BILL ANALYSIS Ó SENATE COMMITTEE ON EDUCATION Carol Liu, Chair 2013-2014 Regular Session BILL NO: SB 39 AUTHOR: De Leon and Steinberg AMENDED: March 21, 2013 FISCAL COMM: Yes HEARING DATE: April 17, 2013 URGENCY: No CONSULTANT:Kathleen Chavira NOTE : This bill has been referred to the Committees on Education and Energy, Utilities and Communications. A "do pass" motion should include a referral to the Senate Energy, Utilities and Communications Committee. SUBJECT : Clean Energy Employment and Student Advancement Act of 2013. SUMMARY This bill enacts the Clean Energy Employment and Student Advancement Act of 2013 which requires the Office of Public School Construction, in consultation with the State Energy Resources Conservation and Development Commission (CEC) and the Public Utilities Commission (PUC), and pursuant to the provisions of the Clean Energy Jobs Act established by Proposition 39 in November 2012, to: 1)Establish a competitive grant program to provide assistance to K-12 school districts for the purpose of energy efficiency upgrade projects. 2)Develop a financing program by evaluating the potential to fund energy efficiency projects for K-12 schools, California Community Colleges (CCC) and campuses of the University of California (UC) and the California State University (CSU), through matching funds, low-interest loans, or other financing methods. BACKGROUND In November 2012, the voters passed Proposition 39, enacting the California Clean Energy Jobs Act (Act) which changed the way SB 39 Page 2 multistate corporations are taxed in California and provided for the use of the new revenues this change would generate. Elements of the Act include the following: 1) From 2013-14 through 2017-18, half of the annual revenue (up to $550 million) raised from the measure must be transferred to a new Clean Energy Job Creation Fund (Fund). Moneys in the fund are to be available for appropriation to fund projects that create jobs in California, improving energy efficiency and expanding clean energy generation. 2) An outline of the type of eligible projects that could be included at public schools, colleges, universities, and other public buildings and for job training and workforce development purposes and public-private partnerships. 3) Criteria applicable to all fund expenditures which includes that: a) Project selection and oversight be managed by state and local government agencies with expertise in managing energy projects and programs. b) Projects be selected on the basis of in-state job creation and energy benefits, cost-effectiveness (total benefits greater than project costs over time, including non-energy benefits). c) Contract requirements to identify project specifications, costs, and project energy savings. d) All projects are subject to audit. e) Program overhead costs are capped at four percent. f) Funds only be appropriated to agencies with established expertise in managing energy projects and programs. g) All funded programs be required to coordinate with the California Energy Commission (CEC) and the California Public Utilities Commission (PUC) in order to avoid duplication and leverage existing energy efficiency and clean energy efforts. SB 39 Page 3 4) Establishment of a Citizens Oversight Board comprised of nine members, to be appointed by the Treasurer, Controller, and Attorney General and tasked with the responsibility of annually reviewing all fund expenditures, commissioning and reviewing an independent audit of the fund and a selection of completed projects and their effectiveness in meeting the Act's objectives, and annually publishing a complete accounting of all expenditures. The Citizen's Oversight Board is also required to submit an evaluation of the program to the Legislature identifying any necessary changes to meet the Act's objectives. (Public Resources Code Division 16.3, commencing with 26200) Current law establishes the 10-member State Allocation Board and provides that members consist of the Director of Finance; the Director of Department of General Services; a person appointed by the Governor; the Superintendent of Public Instruction; three members of the Senate appointed by the Senate Committee on Rules two of whom shall belong to the majority party and one of whom shall belong to the minority party; and three members of the Assembly appointed by the Speaker of the Assembly, two of whom shall belong to the majority party and one of whom shall belong to the minority party. Current law authorizes the SAB to apportion funds for the construction of school facilities and to establish any qualifications, procedures and policies, and rules and regulations it deems necessary to administer and expend funds made available for school facility construction purposes. (Education Code § 17070.35, Government Code § 15490) Current law also establishes the Office of Public School Construction (OPSC) within the Department of General Services and authorizes DGS to assign an executive officer to the OPSC. The executive officer may be appointed by the Governor, upon recommendation of the Director of DGS and serves at the Director's pleasure. (Government Code § 14620) ANALYSIS This bill establishes the Clean Energy Employment and Student Advancement Act of 2013 to provide for the use of funds generated as a result of the Clean Energy Jobs Act established by Proposition 39 in November 2012. More specifically it: 1) Requires the OPSC, in consultation with the State Energy SB 39 Page 4 Resources Conservation and Development Commission and the Public Utilities Commission to establish a competitive grant program to distribute funds to economically disadvantaged school communities for