BILL ANALYSIS Ó
SENATE JUDICIARY COMMITTEE
Senator Hannah-Beth Jackson, Chair
2015-2016 Regular Session
AB 2280 (Ridley-Thomas)
Version: August 15, 2016
Hearing Date: August 29, 2016
Fiscal: No
Urgency: Yes
TH
SUBJECT
Rental Companies: Customer Facility Charge
DESCRIPTION
Existing law governs contracts between rental car companies and
their customers in connection with the rental of passenger
vehicles. Under existing law, a rental car company may collect,
in addition to the rental rate, certain fees and charges,
including a customer facility charge. Existing law authorizes
airports to require rental companies to collect a customer
facility charge to finance, design, and construct consolidated
airport vehicle rental facilities, common-use transportation
systems that move passengers between airport terminals and car
rental facilities, and terminal modifications made solely to
provide customer access to common-use transportation systems.
This bill establishes a separate authority for the Los Angeles
International Airport (LAX) to require rental car companies to
collect a customer facility charge that can be used for
additional specified purposes, including the improvement of
consolidated airport vehicle rental facilities. This bill also
authorizes LAX to use customer facility charge revenue to pay or
repay bonds, capital contributions, availability payment
contracts, lease agreements, or other forms of authorized
financing used to design, construct, or improve consolidated
airport vehicle rental facilities and specified related
infrastructure, for a period not to exceed 35 years.
BACKGROUND
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In recent years, many airports have adopted the practice of
locating rental car services in consolidated facilities that
house all car rental companies in one location. Common-use
transportation systems, including shuttle bus systems and
automated trains, are often used to transport rental car
customers to and from terminals and the consolidated rental car
facility. These facilities and their associated transport
systems are financed largely via Customer Facility Charges
(CFCs) collected from rental car patrons who choose to rent a
vehicle from a company housed in the consolidated rental
facility.
The authority to collect CFC charges began in California in 1999
when the Legislature passed and the governor signed SB 1228
(Vasconcellos, Ch. 760, Stats. 1999), which permitted San Jose
International Airport to collect a customer facility charge of
$10.15 per rental contract to finance and construct a
consolidated rental car facility. In 2001, AB 491 (Frommer, Ch.
661, Stats. 2001) authorized other public airports in California
to collect a $10 fee per contract to finance, design, and
construct consolidated rental car facilities. In 2007, SB 641
(Corbett, Ch. 44, Stats. 2007) repealed the special
authorization for San Jose International Airport and instead
applied the more general provisions enacted by AB 491 to San
Jose International Airport, thus permitting it to collect a $10
per contract CFC.
For approximately ten years, the allowable CFC fee was set at
$10 per rental contract, regardless of the duration of the car
rental. In 2010, the Legislature revised the CFC fee structure
in response to feedback from the airports that the existing $10
per contract fee was inadequate to fund some proposed
consolidated rental car facilities. SB 1192 (Oropeza, Ch. 642,
Stats. 2010) permitted airports to impose a CFC calculated on an
alternative basis, which, under current law, allows up to $6 per
day for a maximum of five days per rental contract to be
collected. The new CFC fee structure allows an airport to
increase its daily CFC according to a statutory schedule which
would permit the collection of up to $45 over the length of a
rental contract by January 1, 2017. SB 1192 also expanded the
range of uses for which CFC revenue could be spent, including
purchasing vehicles for a common-use transport system that would
shuttle passengers between the consolidated rental facility and
the airport terminals, and for terminal modifications undertaken
to provide access to a common-use transport system.
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In order to protect customers and ensure that the CFC charged by
an airport was appropriately and necessarily spent on
consolidated rental facilities and associated common-use
transport systems, SB 1192 also imposed an audit requirement,
directing airports to complete independent audits of CFC funded
projects prior to the initial charge of a CFC, prior to any
increase in the CFC, and every three years after its initial
collection or any increase. SB 1192 initially required the
State Controller's Office to review these audits, but SB 1006
(Senate Budget and Fiscal Review Committee, Ch. 32, Stats. 2012)
eliminated this requirement. SB 1006, a budget trailer bill,
also struck language in existing law that set out guidelines
regarding the scope of a CFC audit and the standards for
determining whether an airport's chosen CFC rate was necessary
and justified based on how the funds were being spent. The
following year, AB 359 (Holden, Ch. 549, Stats. 2013)
re-inserted guidelines regarding the scope of CFC audits, and
required audits to be posted on an airport's Internet Web site.
