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) AB 359 (Holden) Page 2 of ? 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 AB 359 (Holden) Page 3 of ? 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 AB 359 (Holden) Page 4 of ? 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. AB 359 (Holden) Page 5 of ? 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. AB 359 (Holden) Page 6 of ? 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 AB 359 (Holden) Page 7 of ? 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." AB 359 (Holden) Page 8 of ? 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) **************