energy efficiency upgrade projects that offer the highest energy efficiency savings. Additionally it requires the OPSC to: a) Encourage full participation in the program by offering technical assistance to all applicants. b) Use existing benchmarking tools to determine present average energy consumption for a school facility by size and type. 2) Requires the OPSC to award a grant, upon approval of the State Allocation Board, only to proposed projects that: a) Meet the qualifications of an energy efficiency upgrade project. b) Assure district compliance with the required labor compliance and contractor qualification standards. c) Meet all implementation costs for the project with the grant and any other matching contribution. d) The school district agrees to allow OPSC to audit all expenditures made with grant funds and to track and report to OPSC the number of jobs created by the project and the operational costs savings and the district and site level. 3) Requires the OPSC to assign higher priority to energy efficiency upgrade project applications that meet additional criteria. Specifically, higher priority is assigned if the proposed project: a) Is located at a school facility with an above average energy consumption, as specified. b) Is located in an economically disadvantaged school community based on the percentage of pupils eligible for the federal free and SB 39 Page 5 reduced-price lunch program. c) Is located in an area with an above average unemployment rate as compared to the statewide unemployment rate. d) Has actively involved pupils and classified school employees at the school facility site in the planning and design of the energy efficiency upgrade project. e) Includes a plan to fund and train classified school employees to service and maintain the projects. f) Enhances workforce development and employment opportunities, utilizes members of the California Conservation Corps or certified local conservation corps, or accommodates learning opportunities for school pupils or at risk youth in the community. g) Maximizes the investment and benefit to the public through a joint partnership between two or more agencies including, but not limited to, other school districts, nonprofit organizations, and local government agencies. 4) Requires the Office of Public School Construction (OPSC), in consultation with the State Energy Resources Conservation and Development Commission, to develop a financing program by evaluating the potential to fund projects, for K-12 schools, community colleges, and campuses of the UC and the CSU through the use of matching funds, low-interest loans, or other financing methods. 5) Authorizes the OPSC to establish standards for implementation of the financing program required by the bill upon the appropriation of funds to implement the financing program by the Legislature. 6) Makes a number of related declarations and findings. STAFF COMMENTS 1) Why schools ? According to the author, seventy percent of SB 39 Page 6 school facilities in California are over 25 years old, and there are over 919,000 K-12 students in classrooms that are in need of modernization. The author asserts that studies show that the continuing high cost of energy and utilities due to inefficient lighting, insulation, heating ventilation and air conditioning systems, plumbing, windows and irrigation systems, take needed money away from educational programs. Energy efficiency improvements for public schools will reduce long-term energy costs and the savings can be directed to classroom needs. According to the US Environmental Protection Agency (EPA), modification of pre-existing buildings for energy efficiency can save a typical 100,000 square-foot school building between $10,000 and $16,000 annually, and simple behavioral and operational measures alone can reduce energy costs by up to 25 percent. (U.S. EPA 2008). Proposition 39 specifically provides that project selection may include consideration of non-energy benefits. In the case of schools, benefits could include the redirection of operational savings from the use of more energy efficient systems to educational programs and the realization of healthier and more productive learning environments for students. 2) More on Proposition 39 . Proposition 39 specifically articulates as its objective the creation and then employment of Californians in energy efficiency and clean energy jobs and achievement of the maximum amount of job creation and energy benefits with available funds. It also provides that funding to achieve these objectives may be provided for: a) Projects to conduct energy efficiency retrofits and clean energy installations in public schools, universities and colleges, and other public facilities. b) Financial and technical assistance that includes revolving loan funds and reduced interests loans for these projects at other public facilities and for public-private partnerships. c) Training and employment of disadvantaged youth, veterans, and others, on energy efficiency and clean energy projects, specifically SB 39 Page 7 citing the California Conservation Corps, Certified Community Conservation Corps, YouthBuild, and other existing workforce development programs. 