BILL ANALYSIS Ó Senate Appropriations Committee Fiscal Summary Senator Kevin de León, Chair SB 763 (Fuller) - State Water Resources Control Board: underground storage tanks. Amended: April 23, 2013 Policy Vote: EQ 9-0 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 763 deletes the sunset date of the Replacing, Removing, or Upgrading Underground Storage Tanks Program (RUST Program) and revises loan eligibility and grant award requirements. This bill would also consolidate two accounts that fund the RUST Program and would make an $8 million appropriation from the Underground Storage Tank Cleanup Fund (USTCF) to the RUST Program for grants and loans. Fiscal Impact: One-time appropriation of $8 million from the USTCF (special) to fund the RUST Program. Increased revenues of approximately $1.1 million over five years to the Petroleum Underground Storage Tank Financing Account (RUST Account) (special) from increased investment interest and increased loan rates. One-time increase of $2.7 million into the RUST Account from the Petroleum Underground Storage Tank Financing Account (PUSTFA). On-going increased annual expenditures of approximately $400,000 from the RUST Account for administrative costs that are currently funded by the PUSTFA. Background: The Barry Keen Underground Storage Tank Cleanup Trust Fund Act of 1989 requires every owner of an underground storage tank to pay a storage fee for each gallon of petroleum placed in the tank. The fees are deposited in the Underground Storage Tank Cleanup Fund (USTCF), which may be used to pay for abatement and oversight costs of unauthorized releases of hazardous substances from underground storage tanks. The USTCF may also be used to make transfers to the RUST Account. The RUST Program is a program designed to assist small, SB 763 (Fuller) Page 1 independent gas retailers, who cannot otherwise afford the expense associated with required tank and related equipment upgrades and/or removal, to remain in business. Under the RUST Program, the State Water Resources Control Board (SWRCB) awards grants or loans from the RUST Account to replace, remove, or upgrade underground storage tanks. No more than 33% of the funds allocated may be for grants. The interest rate for loans is equal to the rate earned by the Surplus Money Investment Fund (SMIF) at the time of the loan commitment. The RUST Program sunsets on January 1, 2016. Existing law requires principal payments on loans to be deposited back into the RUST Account but interest payments on loans and investment interest are deposited into a subaccount, the Petroleum Underground Storage Tank Financing Account (PUSTFA) which may be expended for SWRCB's administration of the RUST program. Proposed Law: This bill would eliminate the sunset date on the RUST program would revise loan eligibility and grant award requirements. The bill would also make several changes regarding the financing of the program. Specifically, this bill would: Cap the percentage of financial assistance given as grants to 15% of the RUST Account; Require that the interest rate for the loans be equal to half the most recent general obligation rate at the time of commitment; Delete the PFCA and transfer its expenditures and revenues to the RUST Account; and Appropriates $8 million from the USTCF to the RUST account. Staff Comments: The RUST Program helps protect California's drinking water from contaminants and ensures that necessary fuel supplies, particularly in rural areas, are maintained. To the extent that the RUST program helps prevent contamination from underground storage tanks, it reduces future cost pressures on the USTCF. There is a greater than a dollar-for-dollar savings as preventing contamination is substantially less expensive than remediation. Currently there is a significant structural imbalance in the SB 763 (Fuller) Page 2 RUST Account. This bill would improve the sustainability of the fund by: Increasing the focus on loans over grants; Increasing the loan interest rate (Currently the SMIF rate is just below 1%, whereas half the general obligation rate is 1.9%); Transferring $8 million from the USTCF to the RUST Account which increases both the principal in the account and the investment interest on the principal. According to the SWRCB, over the next five years, these changes are estimated to bring an additional $1.1 million into the RUST Account. Staff notes that the PFCA has a fund balance of $2.7 million, so that combining the PFCA and the RUST Account will bring additional principal and investment interest revenues into the program. Staff notes that even with this bill's provisions, an imbalance will likely still remain in the RUST Account. As this bill also removes the sunset provisions on the RUST Program, additional actions will be needed to solve the structural imbalance. This bill would appropriate $8 million of the USTCF, which is currently oversubscribed. USTCF funds are allocated based on a priority basis. As this bill slightly decreases the available funds in the USTCF for one year, this bill will increase the amount of time that low priority projects must wait for funding. However, given that $8 million is a relatively small portion of the USTCF and that the RUST Program reduces future cost pressures on the USTCF, staff believes that the appropriation is a reasonable investment.