BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 574
                                                                  Page  1

          Date of Hearing:   April 22, 2013

                        ASSEMBLY COMMITTEE ON TRANSPORTATION
                               Bonnie Lowenthal, Chair
                   AB 574 (Lowenthal) - As Amended:  April 15, 2013
           
          SUBJECT  :   Sustainable Communities Infrastructure Program

           SUMMARY  :   Creates the Sustainable Communities Infrastructure  
          Program to fund sustainable communities strategies (SCSs) and  
          equivalent greenhouse gas (GHG) reducing strategies using  
          cap-and-trade auction revenues.  Specifically,  this bill:   

          1)Makes legislative findings and declarations regarding the  
            transportation sector being the largest source of GHG  
            emissions in California and the need to fund integrated  
            transportation and public infrastructure investments with  
            changes in land use if the state is going to meet its GHG  
            emissions reduction goals.  

          2)Directs the appropriation of funds from the Greenhouse Gas  
            Reduction Fund (GHGR Fund) for projects that do all of the  
            following:  

             a)   Provide cost-effective and feasible reductions in GHG  
               emissions;

             b)   Combine transportation investments with local land use  
               modifications and other local policy changes to provide GHG  
               emissions reductions and, where feasible, to achieve other  
               public benefits, as identified;

             c)   Implement either an approved SCS or alternative planning  
               strategy within existing urbanized or developed areas in  
               regions with a metropolitan planning organization (MPO).   
               For regions that do not have an MPO, projects must reduce  
               GHG emissions consistent with the regional transportation  
               plan or other regional plan; 

             d)   Meet specified criteria that govern the newly created  
               Sustainable Communities Infrastructure Program; and, 

             e)   Comply with existing requirements to benefit  
               economically disadvantaged communities.









                                                                  AB 574
                                                                  Page  2

          3)Provides that projects are to be selected through a  
            competitive process based on cost-effective GHG emissions  
            reductions using criteria established by the California Air  
            Resources Board (ARB).

          4)Directs the California Transportation Commission (CTC), in  
            consultation with the ARB, to designate a regional granting  
            authority to administer, as prescribed, the Sustainable  
            Communities Infrastructure Program within each region. 

          5)Requires that the regional granting authority to be the same  
            agency responsible for preparing the regional transportation  
            plan.

          6)Provides that money in the Sustainable Communities  
            Infrastructure Program should be allocated to regional  
            granting authorities on a per capita basis.

          7)Vests the Business, Transportation and Housing Agency, in  
            consultation with CTC and the High-speed Rail Authority, with  
            responsibility for allocating moneys for areas of the state  
            not included by an MPO.  

          8)Directs ARB, in consultation with CTC and the Strategic Growth  
            Council, to establish criteria for the development and  
            implementation of regional grant programs that do the  
            following:

             a)   Require projects to be selected through a competitive  
               public process based on GHG emissions reductions;

             b)   Provide criteria for evaluating long-term GHG impacts;

             c)   Establish methods for evaluating, monitoring, and  
               verifying project effectiveness, as prescribed;

             d)   Encourage flexibility, collaboration, and innovation at  
               the local level to address local transportation and  
               community needs;

             e)   Provide for the development and implementation of  
               projects that integrate infrastructure investment with land  
               use to achieve the maximum GHG emissions reductions.

             f)   Provide for public participation in the review of  








                                                                  AB 574
                                                                  Page  3

               proposed projects. 

             g)   Provide for consultation and coordination with air  
               pollution control and air quality management districts.

          9)Directs ARB, in consultation with the Strategic Growth Council  
            and MPOs, to establish standards for integrated modeling  
            systems and measurement methods to ensure consistency in  
            evaluating the potential effectiveness of projects and  
            verifying actual benefits realized when projects are  
            completed.

          10)  Requires ARB annually to review the program's  
            implementation and revise the program as needed.

          11)  Directs ARB, in consultation with CTC and the Strategic  
            Growth Council, to establish standards for the use of program  
            funds to ensure compliance with prescribed criteria.

