BILL ANALYSIS Ó
AB 701
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Date of Hearing: April 9, 2013
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT AND THE ECONOMY
Jose Medina, Chair
AB 701 (John A. Pérez) - As Introduced: February 21, 2013
SUBJECT : California Infrastructure and Economic Development Bank
SUMMARY : Authorizes the California Infrastructure and Economic
Development Bank (I-Bank) to serve as the primary state agency for
applying to any federal infrastructure bank or financing authority.
Further, the bill expands the membership of the board of directors
from five to seven members and specifies that legislative members will
be nonvoting members.
EXISTING LAW:
1)Establishes the I-Bank within the Business, Transportation and
Housing Agency (BTH), and authorizes it to undertake a variety of
infrastructure related financial activities including, but not
limited to, the administration of a revolving loan fund and the
issuance of tax-exempt and taxable revenue bonds.
2)Provides that the board of directors is comprised of five specified
people, defines a quorum at three people and specifies that an
affirmative vote of three people is required on any action taken by
the board.
3)Specifies that the I-Bank board of directors shall consist of the
following:
a) The Director of Finance or designee;
b) The Treasurer or designee;
c) Secretary of Business, Transportation and Housing or designee;
d) Governor's appointee; and
e) Secretary of State Consumer Services Agency or designee.
FISCAL EFFECT : Unknown
COMMENTS :
1)Author's Purpose : According to the author, "This bill is intended
to allow the Legislature to participate in critical decisions
affecting the I-Bank. Given the I-Bank's integral role in issuing
tax-exempt and taxable revenue bonds, providing financing to public
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agencies, and leveraging State and Federal funds, it is important
that the Legislature have input on how those decisions are made. "
2)Policy Question : This designates the I-Bank as the state's primary
liaison with the federal government on issues related to a national
infrastructure bank and adds legislative Members to the Board of
Directors in order to more closely link its activities to the
state's broader development activities.
In advocating for the heightened participation of the state in
federal legislative and congressional activities, the author notes
the importance of finding new sources of capital for upgrading
California's infrastructure and the continuing interest in a
national bank model. Additional information on the role of
infrastructure within the California economy, including the
significant defects and funding gaps are discussed below.
3)Infrastructure and the California Economy : World class
infrastructure plays a key role in business attraction, as
multinational companies consistently rank the quality of
infrastructure among their top four criteria in making investment
decisions. Research shows that as U.S. infrastructure has been in
decline, infrastructure in other countries is rapidly increasing.
The 2010-11 Global Competitiveness Report by the World Economic
Forum places U.S. infrastructure 23rd in the world, a drop from its
rank of 7th in 2000.
California's infrastructure is in a similar state, according to the
American Society of Civil Engineer's report, California
Infrastructure Report Card 2012, estimated a $65 billion a year
investment gap. The impact of this lack of investment is compounded
by the substantial new investments made in other states and nations,
including the expansion of the Panama Canal.
Traditionally, innovation infrastructure has been based around the
idea of "Industry Clusters," areas where multiple firms and
organizations working in the same, or similar, fields can draw on
each other's discoveries, products, and in some cases workforces
leading to a highly focused and productive innovation center with
prodigious output. Silicon Valley and Hollywood are archetypical
examples, specializing in electronics and cinema, respectively.
However, as the world has globalized, transportation and
communication times and costs have shrunk. A new global business
paradigm is emerging in which location is less relevant and
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competitive advantage, based on the quality and efficiency of the
technologies that link the location with other areas of the world.
4)National Infrastructure Bank : Spending on infrastructure by the
federal government has been declining. According to the
Congressional Budget Office, spending on transportation and water
infrastructure as a share of U.S. GDP was 3.1% in 1959 and was only
2.4% in 2007.
The National Surface Transportation Infrastructure Financing
Commission estimates that there is a highway and transit funding gap
of $2.3 trillion. The federal Environmental Protection Agency
similarly finds there is great need to repair and upgrade water
systems including a 2009-19 funding gap of $122 billion for clean
water and $102 billion for drinking water. Not surprising, there
has been a national call for renewed infrastructure investment to
support manufacturing, goods movement, energy production, and
broadband deployment, among other economic and community development
purposes.
A National Infrastructure Reinvestment Bank was first proposed by
Senators Christopher Dodd and Chuck Hagel in 2007. President Barack
Obama supported the legislation in 2008 and again in 2010. More
recently, in his 2013 State of the Union, President Obama emphasized
the importance on fixing the nation's infrastructure as part of his
"Plan for a Strong Middle Class and A Strong America" and proposed
both a $50 billion "Fix it First" program from peace dividends and a
"Partnership to Rebuild America" initiative, which would use public
policies to attract private investment in upgrading America's
infrastructure.
