author notes, "because Civil Code
[Section] 1936 current[ly] requires an 'independent audit,' many
airports are conducting two audits with regard to the fees."
With this change, AB 359 would permit airports to submit their
annual audit of airport finances containing the same information
currently required for CFC audits in lieu of contracting for an
independent audit of CFC funded projects and expenditures.
However, as in existing law, this bill would require that the
audit ultimately submitted to comply with Section 1936 must
still be conducted by an "independent auditor."
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Support : City of San Jose; Fresno Yosemite International
Airport
Opposition : None Known
HISTORY
Source : California Airports Council
Related Pending Legislation : None Known
Prior Legislation :
SB 1006 (Senate Budget and Fiscal Review Committee, Chapter 32,
Statutes of 2012) see Background.
SB 1192 (Oropeza, Chapter 642, Statutes of 2010) see Background.
SB 641 (Corbett, Chapter 44, Statutes of 2007) see Background.
AB 491 (Frommer, Chapter 661, Statutes of 2001) see Background.
SB 1228 (Vasconcellos, Chapter 760, Statutes of 1999) see
Background.
Prior Vote :
Assembly Judiciary Committee (Ayes 10, Noes 0)
Assembly Floor (Ayes 69, Noes 0)
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