          12)  Delineates the following eligible uses of program funds:

             a)   Transportation network and demand management, including,  
               but not limited to, trip-reduction programs, congestion  
               pricing, and roadway modifications, such as roundabouts; 

             b)   Public transportation, including operations,  
               maintenance, and capital costs;

             c)   Road and bridge maintenance; operations and retrofits  
               for complete streets, bike, and pedestrian safety  
               enhancements; safe routes to schools; and urban greening;

             d)   Clean transportation fueling infrastructure and support;

             e)   Multimodal network connectivity to reduce travel  
               distances and improve access to parks, schools, jobs,  
               housing, and markets for rural and urban communities,  
               including neighborhood scale planning;

             f)   Development and adoption of local plans and land use  
               policies that help to implement regional plans;

             g)   Community infrastructure, including public works and  
               municipal improvements necessary to support  
               transit-oriented development, affordable housing, infill in  








                                                                  AB 574
                                                                  Page  4

               existing urbanized areas, and small walkable communities in  
               rural neighborhoods;

             h)   Multiuse facilities and accommodations for bicyclists,  
               pedestrians, and neighborhood electric vehicles;

             i)   Interregional rail modernization and related community  
               infrastructure; and,

             j)   Administrative costs and development and use of  
               evaluation, monitoring, and verification systems.

          13)  Authorizes ARB, in consultation with CTC, to identify  
            additional eligible uses of the funds that provide GHG  
            emission reductions.

          14)  Specifies legislative intent that all cap-and-trade  
            revenues are to be appropriated consistent with the California  
            Global Warming Solutions Act of 2006, the Greenhouse Gas  
            Reduction Fund Investment Plan and Communities Revitalization  
            Act, and other related provisions of existing law.

          15)  Makes ARB's work to develop standards and guidelines and  
            the provision of grant money contingent on the Legislature  
            appropriating funds for these purposes.

           EXISTING LAW:

           1)Enacts the Global Warming Act of 2006 (AB 32 (Nunez), Chapter  
            488, Statutes of 2006) that requires ARB to adopt a statewide  
            GHG emissions limit equivalent to the statewide GHG emissions  
            levels in 1990 to be achieved by 2020.  

           2)Requires ARB to provide each region of the state with GHG  
            emission reduction targets for the automobile and light truck  
            sector.  

           3)Requires a regional transportation plan to include a SCS  
            designed to achieve the targets for GHG emission reduction.  

           2)Requires ARB to adopt regulations to achieve maximum  
            technologically feasible and cost-effective GHG emission  
            reductions; to this end, authorizes ARB to permit the use of  
            market-based compliance mechanisms (cap-and-trade program) to  
            comply with greenhouse reduction regulations.








                                                                  AB 574
                                                                  Page  5


          4)Requires cap-and-trade auction proceeds be used to reduce GHG  
            emissions in the state.

          5)Requires the Department of Finance (DOF), in consultation with  
            ARB, to develop and submit a three-year investment plan to the  
            Legislature to guide the use of auction proceeds.  

          6)Requires auction proceeds to be appropriated through the  
            annual Budget Act. 

           FISCAL EFFECT  :   Unknown

           COMMENTS  :   ARB's cap-and-trade program was established to help  
          the state meet its AB 32 goals.  In the cap-and-trade program,  
          ARB places a cap on GHG emissions by issuing a limited number of  
          tradable permits (called allowances) equal to the cap.  Each  
          year, the number of allowances declines in proportion to the cap  
          to achieve the intended emission reductions. Businesses that  
          aggressively reduce their emissions can trade their surplus  
          allowances to firms that find it more expensive to reduce their  
          emissions.  In distributing the emissions allowances, ARB  
          allocates a portion of the allowances for free to covered  
          entities, places some in a cost containment reserve, and  
          auctions the remainder. The price of auctioned allowances is set  
          by the marketplace.  Over time, program regulations require a  
          greater reliance on auctioning, which will, among other things,  
          help maximize incentives for sources to reduce their emissions  
          and provide proceeds (auction revenues) that can be reinvested  
          for public benefit to further the purposes of AB 32.