Under existing law, CFC revenue is generally used to pay back
bonds issued for the construction of combined rental facilities,
certain terminal modifications, and the construction and
operation of common-use transportation systems. Existing law
states that upon repayment of these bonds, the authority to
collect a CFC is eliminated. This bill would, for the Los
Angeles International Airport, expand the types of debts that
may be repaid with CFC revenue to include capital contributions,
availability payment contracts, lease agreements, or other forms
of financing. This bill would also, for the Los Angeles
International Airport, increase the range of allowable uses to
which CFC revenue could be directed to include improving
combined rental facilities, maintaining or improving common-use
transportation systems, and improving terminal modifications, as
specified. Finally, this bill would specify that the maximum
term for financing backed by this separate CFC authority shall
not exceed 35 years.
CHANGES TO EXISTING LAW
Existing law , Civil Code Section 1936, governs contracts between
rental car companies and their customers in connection with the
rental of passenger vehicles.
Existing law defines a "Customer Facility Charge" (CFC) as any
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fee, including an alternative fee, required by an airport to be
collected by a rental company from a renter for any of the
following purposes:
to finance, design, and construct consolidated airport car
rental facilities;
to finance, design, construct, and operate common-use
transportation systems that move passengers between airport
terminals and those consolidated car rental facilities, and
acquire vehicles for use in that system; or
to finance, design, and construct terminal modifications
solely to accommodate and provide customer access to
common-use transportation systems. (Civ. Code Sec.
1936(a)(6)(A).)
Existing law states that the aggregate amount of CFC revenue to
be collected shall not exceed the reasonable costs, as
determined by an independent audit paid for by the airport, to
finance, design, and construct these facilities. Existing law
requires, in the case of a transportation system, the audit to
also consider the reasonable costs of providing the transit
system or busing network. (Civ. Code Sec. 1936(a)(6)(B).)
Existing law prohibits fees designated as a customer facility
charge from being used to pay for terminal expansion, gate
expansion, runway expansion, changes in hours of operation, or
changes in the number of flights arriving or departing from the
airport. (Civ. Code Sec. 1936(a)(6)(B).)
Existing law specifies that the authorization for an airport,
except for the Oakland International Airport, to impose a CFC
shall become inoperative when the bonds used for financing are
paid. (Civ. Code Sec. 1936(a)(6)(C).)
Existing law specifies that if a bond or other form of
indebtedness is not used for financing, or the bond or other
form of indebtedness used for financing has been paid, the
Oakland International Airport may require the collection of a
customer facility charge for a period of up to 10 years from the
imposition of the charge. (Civ. Code Sec. 1936(a)(6)(D).)
This bill would, for the Los Angeles International Airport,
expand the range of permissible uses for which a CFC may be
applied to include the maintenance and improvement of
consolidated airport vehicle rental facilities, common-use
transportation systems, and authorized terminal modifications,
as specified.
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This bill would, for the Los Angeles International Airport,
expand the types of financing arrangements toward which CFC
revenue may be directed to include bonds, capital contributions,
availability payment contracts, lease agreements, or other forms
for financing, and would specify that the authorization to
collect CFC revenue shall become inoperative when the financing
is paid or reimbursed.
This bill would, for the Los Angeles International Airport,
specify that the maximum term for financing toward which CFC
revenue may be directed shall not exceed 35 years.
COMMENT
1.Stated need for the bill
The author writes:
Section 1936 of the California Civil Code defines "customer
facility charge." Section 50474.1 of California Government
Code authorizes an airport operated by a city and county to
"require a rental car company, in writing, to collect a fee
from its customers on behalf of the airport for the use of an
airport-mandated common use busing system or light rail
transit system operated for the movement of passengers between
the terminal and a consolidated on-airport rental car
facility." Section 50474.1 of California Government Code also
lays out provisions related to use of that fee.
AB 2280, as amended, will add Section 50474.22 to the
California Government Code to expand the types of financing
arrangements that customer facility charge (CFC) revenue
collected at LAX can cover to include bonds, capital
contributions, availability payment contracts, lease
agreements, or other forms for financing, and would specify
that the authorization to collect CFC revenue shall become
inoperative when the financing is paid or reimbursed. AB 2280
would also clarify that CFC revenue collected at LAX fund
consolidated airport vehicle rental facilities, common-use
transportation systems, and authorized terminal modifications.
This bill is needed due to the unique circumstances and
operations of the Los Angeles International Airport. Further,
this bill will address pressing public safety concerns at LAX
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by providing necessary financing tools.
