BILL ANALYSIS Ó SENATE COMMITTEE ON ENVIRONMENTAL QUALITY Senator Wieckowski, Chair 2015 - 2016 Regular Bill No: AB 1205 ----------------------------------------------------------------- |Author: |Gomez | ----------------------------------------------------------------- |-----------+-----------------------+-------------+----------------| |Version: |5/5/2015 |Hearing |7/1/2015 | | | |Date: | | |-----------+-----------------------+-------------+----------------| |Urgency: |No |Fiscal: |Yes | ------------------------------------------------------------------ ----------------------------------------------------------------- |Consultant:|Rebecca Newhouse | | | | ----------------------------------------------------------------- SUBJECT: The California River Revitalization and Greenway Development Act of 2015 ANALYSIS: Existing law: 1) Under the California Global Warming Solutions Act of 2006 (AB 32), requires the California Air Resources Board (ARB) to adopt a statewide greenhouse gas (GHG) emissions limit equivalent to 1990 levels by 2020 and to adopt rules and regulations to achieve maximum technologically feasible and cost-effective GHG emission reductions. (Health and Safety Code (HSC) §38500 et seq.) 2) Establishes the Greenhouse Gas Reduction Fund (GGRF) in the State Treasury, requires all moneys, except for fines and penalties, collected pursuant to a market-based mechanism be deposited in the fund and requires the Department of Finance, in consultation with ARB and any other relevant state agency, to develop, as specified, a three-year investment plan for the moneys deposited in the GGRF. (Government Code §16428.8) 3) Prohibits the state from approving allocations for a measure or program using GGRF moneys except after determining that the use of those moneys furthers the regulatory purposes of AB 32, and requires moneys from the GGRF be used to facilitate the achievement of reductions of GHG emissions in California. (HSC §39712) AB 1205 (Gomez) Page 2 of ? 4) Authorizes expenditures from the GGRF for investments that reduce GHG emissions associated with water use and supply, land and natural resource conservation and management, forestry, and sustainable agriculture. (HSC §39712) 5) Requires the Department of Finance, in the GGRF investment plan, to allocate at least 25% of available moneys in the GGRF to projects that provide benefits to disadvantaged communities, and at least 10% to projects located within disadvantaged communities. (HSC §39713 ) 6) Under the California River Parkways Act of 2004, requires the California Natural Resources Agency (CNRA) to provide grants for river parkway projects that acquire land for river parkways or for the restoration, protection, and development of river parkways. (Public Resources Code §5750 et seq.) 7) Authorizes the Department of Water Resources to establish a program of flood damage reduction and urban creek restoration known as the Urban Streams Restoration Program. (Water Code Section §7048) 8) Creates the Active Transportation Program in the California Department of Transportation for the purpose of encouraging increased use of active modes of transportation, such as biking and walking. (Streets and Highways Code §2380) This bill: 1) Makes various findings regarding the GHG emission reduction benefits and environmental cobenefits of river systems. 2) Declares it is the intent of the Legislature to protect, restore, and enhance a network of river systems and riparian corridors. 3) Requires CNRA to establish a grant program for eligible applicants to develop projects that assist with implementing AB 32 and requires CNRA to prioritize funding for projects that provide the greatest level of the following cobenefits: a) Recreational access and improved human interactions, especially in urban corridors and park-starved AB 1205 (Gomez) Page 3 of ? communities. b) Transportation mobility, especially pedestrian, bicycle, and public transit. c) Economic viability by promoting appropriate development, especially in an urban setting. d) Development of visitor-serving and interpretive facilities. e) Access and development of pocket parks, community gardens, demonstration gardens, and other urban greening. f) Species protections and the protection of habitat strongholds, including improved wildlife corridors. g) Improved resiliency in the face of unavoidable impacts from climate change. h) Improved water supply and water quality. i) Job training and workforce development, especially projects that involve disadvantaged youth and veterans. j) Improved stormwater retention. aa) Improvements along impaired water bodies. 4) Requires projects receiving grants to be consistent with AB 32, the California Water Action Plan, The Safeguarding California Plan, and requirements for GGRF investments in disadvantaged communities. 5) Requires CNRA to prioritize funding for projects with the following characteristics: a) Are consistent with a parkway, greenway, or urban greening plan. b) Leverage moneys from the Water Quality, Supply, and Infrastructure Improvement Act of 2014 (Proposition 1). c) Provide recreational access to a major metropolitan AB 1205 (Gomez) Page 4 of ? area of the state. 