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