2.Landside access modernization program
The CFC revenue authorized by this bill is intended to provide a
long-term revenue source to pay, in part, for planned
infrastructure improvements at the Los Angeles International
Airport (LAX). According to the Los Angeles World Airports:
In November 2015, the Los Angeles Board of Airport
Commissioners announced plans to deliver a world-class
transportation system to Los Angeles International Airport
(LAX) through the estimated $5 billion Landside Access
Modernization Program (LAMP).
The centerpiece of LAMP will be an Automated People Mover
(APM) that will connect the Central Terminal Area (CTA) with a
new Consolidated Rent-A-Car facility (CONRAC), with stops
in-between at new airport parking facilities and a station
connecting to the Los Angeles County Metropolitan
Transportation Authority (LA Metro) regional transit system.
LAWA's focus on addressing aging infrastructure, new
technologies, and improving passenger levels of service has
shaped the development plans for the LAMP improvements at LAX.
The LAMP improvements, as laid out above, aim to:
" transform LAX into a world-class destination airport and
enhance the passenger experience;
" relieve traffic congestion in the CTA and on area
surface streets and roads;
" connect to transit, reducing private vehicle trips to
LAX;
" create new options for passenger pick-up and drop-off;
" give passengers a fast and reliable new way to get to
their flights; and
" reduce vehicle emissions and improve air quality.
The LAMP improvements will further transform LAX into a
world-class airport by relieving traffic congestion within the
terminal area and on surrounding streets, by improving access
options and the travel experience for passengers, and by
providing a connection to the light-rail system being extended
by the Los Angeles County Metropolitan Transportation System
(LA Metro).
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1.New allowable uses for Consumer Facility Charge revenue
Over the last 17 years, several California airports have
financed the design and construction of consolidated rental car
facilities and their associated transport systems through the
collection of Customer Facility Charges (CFC) from rental car
patrons who choose to rent a vehicle from a company housed in a
consolidated rental facility. Existing law governing the
collection and use of CFC funds includes strong consumer
protection provisions designed to ensure that airports do not
misuse or over-collect these funds. Under existing law, an
airport that imposes a CFC fee for the first time or that
increases its CFC fee must conduct an audit that ensures the
fees are necessary to construct consolidated rental facilities
and their associated transport systems, that the fees would not
or are not being used to fund unauthorized airport construction,
and that the chosen CFC fee level is reasonable, taking into
account alternate revenue sources for constructing these
facilities. Existing law also limits the uses to which CFC
revenue can be directed to, principally, the design and
construction of combined rental facilities, certain terminal
modifications, and the construction and operation of common-use
transportation systems. Existing law also specifies that, with
the exception of the Oakland International Airport (OAK), CFC
funds may be directed to pay off bonds used for the financing of
these projects, and in the case of OAK, that if alternate
financing is used, the authority to impose a CFC is limited to
10 years.
This bill would, in the case of the Los Angeles International
Airport (LAX), authorize CFC revenue to be collected and used
for the improvement of these facilities, and would also
authorize CFC revenue to be directed toward paying off other
financing arrangements for the facilities, including capital
contributions and lease agreements. Authorizing CFC revenue to
be directed toward financing arrangements other than bonds could
have several benefits to LAX, including allowing the airport to
transfer some of the risk involved in a project to a third party
through a public-private partnership. Involvement of third
parties through leaseback agreements could also allow an airport
to potentially lower the cost of a combined rental car facility
and related infrastructure by allowing the third party to
depreciate the value of these assets - something a city cannot
typically do.
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However, authorizing these new forms of financing could also
significantly increase the cost passed on to consumers. Market
pressure in bond markets tends to confine the amount of
financing and repayment terms an airport can obtain for a
project. Other financing arrangements, such as a sale-leaseback
or lease-leaseback, could potentially allow an airport to avoid
these market confines by liberalizing the terms on which
combined rental car facilities are constructed and paid off.
Whether any alternate financial arrangement is economical for a
local agency depends on a variety of factors, including market
conditions, tax laws, lease structure, and the relative costs of
other financing arrangements.
The normal pressure of limited resources that drives government
decisionmakers to make economically sound decisions concerning
infrastructure finance may not be present in situations where
external revenue streams can be diverted indefinitely to repay
such obligations, including obligations backed by CFC revenue
where much of the cost can be passed on to rental car customers.