6) Creates the CalRIVER fund to receive appropriations from the Legislature from bond proceeds and special funds, including, but not limited to, GGRF. Background AB 1205 creates the CalRIVER program, with funding for the program authorized from the GGRF. Whereas the use of GGRF moneys is the jurisdiction of this committee, provisions relating specifically to the need for, and details of, the river revitalization program created in the bill, are within the jurisdiction of the Senate Natural Resources Committee, and are not considered in this analysis. 1) Cap-and-trade auction revenue. ARB has conducted 11 cap-and-trade auctions. The first 10 have generated almost $1.6 billion in proceeds to the state. Several bills in 2012, and one in 2014, provided legislative direction for the expenditure of auction proceeds including: SB 535 (de Leon, Chapter 830, Statutes of 2012) requires that 25% of auction revenue be used to benefit disadvantaged communities and requires that 10% of auction revenue be invested in disadvantaged communities. AB 1532 (J. Perez, Chapter 807, Statutes of 2012) directs the Department of Finance to develop and periodically update a three-year investment plan that identifies feasible and cost-effective GHG emission reduction investments to be funded with cap-and-trade auction revenues. AB 1532 specifies that reduction of greenhouse gas emissions through water use and supply, land and natural resource conservation and management, forestry, and sustainable agriculture, are eligible investments of GGRF. SB 1018 (Budget and Fiscal Review Committee, Chapter 39, Statutes of 2012) created the GGRF, into which all auction revenue is to be deposited. The legislation requires that before departments can spend moneys from the GGRF, they must prepare a record AB 1205 (Gomez) Page 5 of ? specifying: (1) how the expenditures will be used, (2) how the expenditures will further the purposes of AB 32 (Nunez and Pavley, Chapter 488, Statutes of 2006), (3) how the expenditures will achieve GHG emission reductions, (4) how the department considered other non-GHG-related objectives, and (5) how the department will document the results of the expenditures. SB 862 (Budget and Fiscal Review Committee, Chapter 36, Statutes of 2014) requires the ARB to develop guidelines on maximizing benefits for agencies administering GGRF funds and guidance for administering agencies on GHG emission reduction reporting and quantification methods. Legal consideration of cap-and-trade auction revenues. The 2012-13 budget analysis of cap-and-trade auction revenue by the Legislative Analyst's Office noted that, based on an opinion from the Office of Legislative Counsel, the auction revenues should be considered mitigation fee revenues, and their use requires that a clear nexus exist between an activity for which a mitigation fee is used and the adverse effects related to the activity on which that fee is levied. Therefore, in order for their use to be valid as mitigation fees, revenues from the cap-and-trade auction must be used to mitigate GHG emissions or the harms caused by GHG emissions. In 2012, the California Chamber of Commerce filed a lawsuit against the ARB claiming that cap-and-trade auction revenues constitute illegal tax revenue. In November 2013, the superior court ruling declined to hold the auction a tax, concluding that it's more akin to a regulatory fee. The plaintiffs filed an appeal with the 3rd District Court of Appeal in Sacramento in February of last year. AB 32 auction revenue investment plan. The first three-year investment plan for cap-and-trade auction proceeds, submitted by Department of Finance, in consultation with ARB and other state agencies in May of 2013, identified sustainable communities and clean transportation, energy efficiency and clean energy, and natural resources and waste diversion as the three sectors that provide the best opportunities, in that order, for achieving the legislative goals and supporting the purposes of AB 32. For natural resources AB 1205 (Gomez) Page 6 of ? investments, the plan recommends funding ecosystem management projects for their ability to sequester carbon, as well as their co-benefits to human health and the environment. Budget allocations. The 2014-15 Budget allocates $832 million in GGRF revenues to a variety of transportation, energy, and resources programs aimed at reducing GHG emissions. Various agencies are in the process of implementing this funding. SB 862 (Budget and Fiscal Review Committee), the 2014 budget trailer bill, established a long-term cap-and-trade expenditure plan by continuously appropriating portions of the funds for designated programs or purposes. The legislation appropriates 25% for the state's high-speed rail project, 20% for affordable housing and sustainable communities grants, 10% to the Transit and Intercity Rail Capital Program, and 5% for low-carbon transit operations. The remaining 40% is available for annual appropriation by the Legislature. Of that 40%, the Governor's 2015-16 budget proposal appropriates $40 million towards wetland and watershed restoration to be administered by the Department of Fish and Wildlife. The 2015-16 Budget bill passed both houses on June 15 of this year, but excluded any appropriation of cap-and-trade auction revenue. 