BILL ANALYSIS Ó Senate Appropriations Committee Fiscal Summary Senator Kevin de León, Chair SB 511 (Lieu) - Coastal resources: climate change: grants. Amended: April 30, 2013 Policy Vote: NR&W 8-1 Urgency: No Mandate: No Hearing Date: May 13, 2013 Consultant: Marie Liu This bill meets the criteria for referral to the Suspense File. Bill Summary: SB 511 would require the Natural Resources Agency (agency), in coordination with the State Air Resources Board (ARB) to develop guidelines for the awarding grants for projects that enhance greenhouse gas emissions avoidance and sequestration associated with natural resources. Fiscal Impact: Ongoing costs, likely in the hundreds of thousands of dollars, from the GHG Reduction Fund (special) to the Natural Resources Agency for administration of a grant program. Background: The California Global Warming Solutions Act of 2006 (AB 32 (Nunez/Pavley) Chapter 488/2006) requires the state's greenhouse gas (GHG) emissions to be reduced to 1990 levels by 2020. One of the actions to achieve the required GHG reductions is through a "cap and trade" market-based compliance mechanism where permits to emit GHG emissions can be purchased and sold on the open market with the goal that the overall emission reduction is reached at the least cost. The first auction for credits held by ARB was on November 2013 and will continue quarterly. Revenues are deposited in the GHG Reduction Fund (fund). AB 1532 (Perez) Chapter 807/2012 required that the fund be used for specified purposes. To that end, AB 1532 required the Department of Finance, in consultation with ARB and other state agencies to develop a three-year investment plan identifying priority programmatic investments of auction proceeds. SB 535 (de Leon) Chapter 535/2012 further required that at least 10% of the fund be spent for projects in disadvantaged communities and at least 25% for projects that benefit disadvantaged communities. SB 511 (Lieu) Page 1 Proposed Law: This bill would require the agency, in coordination with the ARB, to develop guidelines for the awarding of grants for projects that enhance GHG emission avoidance and sequestration associated with natural resources. Specifically, eligible projects would be required to reduce GHG emissions, provide incentives for pilot projects that act as models for enhancing natural resources emission reductions and sequestration, leverage other funds, promote investments in projects with co-benefits including adaptation, and ensure funding of projects in disadvantaged communities. The agency is directed to use existing programs. This bill would also exempt the development of the guidelines from the Administrative Procedure Act. Related Legislation: In this session, SB 798 (de Leon/Pavley), AB 416 (Gordon), AB 574 (Lowenthal), AB 1023 (Eggman), and AB 1375 (Chau) all propose various expenditures from the GHG Reduction Fund. Staff Comments: The author's intention in this bill is to guide the spending of monies from the GHG Reduction Fund, although there is no language in the bill that actually indicates that the grant guidelines are for the spending of GHG Reduction Fund monies. Additionally, the bill language is unclear whether the agency would be directed to establish guidelines for a new grant program or whether the agency would only be allowed to use existing programs. Assuming that the agency would be in charge of implementing a new grant program, administrative costs are usually approximately 5% of the monies to be allocated. Assuming that the grant program would be allocating millions of dollars, administrative costs are likely in the hundreds of thousands to millions of dollars. The ARB released its draft Investment plan in April with the final anticipated being released with the Governor's revised budget in May. The draft established three investment priorities: sustainable communities and clean transportation, energy efficiency and clean energy, natural resources and waste diversion. While there appears to be shared goals between this bill and the investment plan, it is unclear how this bill is meant to interact with the investment plan. SB 511 (Lieu) Page 2 The Administrative Procedure Act (APA, beginning at Section 11340 of the Government Code) prohibits state agencies from issuing or enforcing any rule, regulation, order, or standard of general application unless it has been issued as a regulation under the APA. The purpose of the APA is to provide the public with meaningful opportunity to participate in the adoption of state regulations and to ensure that regulations are clear, necessary, and legally valid. Staff notes that exempting the agency's guidelines from the APA may reduce administrative costs for the agency, at least initially, but possibly at the expense of a less vigorous review of the guidelines than is provided under the APA process.