          For Fiscal Year 2012-13, ARB's auctions are estimated to  
          generate roughly $660 million to upwards of $3 billion. The  
          Governor's budget for Fiscal Year 2012-13 assumes that the state  
          will receive $1 billion from such auctions.  Of this amount, the  
          budget assumes that $500 million of the total revenue will be  
          used to offset existing General Fund costs of current GHG  
          mitigation activities, and the remaining revenues will be used  
          on new or expanded programs intended to reduce GHG emissions.

          Legislation enacted last session, AB 1532 (John A. Pérez),  
          Chapter 807, Statutes of 2012, requires development of an  
          investment plan to guide the state's investments of auction  
          revenues.   ARB just released the draft investment plan and will  
          provide the final version of the plan to the Legislature in time  








                                                                  AB 574
                                                                  Page  6

          for proposed budget adjustments next month.  The plan is  
          intended to support the appropriation of cap-and-trade auction  
          proceeds during the three-year period from Fiscal Year 2013-14  
          to 2015-16.   

          In its draft plan, ARB states that auction revenue investments  
          should be governed by the following principles. 

          1)Investments must further the purposes of AB 32.

          2)Investments should focus on near-term and long-term benefits.

          3)Investments should be prioritized toward sectors with both the  
            highest greenhouse emissions and the greatest need for future  
            reductions to meet greenhouse goals.

          4)State agencies should seek to maximize investments in and  
            benefits to disadvantaged communities wherever possible.

          5)Investments should foster job creation, including  
            opportunities for training to amplify investment benefits, and  
            maximize economic benefits for California wherever possible.

          6)Investments should consider the state's planning principles to  
            promote infill development and equity; to protect  
            environmental and agricultural resources; and to encourage  
            efficient development patterns.

          7)Investments should be coordinated with other local, state, and  
            federal funding programs and avoid duplicative efforts. The  
            state should coordinate its clean energy, transportation, and  
            climate change investments to maximize their impacts and,  
            where possible, utilize existing programs and processes. 

          8)Funding should leverage private and other government  
            investment to the maximum extent possible.

          AB 574 establishes the Sustainable Communities Investment  
          Program to fund implementation of SCSs using cap-and-trade  
          auction proceeds.  According to the author, the program is  
          designed to implement GHG reducing plans in the most cost  
          effective way while encouraging innovation, collaboration, and  
          flexibility. 

          The author asserts that a key method to reduce transportation  








                                                                  AB 574
                                                                  Page  7

          emissions is the development of SCSs and other regional plans  
          but notes that local governments tasked with implementing these  
          strategies lack sufficient funds.  The author contends that, by  
          funding investments that integrate transportation and other  
          public infrastructure investments with changes in land use, the  
          state can achieve significantly greater greenhouse emission  
          reductions than single purpose investment strategies.

          Proponents of AB 574 contend that the proposed Sustainable  
          Communities Investment Program is consistent with the investment  
          principles set forth by ARB.  For example, they assert that  
          program is squarely focused on attaining the goals of AB 32 and  
          is structured to withstand rigid scrutiny under a "Sinclair  
          nexus test."  (This test requires that a clear nexus must exist  
          between an activity for which a mitigation fee is used and the  
          adverse effects related to the activity on which that fee is  
          levied.)  Furthermore, by focusing on transportation  
          investments, proponents point out that the program targets the  
          sector with the highest greenhouse emissions and the greatest  
          need for future reductions to meet greenhouse goals. 

          The author cites several key aspects of the proposed program:

          1)Every region of the state receives its per capita share of  
            sustainable communities funding.  

          2)The locally administered competitive grant program will  
            incentivize local land use strategies to be integrated with a  
            full range of transportation investments to achieve the  
            highest greenhouse emission reductions, advance SCS  
            objectives, and result in the greatest number of public  
            co-benefits (such as housing, air quality, health, etc.).

          3)The program features a performance-based approach to maximize  
            regional flexibility but includes modeling and verification  
            systems approved by ARB to ensure the program's consistency  
            and effectiveness.

          Writing in opposition to AB 574, the California Chamber of  
          Commerce opposes AB 574 based on what it believes to be  
          substantial legal uncertainties surrounding ARB's authority to  
          withhold and sell auction allowances.  