1) River and Stream Restoration. California has two grant programs in statute that restore rivers and streams: 1) the Urban Streams Restoration Program and 2) the California River Parkways Program. Both programs are primarily funded through the Safe Drinking Water, Water Quality and Supply, Food Control, River and Coastal Protection Bond Act of 2006 (Proposition 84). The California River Parkways Program was created pursuant to the California Rivers Parkways Act of 2004. The Natural Resources Agency is currently soliciting for a one-time funding round of approximately $7.6 million dollars for the acquisition, restoration, protection and development of river parkways, with a cap for an individual project at $500 thousand. This funding cycle will award the last of Proposition 84 moneys for the program. Projects are required AB 1205 (Gomez) Page 7 of ? to meet at least two of the following objectives: 1) providing compatible recreation opportunities, 2) protecting or restoring riverine or riparian habitat, 3) providing flood management benefits, 4) conversion of developed riverfront land to river parkways, and 5) providing facilities to support river conservation. Over 60 projects have been funded through the program. Through the Urban Streams Restoration Program, the Department of Water Resources provides grants to local communities for projects to reduce flooding and erosion and associated property damage, restore, enhance or protect the natural ecological values of streams, and promote community involvement, education and stewardship. Since 1985, the program has provided more than 270 grants ranging from $1,000 to $1 million to communities throughout California. The projects have included stream cleanups, bank stabilization projects, revegetation efforts, recontouring of channels to improve floodplain function and occasional acquisition of strategic floodplain properties or easements. The last funding cycle for the program was in 2014, where over $8 million was awarded to 13 project proposals. Proposition 1. The Water Quality, Supply, and Infrastructure Improvement Act of 2014 (Proposition 1) authorizes $7.545 billion in general obligation bonds to fund ecosystems and watershed protection and restoration, water supply infrastructure projects, including surface and groundwater storage, and drinking water protection. Specifically, $1.495 billion is designated for competitive grants for multibenefit ecosystem and watershed restoration projects. Comments 1) Purpose of Bill. According to the author, "Given the vast potential for using our river systems to reduce and sequester greenhouse gas emissions, and no existing integrated, statewide grant program to deliver these benefits, this bill would establish CalRIVER. The program would be especially useful in incentivizing projects that integrate stormwater, natural resource improvements, as well as reductions in vehicle miles traveled. Without CalRIVER, the state would continue to miss opportunities to harness the climate values of our riparian corridors for greenhouse gas reductions, as AB 1205 (Gomez) Page 8 of ? well as the many other co-benefits associated with these projects." 2) GHG emission reduction priorities. As noted in the background, the GGRF investment identified sustainable communities and clean transportation, energy efficiency and clean energy, and natural resources and waste diversion as the three sectors that provide the best opportunities, in that order, for achieving the legislative goals and supporting the purposes of AB 32. The natural resources sector (in addition to waste diversion) is third on the priority list. The investment plan, in reference to the natural resources and waste diversion sectors, states, "while this combined category represents less than ten percent of GHG emissions, there is potential for achieving greater reductions and realizing significant co-benefits to human health and the environment." So while natural resources is recommended for funding from GGRF, it is recommended for a smaller appropriation of GGRF moneys than other sectors, since, although significant opportunities for cobenefits exist, the GHG emissions reduction potential of projects in the natural resources sector is significantly lower than for clean transportation and energy investments. The 2014-15 Budget appropriated $25 million to the Department of Fish and Wildlife for wetlands and watershed restoration. The Governor's 2015-16 budget proposal increases this appropriation to $40 million. 3) Other sources of funding available. AB 1205 creates the CalRIVER fund and authorizes the transfer of bond fund moneys, and special funds, including, but not limited to, river parkway and urban creek programs, and the GGRF. As noted in the background, the California River Parkways Program and the Urban Streams Restoration Program have completed, or are in the process of completing, their last funding cycles. However, the newly enacted Proposition 1 assigns over $1.45 billion toward the protection of rivers, lakes, streams, coastal waters and watersheds. Proposition 1 calls out the protection and restoration of rural and urban AB 1205 (Gomez) Page 9 of ? watersheds to improve storage capacity, stormwater resource management and greenhouse gas reduction, the restoration of river parkways, the implementation of watershed adaptation project to reduce climate impacts, the restoration of ecosystems, the reduction of pollution, and other goals, as purposes of the $1.45 billion of Proposition 1 funding. Additionally, $100 million is designated for project to protect and enhance urban creeks. Proposition 1 also requires $20 million go toward a competitive program to fund multibenefit watershed and urban rivers enhancement projects. Many of the goals specified in Proposition 1 are also prioritized as