Recognizing this problem, AB 2280 imposes a strict time limit
of 35 years as the maximum term for financing backed by LAX's
new CFC authorization. Given the expanded purposes to which CFC
revenue can be directed under this bill, this explicit repayment
limitation ensures that this new authorization for LAX does not
turn CFC revenue into an unending source of funding at the
expense of Californians and others who rent cars.
2.Other concerns
Enterprise Holdings, Inc., requests that this bill be amended to
specify that consumers are not required to pay multiple CFCs
when renting a vehicle from an airport. They write:
Under existing law, airports can require rental car companies
to charge consumers a CFC of up to $45 per contract. That CFC
is passed through to the airport and used to pay for the
consolidated rental car facility, transportation systems and
general terminal modifications.
We oppose any attempt to require consumers to pay more than
one CFC per rental contract. Any attempt to double charge
consumers would be contrary to the intent of the Legislature
in authorizing collection of CFCs and result in customers
paying up to $90 in airport facility charges per rental.
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For the above reasons, Enterprise Holdings would be in support
of AB 2280 if amended to include the following language that
clearly states that customers can only be charged a single CFC
per transaction:
An airport shall not require a rental company to collect a
customer facility charge from a consumer pursuant to this
article if that requirement would result in the rental
company collecting more than one customer facility charge
from that consumer in connection with a single rental.
While Enterprise's requested amendment likely re-states existing
law, the amendment is arguably outside the scope of the present
bill. The Committee may wish to consider clarifying language
such as this in future legislation addressing rental cars.
Support : City of Los Angeles; State Building and Construction
Trades Council; Service Employees International Union,
California
Opposition : None Known
HISTORY
Source : Los Angeles World Airports
Related Pending Legislation : None Known
Prior Legislation :
AB 2051 (O'Donnell, Ch. 183, Stats. 2016) recast and reorganized
law pertaining to contracts between rental car companies and
their customers in connection with the rental of a passenger
vehicle, and made technical and clarifying changes to existing
law.
AB 675 (Alejo, Ch. 333, Stats. 2015) authorized a rental
company, when quoting a rental rate, to separately state the
rental rate, additional mandatory charges, if any, and a mileage
charge, if any, that a renter must pay to hire or lease the
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vehicle for the period of time to which the rental rate applies.
This bill defined "additional mandatory charges" to mean any
separately stated charges that the rental car company requires
the renter to pay to hire or lease the vehicle for the period of
time to which the rental rate applies, which are imposed by a
governmental entity and specifically relate to the operation of
a rental car business, including, but not limited to, a customer
facility charge, airport concession fee, tourism commission
assessment, vehicle license recovery fee, or other government
imposed taxes or fees.
AB 1981 (Brown, Ch. 417, Stats. 2014) removed the manufacturer's
suggested retail price as one of the criteria for determining
the rate of a damage waiver sold by a rental company, and
instead set the rate of damage waivers according to the
vehicle's classification using criteria set by the 2014
Association of Car Rental Industry Systems Standards for North
America. This bill increased the maximum rate of the damage
waiver to $11 per rental day for vehicles designated as an
"economy car," "compact car," or another term denoting the two
smallest categories of vehicles described by the standards.
This bill increased the maximum rate of the damage waiver to $17
per rental day for vehicles in the next three body-size
categories of vehicles designated in the standards, except as
specified.
AB 2747 (Cmte. on Judiciary, Ch. 913, Stats. 2014), the Assembly
Committee on Judiciary's Omnibus Bill extended until January 1,
2020, a sunset provision pertaining to a requirement for rental
companies to accept service of a summons and complaint against a
renter who resides out of this country for an accident or
collision resulting from the operation of the rental vehicle in
this state, as provided.
AB 359 (Holden, Ch. 549, Stats. 2013) provided guidelines
regarding the scope of a CFC audit, and required audits to be
posted on an airport's Internet Web site. This bill removed the
requirement that an airport conduct an audit every three years
after the initial collection of the CFC, and instead require an
airport to conduct an audit every three years after the initial
collection of the CFC only if the charge is used for the purpose
of operating a common-use transportation system or to acquire
vehicles for use in such a system.
SB 1006 (Cmte. on Budget, Ch. 32, Stats. 2012) See Background.
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SB 1192 (Oropeza, Ch. 642, Stats. 2010) See Background.
SB 641 (Corbett, Ch. 44, Stats. 2007) See Background.
AB 491 (Frommer, Ch. 661, Stats. 2001) See Background.
SB 1228 (Vasconcellos, Ch. 760, Stats. 1999) See Background.
Prior Vote : Prior votes not relevant
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