BILL ANALYSIS                                                                                                                                                                                                    



                                                                  SB 763
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          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  








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            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.









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          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 :








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           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  








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            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  








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               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








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             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