BILL ANALYSIS �
AB 1272
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Date of Hearing: April 9, 2013
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT AND THE ECONOMY
Jose Medina, Chair
AB 1272 (Medina) - As Introduced: February 22, 2013
SUBJECT : California Infrastructure and Economic Development Bank
SUMMARY : Authorizes the California Infrastructure and Economic
Development Bank (I-Bank) to formally participate in regional,
national and international organizations related to infrastructure
financing. Specifically, this bill :
1)Modernizes I-Banks policy framework to reflect more current economic
and logistic trends relative to goods movement.
2)Authorizes the I-Bank to join or formally participate in region,
state, national or international organizations related to
infrastructure finance.
3)Authorizes the I-Bank to facilitate the development of
infrastructure projects regardless of whether the I-Bank is funding
a portion of the project.
4)Expands and clarifies the types of goods movement related
infrastructure necessary to more competitively place California
within existing and future global and domestic supply chains.
EXISTING LAW :
1)Creates the I-Bank within Business, Transportation and Housing
Agency (BTH), to promote economic revitalization, enable future
development, and encourage a healthy climate for jobs in California.
2)Makes legislative findings that the state needs a financing entity
structured with broad authority and have the technical ability to
leverage state and federal funds to facilitate economic growth. The
goal is producing more private sector jobs with less public sector
moneys.
FISCAL EFFECT : Unknown
COMMENTS :
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1)Author's purpose : According to the author, "AB 1272 authorizes the
I-Bank to join the West Coast Infrastructure Exchange (Exchange) and
directs the I-Bank to assist state agencies in placing projects on
the Exchange for the purpose of obtaining investors. The aim of
this bill is to close an investment gap, and fix a disconnect
between investors that are willing to fund infrastructure projects
in California and proposed projects. There is currently not a
one-stop-shop for investors to look at proposed projects and it
halts investment in California projects. AB 1272 fixes this problem
by requiring the I-Bank to assist state agencies in posting projects
on the Exchange which will attract investors and stimulate the
economy."
2)Framing the Policy Issue : This measure elevates the role of the
I-Bank as the state's lead in infrastructure development. Changes
is global markets including the ability of emerging economies around
the world to research, design, and produce highly technical products
and provide professional and specialized services places an
increasingly greater importance on the quality of a locality's
infrastructure.
In making the case to have the I-Bank proactively engage the
infrastructure finance community, the author cites the current poor
quality of California's infrastructure and its negative impact on
the state's ability to compete in the new technology and logistical
landscape. In addition, the author notes that the I-Bank's
pre-existing private market expertise makes the I-Bank best prepared
to help other state agencies place projects on the West Coast
Infrastructure Exchange for possible private sector financing. The
analysis examines the changing global economy, the role of
infrastructure in attracting businesses, and the opportunities of
the West Coast Infrastructure Exchange.
3)Oversight hearings and West Coast Infrastructure Exchange : The
Assembly Jobs, Economic Development and the Economy (JEDE) Committee
held three oversight hearings in the 2011-12 Session examining the
relationship between infrastructure and the state's economic
recovery. Each of the presenters emphasized the importance of
modern logistical networks that have the capability to link
manufacturers and businesses to global and domestic supply chains
that could ultimately link to the worldwide consumer base.
Financing these more complex infrastructure networks, however,
requires greater coordination and collaboration among public and
private stakeholders.
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The issue was particularly highlighted at November 2012 hearing in
Calexico when the California Public Employees Retirement System
(CalPERS) discussed a study it had completed as part of its
deployment of $800 million in California infrastructure investments.
Among other findings, their study found that the lack of a
centralized exchange where public authorities could present projects
to potential investors was a key financing impediment. Increased
information flow and greater consistency of deal structure, CalPERS
stated, is essential to greater public pension fund infrastructure
investments. AB 1272 was developed in response to testimony and
research from these hearings.
4)Infrastructure: A major challenge to California's competitiveness :
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. With the logistics
sector alone employing over 73,000 workers, failing to remain
competitive will impact California jobs.
