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  
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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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