Models for a national infrastructure bank have varied and the state
I-Bank has been asked to Washington D.C. several times to discuss
differing models. In one instance, the federal government would use
$60 billion in seed money over 10 years with an expected return of
$500 billion in private investment. Given the significance of
quality infrastructure within every state's global competitiveness,
it would seem that engaging in the development of the national
program would be within the state's interest. AB 701 would
specifically designate the state I-Bank as the primary state agency
for applying to the federal infrastructure bank.
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5)Background on I-Bank : The I-Bank was established in 1994 to promote
economic revitalization, enable future development, and encourage a
healthy climate for jobs in California. Housed within BTH, it is
governed by a five-member board of directors comprised of the BTH
Secretary (chair), State Treasurer, Director Department of Finance,
Secretary of the State and Consumer Services Agency, and a
Governor's appointee. The day-to-day operations of the I-Bank are
directed by the Executive Director who is an appointee of the
Governor and is subject to confirmation by the California State
Senate. Currently, the I-Bank has authority for 24 staff members.
The I-Bank does not receive any ongoing General Fund support, rather
it is financed through fees, interest income and other revenues
derived from its public and private sector financing activities.
According to its 2009-10 independent audit, its programs continue to
provide sufficient revenues to support all operating expenses.
The I-Bank administers two categories of programs: 1) the
Infrastructure State Revolving Fund which provides direct low-cost
financing to public agencies for a variety of public infrastructure
projects; and, 2) Bond Financed Programs which provide financing for
manufacturing companies, nonprofit organizations, public agencies
and other eligible entities. There is no commitment of I-Bank or
state funds for any of the conduit revenue bonds. Even in the case
of default, the state is not liable.
Since its creation in 1994, the I-Bank has loaned over $400 million
to local agencies, developing a high-level of expertise in the
financing of public infrastructure. The I-Bank also serves as the
state's only general purpose financing authority with broad
statutory powers to issue revenue bonds. Over $30 billion in
conduit revenue bonds have been issued by the I-Bank since 2000.
The seismic upgrade of the Bay Bridge is an example of how conduit
revenue bonds can be used to raise capital for infrastructure
projects without impacting the state General Fund. In this example,
the repayment of the bonds was based on a $1 per vehicle surcharge
collected on seven Bay Area state-owned toll bridges. In addition
to this type of bonding activity, the I-Bank has also been involved
in other unique financings including Tobacco Securitization Bonds,
Tribal Compact Asset Securitization Bonds, and Imperial Irrigation
District Preliminary Loan Guarantees.
6)Board Structure : The I-Bank's board of directors is currently
comprised of five members, four of which are state public officials.
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Each of the public officials either has specific program-related
expertise or has access to experts within their respected
departments or agencies.
Under existing law, the Governor has the authority to appoint one
public member to the board. This public member is not required to
have any particular skill set or represent a particular stakeholder
group other than the public-at-large. Chart 2 - Board Structures
from Selected Economic and Workforce Development entities details,
that there is no consistent board appointment structure.
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| Chart 2 - Board Structures from Selected Economic and Workforce |
| Development Entities |
-------------------------------------------------------------------
|--------+-----+-----+------+-----+-----------------------------------|
| |Total|Gov |Speake|Senat| Other Information |
| | |Appts|r |e | |
| |Mem-b| |Appts |Rules| |
| |ers | | | | |
| | | | |Appts| |
| | | | | | |
|--------+-----+-----+------+-----+-----------------------------------|
|Waste | | | | |Four Public Members: Four members |
|Manage-m| 6 | 4 | 1 | 1 |are appointed by the Governor, two |
|ent | | | | |of whom represent the public, one |
|Board | | | | |member with industry expertise, |
|and the | | | | |and one with expertise in the |
|Recyclin| | | | |environmental field. One member is |
|g | | | | |appointed by the Senate Committee |
|Market | | | | |on Rules and one is appointed by |
|Develop-| | | | |the Speaker of the Assembly to |
|ment | | | | |represent the public. Reference: |
|Zones | | | | |PRC 404001 |
|--------+-----+-----+------+-----+-----------------------------------|
|Employ-m| | | | |One Public Member: The Speaker |
|ent | 7 | 3 | 2 | 2 |and President pro Tempore each |
|Training| | | | |appoint two members, one being a |
| Panel | | | | |private sector labor |
| | | | | |representative and the other being |
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| | | | | |a business representative. Gov. |
| | | | | |appoints three members, one being |
| | | | | |a private sector labor |
| | | | | |representative, one being a |
| | | | | |business representative, and one |