           Related legislation:   This year, there are over two dozen bills  
          pending that are related in one way or another to sustainable  








                                                                  AB 574
                                                                  Page  8

          communities strategies, including:

          AB 1051 (Bocanegra) establishes the Sustainable Communities for  
          All Program; directs the Department of Housing and Community  
          Development to allocate cap-and-trade funds to provide loans for  
          the development and construction of housing development projects  
          within close proximity to transit stations, and for other  
          specified projects and programs intended to reduce GHG  
          emissions.  AB 1051 is in the Assembly Housing Committee and is  
          double-referred to this committee.

          AB 431 (Mullin) allows specified MPOs, subject to voter  
          approval, to impose a transaction and use tax of no more than  
          0.5% for the purpose of achieving the goals of the sustainable  
          communities strategy.  AB 431 was approved by the Assembly Local  
          Government Committee and is scheduled to be heard in this  
          committee on April 29, 2013.

          AB 1002 (Bloom) imposes a $6 vehicle registration tax for local  
          and regional agency implementation.  AB 1002 is scheduled to be  
          heard in this committee on April 22, 2013.

          AB 416 (Gordon) requires ARB to establish the Local Emission  
          Reduction Program to provide grants and other financial  
          assistance to eligible local government recipients for the  
          purposes of developing and implementing GHG emissions reduction  
          projects.  That bill is in Assembly Appropriations Committee.

           Previous legislation:   AB 1532 (John A. Pérez), Chapter 807,  
          Statutes of 2012, creates the Greenhouse Gas Reduction Fund  
          Investment Plan and Communities Revitalization Act to set  
          procedures for the investment of auction revenues.   

          SB 535 (De Leon), Chapter 830, Statutes of 2012, provides that  
          the required investment plan for cap-and-trade revenue is to  
          allocated funds as follows:  1) a minimum of 25% of the  
          available moneys in the fund to projects that provide benefits  
          to identified disadvantaged communities; and, 2) a minimum of  
          10% of the available moneys in the fund to projects located  
          within identified disadvantaged communities.  

          SB 1018 (Committee on Budget and Fiscal Review), Chapter 89,  
          Statutes of 2012, among other things, establishes new  
          legislative oversight and controls over the ARB including:  the  
          creation of a separate expenditure fund for proceeds from the  








                                                                  AB 574
                                                                  Page  9

          auction or sale of allowances pursuant to cap-and-trade program.

           Double referred  :  This bill is also referred to the Assembly  
          Committee on Natural Resources. 

           REGISTERED SUPPORT / OPPOSITION  :   

           Support 
           
          California Alliance for Jobs
          California Association of Councils of Governments
          California Center for Sustainable Energy
          California State Association of Counties
          California Transit Association
          Capitol Corridor Joint Powers Authority
          Cobblestone Placemaking
          County of Marin
          County of Napa 
          Environmental Defense Fund
          Foothill Transit
          Glendale City Employees Association
          League of California Cities
          Livermore Amador Valley Transit Authority
          Metropolitan Transportation Commission
          Monterey-Salinas Transit
          Natural Resources Defense Council
          Organization of SMUD Employees
          Peninsula Corridor Joint Powers Board
          Riverside Transit Agency
          Sacramento Area Council of Governments
          Sacramento Metropolitan Air Quality Management District
          San Bernardino Public Employees Association
          San Diego Association of Governments
          San Luis Obispo County Employees Association
          San Mateo County Transit District
          San Mateo County Transportation Authority
          Santa Clara County Board of Supervisors
          Santa Clara Valley Transportation Authority
          Santa Rosa City Employees Association
          Self-Help Counties Coalition
          Sonoma County Transportation Authority
          Southern California Association of Governments
          Southern California Association of Governments
          The Met Sacramento High
          Transportation California








                                                                  AB 574
                                                                  Page  10

          Urban Counties Caucus
          Victor Valley Transit Authority

           Opposition 
           
          California Chamber of Commerce
           
          Analysis Prepared by  :    Janet Dawson / TRANS. / (916) 319-2093