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 23, 2013      Consultant: Marie Liu
          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,  


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          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  

          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  
                 Delete the PFCA and transfer its expenditures and  
               revenues to the RUST Account; and
                 Appropriates $8 million from the USTCF to the RUST  

          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  

          Currently there is a significant structural imbalance in the  


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          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.