| | | | | |public member. |
| | | | | |Reference: UIC 10202.5 |
|--------+-----+-----+------+-----+-----------------------------------|
|Workforc| | | | |There is no statutory limit on the |
|e | No | No | 2 | 2 |number of people who may serve on |
|Investme|limit|limit| | |the board. A majority of Gov |
|nt | | | | |appointments are from business, |
|Board | | | | |including small business. At |
| | | | | |least 15% of the Gov. appointments |
| | | | | |shall be from labor organizations |
| | | | | |nominated by state labor |
| | | | | |federations. In addition to these |
| | | | | |appointments the Gov. may place an |
| | | | | |unlimited number of state |
| | | | | |officials and state government |
| | | | | |representatives. |
| | | | | |Legislature appoints two public |
| | | | | |members each. Reference: UIC |
| | | | | |14012 |
|--------+-----+-----+------+-----+-----------------------------------|
|Californ| | | | |Two public members: Secretary of |
|ia | 11 | 7 | 2 | 2 |BTH serves as chair. Gov. |
|Small | | | | |appoints six members from small |
|Business| | | | |business community. Between the |
| Board | | | | |Assembly and the Senate one |
| | | | | |business and one agricultural |
| | | | | |representative is appointed. |
| | | | | |Plus, one Assembly Member and one |
| | | | | |Senator to serve on the board. |
| | | | | |Reference: Corp 14021 |
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7)2011 JEDE Oversight Hearing : In March 2011, the Assembly Economic
Development Committee (JEDE) held the first of several oversight
hearings on how infrastructure development impacted local, state and
federal economic recovery efforts and California's economic position
in post-recession economy. From these hearings, JEDE released a
preliminary list of recommendations and proposed amendments to
better align the authorities of the I-Bank with the state's current
and future infrastructure needs. The resulting I-Bank package
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included AB 700 (Blumenfield) to reorganize the I-Bank as an
independent agency; AB 696 (Hueso) to enhance the I-Bank's ability
to develop financing methods best suited for the post-recession
economy; and, AB 893 (V. Manuel Pérez) and AB 1094 (John A. Pérez)
to expand the membership of the board and allow the I-Bank to
function more broadly as a development and business creation entity.
None of these measures were ultimately enacted, however in vetoing
AB 700, the Governor stated his intent to reorganize the I-Bank. AB
701 is substantively a reintroduction of AB 1094 from 2011. With
the reorganization agreed to (discussed below), it seems appropriate
for the other policy recommendations to be brought forward again.
8)Reorganization : In March 2012, the Governor initiated a
reorganization process to realign the state's administrative
structure. Key changes were proposed and agreed to by the
Legislature including the dismantling of the Business,
Transportation and Housing Agency (BTH) and the shifting of a number
of key programs and services to GO-Biz including the I-Bank. In
addition, the Secretary of BTH is replaced by the Director of GO-Biz
as Chair of I-Bank and the newly established Secretary of
Transportation replaces the Secretary of State and Consumer Services
on the I-Bank board.
Programmatic approval of the reorganization was granted in July 2012
and will become effective July 2013. The necessary statutory
changes are being made in AB 1317, which recently passed the
Assembly Committee on Accountability and Administrative Review and
is pending in Assembly Appropriations.
9)Related legislation : Below is a list of related legislation from
current and previous legislative sessions:
a) AB 311 (V. Manuel Perez) Bi-National Infrastructure and
Economic Development Bank : This bill expands the role of the
I-Bank to include facilitating infrastructure and economic
development financing activities within the California and Mexico
border region. Status: Scheduled to be heard in the Assembly
Committee on Jobs, Economic Development and the Economy on April
9, 2013.
b) AB 1094 (John A. Pérez) Board Membership of the California
Infrastructure Bank : This bill, as it was heard by JEDE, would
have added a member of the Assembly and a member of the Senate as
advisory members to the board of administration of the California
Infrastructure and Economic Development Bank. Amendments were
taken to remove the Bank provisions and the bill was related to a
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different topic and a different author at the time the bill was
pulled into the Senate Committee on Rules. Status: Held in the
Senate Committee on Rules in 2012.
c) AB 1272 (Medina) Infrastructure Consortiums : This bill
authorizes the California Infrastructure and Economic Development
Bank (I-Bank) to formally participate in regional, national and
international organizations related to infrastructure financing.
Status: Scheduled to be heard in the Assembly Committee on Jobs,
Economic Development and the Economy on April 9, 2013.
d) AB 1380 (Bass) California Infrastructure and Economic
Development Bank: Board of Directors : This bill would have
expanded the membership of the board of directors of the I-Bank
from five to seven members. Status: Held in the Senate Rules
Committee in 2010.
REGISTERED SUPPORT / OPPOSITION :
Support
None received
Opposition
None received
Analysis Prepared by : Toni Symonds / J., E.D. & E. / (916)
319-2090