BILL ANALYSIS Ó SB 763 Page 1 Date of Hearing: July 2, 2013 ASSEMBLY COMMITTEE ON ENVIRONMENTAL SAFETY AND TOXIC MATERIALS Luis Alejo, Chair SB 763 (Fuller) - As Amended: April 23, 2013 SENATE VOTE : 39-0 SUBJECT : Underground storage tanks SUMMARY : Eliminates the sunset date on the loans and grants program known as the Replacing, Removing, and Upgrading Tanks (RUST) Program, changes the interest rate on the loans, reduces the share of funds that may be used for grants, and transfers $8 million from the Underground Storage Tank Cleanup Fund to the Petroleum Underground Storage Tank Financing Account. Specifically, this bill : 1)Repeals the sunset date on the RUST Program which authorizes the State Water Resources Control Board (State Water Board) to make loans and grants to small businesses to replace, remove, and upgrade underground storage tanks. 2)Removes the restriction on the State Water Board from making a RUST loan only to those applicants who cannot obtain a loan from a private institution, the California Pollution Control Financing Authority, or any other governmental board. 3)Sets the interest rate for RUST loans at one-half of the most recent General Obligation Bond rate obtained by the Office of the State Treasurer at the time of the loan commitment. 4)Requires the loan fee for a RUST loan to be deposited in the Petroleum Underground Storage Tank Financing Account. This financing account exists to receive governmental funds and repayments of loans and interest and late fees on those accounts. The funds in this account are subject to appropriation by the Legislature and can be used by the State Water Board only to make loans and grants to applicants. 5)Removes the authority of the State Water Board, when the total amount of grant requests exceed the amount in the Petroleum Underground Storage Tank Financing Account, to adopt a priority ranking list to award grants based upon the level of demonstrated financial hardship of the eligible grant SB 763 Page 2 applicant or the relative impact upon the local community. 6)Reduces from 33 percent to 15 percent the maximum share of RUST grants that can be awarded from the Petroleum Underground Storage Tank Financing Account. 7)Transfers $8 million from the fees collected in the Underground Storage Tank Cleanup Fund to the Petroleum Underground Storage Tank Financing Account, and appropriates this sum for RUST loans and grants. 8)Repeals the Petroleum Financing Collection Account in the California Economic Development and Grant and Loan Fund. 9)Makes a series of corrections to obsolete or erroneous code references in the laws governing RUST loans and grants. EXISTING LAW : 1)Restricts the State Water Board to making RUST loans only to applicants who cannot obtain a loan, with reasonable terms, from a private financial institution, the California Pollution Control Financing Authority, or any other governmental board. 2)Sets the interest rate for loans to replace, remove, or upgrade underground storage tanks at the rate earned by the Surplus Money Investment Fund. 3)Requires the loan fee charged applicants to replace, remove or upgrade an underground storage tank be deposited in the Petroleum Financing Collection Account. This collection account is created for the purpose of receiving charges, fees, and income including the costs of loan fees to applicants. These funds are continuously appropriated to the State Water Board for the costs necessary to protect the state's position as a lender-creditor. 4)Authorizes the State Water Board, when the total amount of grant requests exceed the amount in the Petroleum Underground Storage Tank Financing Account, to adopt a priority ranking list to award grants based upon the level of demonstrated financial hardship of the eligible grant applicant or the relative impact upon the local community where the project tank is located if the claim is denied. SB 763 Page 3 5)Creates the Petroleum Underground Storage Tank Financing Account in the State Treasury to receive governmental funds and to receive repayments of loans and interest and late fees on those accounts, and to make RUST loans and grants. 6)Specifies, that upon appropriation by the Legislature, the funds in the Petroleum Underground Storage Tank Financing Account are used by the State Board to make RUST loans and grants. 7)Requires the State Water Board to annually make available no more than 33 percent of available funds from the Petroleum Underground Storage Tank Financing Account for RUST grants. 8)Establishes the Petroleum Financing Collection Account in the California Economic Development and Grant and Loan Fund solely for the purpose of receiving charges, fees, and income including the costs to administer the loan program (i.e., to impose reasonable charges on applications, impose a loan fee, recover collection costs, and earn income on assets recovered pursuant to a loan default) and for costs necessary to protect the state's position as a lender-creditor. 9)Authorizes the State Water Board, upon appropriation by the Legislature in the Budget Act, to expend funds in the subaccount in the Petroleum Underground Storage Tank Financing Account for administrative expenses of making RUST loans and grants. 10)Sunsets the RUST Program on January 1, 2016. FISCAL EFFECT : The State Water Board reports the following fiscal effects: 1)One-time transfer of $8 million from the Underground Storage Tank Cleanup Fund to finance loans and grants to replace, remove, and upgrade underground storage tanks. 2)Increased revenues of approximately $1.1 million over five years to the Petroleum Underground Storage Tank Financing Account (RUST Account) from increased investment interest and increased loan rates. COMMENTS : SB 763 Page 4 1)Source and Purpose of Bill. The source of this bill is the State Water Board. According to the author and the State Water Board, the purposes of this bill are to improve the efficiency and sustainability of the RUST Program. Extending the program and increasing its efficiency would enable the State Water Board to help more small businesses remove, replace, or upgrade their underground storage tanks to meet regulatory requirements, thereby helping to protect public health and the environment. 2)Background. Underground storage tanks (UST) and their components have the potential of leaking gasoline, diesel fuels, and fuel additives and other hazardous substances into the soil and groundwater, presenting a risk to public health and the environment. The cost of replacing, removing, or upgrading these tanks can be significant. Federal and state laws require owners of a petroleum UST to maintain financial responsibility to pay for the damages arising from their tank operations. The UST Cleanup Fund Act was enacted by the Legislature to help petroleum UST owners to meet the government requirements and pay for the cleanup of contaminated soil and groundwater when a leak is discovered. This fund is administered by the State Water Board. In addition, the State Water Board offers direct loans and grants through the RUST Program to assist small gas station owners and operators to comply with UST regulatory requirements. 