cobenefits in AB 1205. It is likely that a significant portion of the river restoration activities to date have had some level of GHG reduction of sequestration benefit due to restoration of riparian habitats and opportunities for active transport in urban settings, however, AB 1205 differs from other river restoration efforts, in that the stated goal of the CalRIVER program is the reduction or sequestration of GHGs. Although projects to protect, restore, and enhance river systems and riparian corridors are critically important, authorizing GGRF moneys for this program, when money is already available for similar efforts, potentially takes away funding for other measures to reduce GHGs that do not have multiple other sources of funding. Is it appropriate to authorize GGRF funds for this program, when other dedicated funding streams are available for river restoration and protection? 4) GHG emissions. AB 1205 requires CNRA to establish a grant program and authorizes the use of GGRF moneys for the program, which are funds that are required to be used to achieve GHG emission reductions. And although the bill specifies project prioritization based on a list of cobenefits, there is no requirement in the bill for the prioritization of projects based on GHG emission reductions or GHG sequestration potential. 5) Implementing AB 32? AB 1205 specifies that the CalRIVER program assist the development of projects that assist the state in implementing AB 32. This language is unclear, as the implementation of AB 32 entails various actions such as AB 1205 (Gomez) Page 10 of ? mandatory GHG emissions reporting, regulations that achieve the maximum technologically feasible and cost-effective reduction of GHG emissions, imposition of fees for administrative implementation costs, as well as the preparation of a scoping plan. It may be more appropriate to require the program to, instead, further the regulatory purposes of AB 32, as required by any use of GGRF moneys, and meet the requirements of the Greenhouse Gas Reduction Fund Investment Plan and Communities Revitalization Act. 6) Vague language. SB 1205 requires the prioritization of certain projects based on a list of cobenefits, including "recreational access and improved human interactions," "economic viability by promoting appropriate development," and "improvements along impaired water bodies." It is not clear what is meant by, or what projects would qualify as having, improved human interactions, appropriate development, or "improvements" along impaired water bodies. 7) Piece by piece. GGRF investments must facilitate the achievement of GHG emissions reductions. However, after that requirement is fulfilled, there are number of other policy goals that should be considered, including benefits to environmental quality, resource protection, public health and the economy, as well as benefits to disadvantaged communities. And although the fund is growing, it is still a limited source of revenue. In order to create an optimized investment strategy from GGRF moneys, proposals should not be considered in isolation, but be assessed in aggregate to determine what suite of measures best meets the requirements of the fund, uses resources most efficiently, and maximizes policy objectives. As budget discussions on a cap-and-trade investment strategy have been pushed to later this session, an opportunity exists to have a comprehensive discussion on the universe of GGRF proposals currently in the Legislature, during budget negotiations this summer. If the Legislature feels that the CalRIVER program established through AB 1205 is an appropriate expenditure of GGRF moneys, then this measure should also be considered through the budget process for cap-and-trade expenditures, along with all other measures proposing to expend, or authorize for expenditure, GGRF moneys. AB 1205 (Gomez) Page 11 of ? SOURCE: Author SUPPORT: Audubon California California Trout LA River Revitalization Corporation Los Angeles County Board of Supervisors OPPOSITION: CalTax ARGUMENTS IN SUPPORT: California Trout states that while AB 1205 will focus on providing support to rivers and the lands adjacent to them, its benefits will be much broader and far-reaching. They note that investing in river systems is a valuable effort that allows for multiple economic, social, and environmental benefits. The Los Angeles Board of Supervisors states that AB 1205 would provide an important funding mechanism for projects that are on or adjacent to riparian corridors that integrate stormwater, and natural resource improvements, and would also help to reduce vehicle miles travelled. ARGUMENTS IN OPPOSITION: CalTax is opposed to the bill because they state it distorts the nature of a regulatory fee and that a true regulatory fee must comply with the principles of having a nexus to the payer, not being imposed for the purpose of generating revenue, and that they must be reasonable. CalTax also states that pending litigation will determine if the auction component of the cap- and-trade program constitutes an illegal tax, and by directing AB 1205 (Gomez) Page 12 of ? funds beyond the clear regulatory purposes, AB 1205 opens up the cap-and-trade program to litigation risk. DOUBLE REFERRAL: If this measure is approved by the Senate Environmental Quality Committee, the do pass motion must include the action to re-refer the bill to the Senate Natural Resources and Water Committee. -- END --