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 AB 2280 (Ridley-Thomas) Page 2 of ? 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. AB 2280 (Ridley-Thomas) Page 3 of ? 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 AB 2280 (Ridley-Thomas) Page 4 of ? 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. AB 2280 (Ridley-Thomas) Page 5 of ? 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 AB 2280 (Ridley-Thomas) Page 6 of ? 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). AB 2280 (Ridley-Thomas) Page 7 of ? 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. AB 2280 (Ridley-Thomas) Page 8 of ? 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. AB 2280 (Ridley-Thomas) Page 9 of ? 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 AB 2280 (Ridley-Thomas) Page 10 of ? 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. AB 2280 (Ridley-Thomas) Page 11 of ? 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 **************