Previously, industry clusters were considered an innovative planning
model for economic development. Industry clusters brought together
multiple firms and organizations working in the same or similar
fields resulting in highly focused and productive innovation centers
with prodigious output. Within these industry clusters, firms and
organizations drew on each other's discoveries, products, and in
some cases workforce. Silicon Valley and Hollywood are archetypical
examples, specializing in electronics and cinema, respectively.
As the world has globalized, however, transportation and
communication times and costs have shrunk. A new global business
paradigm is emerging in which location is less relevant and
competitive advantage is based more on the quality and efficiency of
the infrastructure that links the location with other areas of the
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world.
Unfortunately, this increased demand for quality and highly
networked infrastructure is occurring at time of constrained public
budgets. Issuing more bonds or even simply adding capacity isn't a
realistic answer. New approaches to infrastructure are necessary
including new financial structures, more collaborative planning, and
an enhanced use of technology.
5)West Coast Infrastructure Exchange : Institutional investors have
responded to the U.S.'s infrastructure shortfall and the lack of
sufficient public finance opportunities by adopting new investment
mandates. Kearsarge Global Advisors reported that as of 2010 over
$190 billion of global equity capital had been committed for
infrastructure investment - up from only $60 billion in 2007.
As an example, CalPERS currently has over $525 million invested in a
combination of physical infrastructure investments,
infrastructure-targeted private equity funds, and credit enhancement
for infrastructure bonds. This is addition to the $800 million
available for project finance including transportation, energy,
natural resources, utilities, water, communications and other social
support services.
In 2012, CalPERS and the State Treasure helped launch the West Coast
Infrastructure Exchange to overcome some of the challenges they were
having in deploying infrastructure-focused investment capital. The
Exchange currently includes California, Oregon, Washington, and
British Columbia. Several states in Mexico are considering joining.
The West Coast Infrastructure Exchange is designed to both support
financing innovations and to serve as a clearinghouse for investment
ready projects. AB 1272 authorizes the I-Bank to join the West
Coast Exchange, as well as other regional, national and global
forums the bank determines appropriate for advancing policies and
practices that help close California's infrastructure needs. In
addition, the bill allows the I-Bank to assist other state entities
place projects on the exchange for private sector financing.
6)The 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 of the Department of Finance,
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Secretary of 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.
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 category #2 conduit revenue bonds. Even
in the case of default, the state is not liable.
Since its inception, 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.
7)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 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
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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.
8)Related legislation : Below is a list of related legislation.
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 886 (Allen) Export and Import Credit : This bill
establishes a capped and allocated tax credit for importers and
exporters that increase cargo through California air and sea
ports, hire additional staff, or incur capital costs at a
California cargo facility. Status: Scheduled to be heard in the
Assembly Committee on Jobs, Economic Development and the Economy
on April 9, 2013.
c) AB 1545 (V. Manuel Perez) Bi-National Infrastructure and
Economic Development Bank : This bill would have expanded the role
of the I-Bank to include facilitating infrastructure and economic
development financing activities within the California and Mexico
border region. Status: Held in the Assembly Committee on
Appropriations in 2012.
d) SB 822 (Evans) Five-Year Infrastructure Plan : Existing law
would have required the Governor, in conjunction with the
Governor's Budget, to submit annually to the Legislature a
proposed 5-year infrastructure plan containing specified
information concerning infrastructure needed by state agencies,
public schools, and public postsecondary educational institutions
and a proposal for funding the needed infrastructure. This bill
makes technical, nonsubstantive changes to this provision.
Status: Held in the Assembly Committee on Budget in 2012.
e) SB 907 (Evans) 20-Year Infrastructure Master Plan : This bill
would have established an 11-member Master Plan for
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Infrastructure Financing and Development Commission. The
Commission is required to submit to the Governor and Legislature,
by December 1, 2013, a long-term plan and strategy for the
state's infrastructure needs and a prioritized plan to meet those
needs. The Commission would have been required to submit
periodic progress reports. Status: Held in the Assembly
Committee on Jobs, Economic Development and the Economy in 2012.
REGISTERED SUPPORT / OPPOSITION :
Support
None received
Opposition
None received
Analysis Prepared by : Toni Symonds / J., E.D. & E. / (916) 319-2090