3) Related budget proposal . The Governor's proposed 2013-14 budget includes a plan to implement the provisions of Proposition 39 by designating all Clean Energy Job Creation Fund monies for K-12 schools and community colleges in 2013-14 and for the subsequent four years. The Governor's proposal appropriates 89 percent of the funding to the California Department of Education (CDE) and 11 percent to the California Community Colleges (CCC) Chancellor's Office who are to allocate this funding to districts on a per-student basis. The CDE and Chancellor's Office would issue guidelines, which could be developed in consultation with California Energy Commission and the Public Utilities Commission, for prioritizing the use of the funds by districts. School districts and community college districts would report their project expenditure information to CDE and the Chancellor's Office, respectively, upon project completion. According to the Legislative Analyst's Office (LAO), in 2013-14, the Governor's proposal for distribution of these funds would result in school districts and community college districts receiving $67 and $45 per student, respectively. The LAO has proposed an alternative to the Governor's proposal which would designate the CEC as the lead agency, in consultation with the PUC for distributing Fund monies through a competitive grant program open to all public agencies. Applicants would first be required to have an energy audit performed to identify potential cost-effective energy upgrades, and include in their application information regarding climate zone, size, design, and age of a building. 4) Is this the appropriate agency/structure ? Although this bill requires the Office of Public School Construction (OPSC) to consult with the California Energy Commission (CEC) and Public Utilities Commission (PUC), as currently drafted this bill extends very broad authority to the OPSC to implement the provisions of Proposition 39. It may be that other agencies are better equipped to develop SB 39 Page 8 processes, criteria, and programs for implementing Proposition 39 and for evaluating savings from energy efficiency and renewable energy projects. However, to the extent that it is the intent to distribute Proposition 39 funding to school districts, arguably no single agency possesses all the expertise necessary to administer every element of a successful program. The OPSC's strength is in its experience and existing infrastructure for administering and processing applications for school facility programs and projects, as well as the performance of the program audit function. The California Department of Education may be more appropriate to conduct outreach, marketing and analysis of applicants to ensure broad participation in the program. The CEC likely has the best understanding of energy audit standards and procedures. Staff recommends the bill be amended to assign responsibility as follows: a) CEC to outline criteria which must be met in order to participate in the program and to establish energy audit standards and procedures, reporting standards, project approval criteria, and priorities relative to energy standards b) OPSC to administer, process and distribute funds to local educational agencies that meet the conditions outlined in EC § 26234, to rank priority for these funds on the basis of criteria outlined in EC § 26235, and to perform program expenditure audits, as specified in EC § 26234. c) CDE, in consultation with the OPSC, to provide technical assistance to schools, implement outreach and marketing strategies for the program and conduct analysis of participation, to inform and modify their outreach and marketing efforts. 5) Conditions versus Criteria . It is the intent of this bill to outline conditions which must be met in order to participate in the program and then establish criteria for evaluating and ranking applications received from school districts. As currently drafted, the bill appears to establish two sets of criteria, and to require districts to achieve all elements outlined in order to be granted higher SB 39 Page 9 priority. Staff recommends the bill be amended on page 6 line 7 to replace "criteria" with "conditions" and on page 6 line 23 to clarify that, "In evaluating and ranking applications for grants that meet the conditions of EC § 26234, the office shall develop a methodology to assign priority points to an application that meets any of the following criteria." 6) Clarification of criteria for prioritization . This bill currently establishes criteria for ranking an application that requires the district has actively involved pupil and classified school employees in the planning and design of the project and that includes a plan to fund and train classified school employees to service and maintain the project. It is questionable whether students and classified employees have the skills necessary to engage in facility planning and design, and requirements to fund and train specific employees could place the Office of Public School Construction (OPSC) in the inappropriate position of enforcing the hiring and professional development of a specific group of employees, elements more appropriately left to the bargaining process. According to the author, it was the intent of these provisions to ensure that students and employees receive training and information to understand how they can support and maximize the achievement of energy efficiency savings envisioned by these projects. Staff recommends the bill be amended to delete the current relevant provisions and to reflect the author's intent. 