3)RUST Program. Under the RUST Program, the State Water Board provides low-interest loans and grants to small businesses (such as gas stations) to assist them in upgrading, removing, or replacing their USTs to meet applicable local, state, or federal standards and to conduct corrective actions. The RUST Program is intended to be financed as a revolving fund where revenues generated from principal and interest payments on existing loans, along with user fees, are used to fund new loans and grants and to administer the program. This program is available for tank removals and upgrades, not for costs associated with remediation after a leak. The intent of the RUST Program is to prevent contamination. RUST loans are available to companies with fewer than 500 employees and may range from $10,000 to $750,000. These loans SB 763 Page 5 may be used to finance up to 100% of the costs necessary to remove, replace, or upgrade USTs, including corrective actions to meet applicable government standards including design, construction, monitoring, operation, or certain maintenance requirements. Typical eligible costs are replacing USTs, installing containment sumps, double-walled piping, dispensers, under dispenser containment boxes/pans, electronic monitoring systems, enhanced vapor recovery systems, and to conduct enhanced leak detection tests. During Fiscal Year 2011-12, the RUST Program approved 10 loans, awarding a total of $2.1 million (for an average loan amount of $210,023). These 10 loans made it possible to replace or upgrade 26 project tanks. In contrast, during Fiscal Year 2008-09, the RUST Program approved 29 loans, awarding a total of $4.7 million, which made it possible to replace or upgrade 87 project tanks. RUST grants are given to small businesses that are independently owned and operated with less than 20 employees. The grants range from $3,000 to $50,000 and these funds may be used to finance up to 100% of the costs necessary to upgrade USTs by installing containment sumps, double-walled piping, dispensers, under-dispenser containment boxes/pans, electronic monitoring systems, enhanced vapor recovery systems, and to conduct enhanced leak detection tests. During Fiscal Year 2011-12, the RUST Program approved 31 grants (averaging $46,000 per grant), awarding a total of $1.4 million in grants, which made it possible to remove or upgrade 69 project tanks. In contrast, during Fiscal Year 2009-10, the RUST Program approved 179 grants, awarding $7.3 million in grants, which made it possible to replace, remove, or upgrade 466 project tanks. 4)Existing problems. The State Water Board has identified a number of problems with current program requirements that lead to program inefficiencies and reduce the effectiveness of the program. Specifically, the State Water Board has identified the following problems: a) Current law requires the State Water Board to charge an extremely low interest rate on RUST loans (currently: 0.27% or approximately of 1 percent) and provides that not more than one-third of the RUST funds may be used for grants. As a result, expenditures in grant and loan moneys from the RUST fund historically have outpaced revenues from SB 763 Page 6 loan repayments and interest earnings, impacting the overall sustainability of the program. b) Current law establishes separate subaccounts for funding administrative costs and for the collection of various loan fees and interest charges. These separate subaccounts reduce the State Water Board's ability to efficiently and effectively manage the program, often unnecessarily tying up funds that could be used to make additional loans and grants. For example, the State Water Board's annual administrative costs usually are much lower than the revenues that are annually deposited into the administrative subaccount, but the State Water Board is unable to use the excess funds to provide additional grants and loans. c) Current law establishes various administrative requirements on loan applicants and the State Water Board that have proven to be unnecessary. 5)How bill addresses the problems. According to the author and the State Water Board, the bill addresses the problems, noted above, as follows: a) Provides a one-time transfer of $8 million from the Underground Storage Tank Cleanup Fund (USTCF) to reinvigorate the RUST Program; b) Eliminates two underused subaccounts and transfer the unexpended moneys to the main program account; c) Changes the interest rate for RUST loans from the Surplus Money Investment Fund (currently 0.275 of 1 percent) to one-half of the General Obligation Bond rate (would be 1.9 percent) for a more reliable interest rate to ensure a revolving fund. This new rate would be the same as the rate charged by the State Clean Water Revolving Fund; that is used to finance waste water treatment projects. d) Reduces the percentage of available funds that may be used for grants from 33 percent to 15 percent; e) Deletes unnecessary RUST loan eligibility requirements and grant provisions; and SB 763 Page 7 f) Eliminates the sunset date on the RUST Program to better ensure long-time viability and the ability to make necessary loans and grants to small businesses. 6)What is the optimum split of the funds for grants and loans? Current law sets the maximum percentage of RUST funds that may be used for grants at 33 percent. In fact, during the most recent year for which data is available, Fiscal Year 2011-12, the percent of funds awarded for grants was approximately 33 percent. This bill proposes to reduce the maximum percentage available for grants to 15 percent. Since grant funds are reserved for the smallest businesses in the state, which may have the hardest time meeting payroll and remaining in business, should the percentage of funds be reduced for this, arguably, more at-risk set of businesses? Current law already provides administrative flexibility to decide what percentage of funds shall be awarded in grants. If more statutory guidance is sought, perhaps a smaller reduction from the 33 percent should be considered. REGISTERED SUPPORT / OPPOSITION : Support State Water Resources Control Board (Source/Sponsor) California Independent Oil Marketers Association California Service Station and Auto Repair Association CORE Environmental Reform, Inc. Opposition None received. Analysis Prepared by : Manny Hernandez / E.S. & T.M. / (916) 319-3965