7) Financing program . This bill directs the OPSC, in consultation with the California Energy Commission (CEC), to evaluate the potential to develop a financing program for K-12 districts, CCCs, CSU, and the UC and, to establish standards for implementation of such a program. According to the author, this section of the bill is intended to respond to provisions in the Act which provide for financial and technical assistance through revolving loan funds, reduced interest loans, or other financial assistance for achieving the goals outlined in the Act, particularly for higher education institutions. The OPSC has some limited experience with extending loans from state bond funds to districts for purposes of the Career Technical Education Facilities program, but it is the California School Finance Authority within the Treasurer's Office which conducts the financial soundness analysis that SB 39 Page 10 qualifies charter school applicants for grants and loans through the Charter School Facility Program. In addition, CEC has experience administering the Bright Schools Program which offers school districts a number of energy efficiency design services and low interest loans from the Energy Commission to finance recommended projects. To more appropriately achieve the author's intent, staff recommends the bill be amended to delete lines 15-28 on page 7 and to instead require the CEC, in coordination with the Treasurer's Office to develop guidelines for a financing program that utilizes revolving loan funds, reduced interest loans or other financial assistance for energy efficiency and clean energy projects at community colleges, CSU and the UC. 8) Unresolved questions to consider . As currently drafted, this bill fails to address a number of education policy issues/questions. The committee may wish to consider the following: a) What structure is necessary to ensure access to these funds for smaller school districts that may not have the in-house staff to be successful in a competitive grant program? b) Should there be a cap on the amount of funding able to be received by a single district? c) Should a smaller district be assured a specified level of funding whether or not an energy audit indicates sufficient project costs to expend all funds? d) How will the assessment of needs and potential savings via an energy audit be standardized across all school districts throughout the state? e) Should the priority for funds be adjusted to reflect variations in energy savings across the state based on climate zones in order to ensure fairer competition for the funds by school districts? f) How can a program be structured to ensure the costs to a district to effectively compete for grants are minimized and to maximize the use of moneys to SB 39 Page 11 fund local employment opportunities and actual project costs? g) Does/should the bill provide for sufficient support of energy efficiency retrofits and clean energy installations at the CCC, UC and CSU? h) Should a parallel competitive grant program be established for community colleges through the Chancellor's Office? i) How should efforts to ensure broad participation be balanced against the initiative requirement to maximize job creation and energy savings? 9) Similar Legislation . Several bills that propose implementation of the provisions of Proposition 39 have been introduced this session. These include: SB 64 (Corbett) designates the California Energy Commission as the lead agency to establish a grant program to distribute Proposition 39 funds to school districts cities and counties for energy efficiency and clean energy technology in school and municipal facilities. SB 64 has been referred to the Senate Energy, Utilities and Communications Committee and is set for hearing on April 16, 2013. SB 729 (Fuller) states the intent of the Legislature to enact legislation to implement the provisions of Proposition 39. SB 729 is pending referral in the Senate Rules Committee. AB 39 (Skinner and Perez) requires the CEC to administer grants, no-interest loans, or other financial assistance and to establish a priority system to K-12 school districts for projects that create jobs in California by reducing energy demand and consumption at their institutions and further requires the CEC to establish a priority system to prioritize eligible institutions for this program, in consultation with the Superintendent of Public Instruction. AB 39 is pending hearing in the Assembly Natural Resources Committee. AB 114 (Salas) requires the Employment Development SB 39 Page 12 Department, using funds made available from the Clean Energy Job Creation Fund for job training and workforce development purposes, to administer grants, no-interest loans, or other financial assistance for allocation to existing workforce development programs for the purposes of creating green energy jobs in California. AB 114 has been referred to both the Assembly Natural Resources and Utilities and Commerce committees. AB 239 (Hagman) requires the Office of Public School Construction, in consultation with the CEC and the PUC, to expend moneys to fund a zero-interest revolving loan program and a grant program for school districts to perform energy efficiency retrofit or clean energy installation projects at public schools. AB 239 has been referred to both the Assembly Natural Resources and Utilities and Commerce committees and is pending hearing in the Assembly Natural Resources committee. AB 293 (Allen) requires the CEC, in consultation with the PUC and other state agencies it deems appropriate, to develop a program to award funding, on a competitive basis, for the purposes established by Proposition 39, and requires a report to the Legislature on the progress, applicants and disbursement of funds and to make recommendations to improve allocation of these funds by July 1, 2016. SUPPORT African American Student Social Work Association American Lung Association California School Boards Association California School Employees Association, AFL-CIO County Schools Facilities Consortium Los Angeles Unified School District PolicyLink School Energy Coalition South Coast Air Quality Management District TRANE OPPOSITION SB 39 Page 13 None received.