BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON ENVIRONMENTAL QUALITY
                              Senator Wieckowski, Chair
                                2015 - 2016  Regular 
           
          Bill No:            AB 2722
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          |Author:    |Burke                                                |
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          |Version:   |5/31/2016              |Hearing      |6/29/2016       |
          |           |                       |Date:        |                |
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          |Urgency:   |No                     |Fiscal:      |Yes             |
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          |Consultant:|Rebecca Newhouse                                     |
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          SUBJECT:  Transformative Climate Communities Program.

            ANALYSIS:
          
          Existing law:  
          
          1) Under the California Global Warming Solutions Act of 2006  
             (also known as AB 32), requires the California Air Resources  
             Board (ARB) to determine the 1990 statewide greenhouse gas  
             (GHG) emissions level and approve a statewide GHG emissions  
             limit that is equivalent to that level, to be achieved by  
             2020, and to adopt GHG emissions reductions measures by  
             regulation. ARB is authorized to include the use of  
             market-based mechanisms to comply with these regulations.  
             (Health and Safety Code §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. (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) 

          4) Continuously appropriates 60% of GGRF moneys to transit,  
             affordable housing and sustainable communities, including 20%  







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             continuously appropriated to the Strategic Growth Council  
             (SGC) for the Affordable Housing and Sustainable Communities  
             Program. (HSC §39719)

          This bill:  

          1) Establishes the Transformational Climate Communities Program  
             (Program) to fund the development and implementation of  
             neighborhood-level transformative climate community plans that  
             include multiple, GHG emissions reduction projects that  
             provide local economic, environmental, and health benefits  
             that are directly connected to communities most impacted by  
             pollution and vulnerable to climate change. 

          2) States the intent of the Legislature that private resources  
             can "more effectively be catalyzed to support innovative  
             community and climate transformation in disadvantaged  
             communities."

          3) Requires the SGC, in coordination with the Assistant Secretary  
             for Environmental Justice and Tribal Affairs at California  
             Environmental Protection Agency (CalEPA), to award competitive  
             grants to eligible entities, as specified.

          4) Directs SGC to award grants for plans and projects that  
             implement plans that contribute to the reduction of GHG  
             emissions and demonstrate potential climate, economic,  
             workforce, health, and environmental benefits located in  
             communities that have a demonstrated need for climate,  
             economic, workforce, health, and environmental benefits.

          5) Authorizes SGC to award a grant over multiple years.

          6) Requires SGC to weigh economic, environmental, and health  
             benefits equally with climate benefits. 

          7) Defines "economic benefits" as high-quality, well-paid  
             employment opportunities for residents, benefits for small  
             businesses, and benefits for minority-, LGBT-, woman-, or  
             disabled veteran-owned small businesses in the plan's region.  
             Defines "LGBT" as lesbian, gay, bisexual, or transgender.

          8) Requires SGC to "endeavor to identify" additional public and  
             private sources of funding to sustain and expand the Program  








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             and a network of technical assistance providers to assist in  
             plan development, implementation, and project financing.

            Background
          
          1) Cap-and-trade auction revenue.  Since November 2012, ARB has  
             conducted 15 cap-and-trade auctions, generating over $4  
             billion in proceeds to the state.  

             State law specifies that the auction revenues must be used to  
             facilitate the achievement of GHG emissions reductions and  
             outlines various categories of allowable expenditures.   
             Statute further requires the Department of Finance, in  
             consultation with ARB and any other relevant state agency, to  
             develop a three-year investment plan for the auction proceeds,  
             which are deposited in the GGRF.  

             SB 535 (de León, Chapter 830, Statutes of 2012) requires the  
             Department of Finance, in the 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.  

             Additionally, SB 862 (Committee on Budget and Fiscal Review,  
             Chapter 36, Statutes of 2014) requires ARB to develop  
             guidelines on maximizing benefits for disadvantaged  
             communities by agencies administering GGRF funds, and guidance  
             for administering agencies on GHG emissions 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  








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             constitute illegal tax revenue.  In November 2013, the  
             superior court ruling declined to hold the auction a tax,  
             concluding that it is more akin to a regulatory fee.  The  
             plaintiffs filed an appeal with the 3rd District Court of  
             Appeal in early 2014, and that case is pending.

             Budget allocations.  SB 862 (Committee on Budget and Fiscal  
             Review, Chapter 36, Statutes of 2014), a 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.  

             The Governor's 2016-17 proposed budget appropriates over $3  
             billion to a variety of programs and projects in the  
             transportation, energy, natural resources, and waste diversion  
             sectors. 

          2) Governor's Transformative Climate Communities budget proposal.  
             The Governor's 2016-17 budget proposal requests $100 million  
             to establish the Transformational Climate Communities Program,  
             administered by the SGC, to support local climate action  
             implementation in the top five percent disadvantaged  
             communities in California. According to the proposal, "Funding  
             would support projects that integrate multiple, cross-cutting  
             approaches to reduce GHGs, and that the program combines  
             climate investments within a local area for catalytic  
             impact-including investments in energy, transportation, active  
             transportation, housing, urban, greening, land use, water and  
             waste efficiency, and other areas-while also increasing job  
             training, economic, health and environmental benefits." 

             The Senate and Assembly budget plans included a $400 million  
             and $100 million appropriation from the GGRF for "local  
             climate programs." 

            Comments
          
          1) Purpose of Bill.  According to the author, "Assembly Bill 2722  
             establishes the Transformative Climate Communities Program  








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             administered by the Strategic Growth Council to ensure that  
             California is making investments that reduce greenhouse gases  
             and also demonstrate co-benefits for the economy, workforce,  
             and the health of California's most vulnerable communities.   
             AB 2722 creates a one stop shop for cities, counties, and  
             community-based organizations to fund multiple projects that  
             reduce greenhouse gas emissions. Our state has been a strong  
             leader in the fight against climate change and reducing  
             pollution, and AB 2722 is a step to ensure that we leave no  
             community behind."

          2) What types of projects will be supported through the program?  
             AB 2722 does not prescribe the types of projects that are  
             eligible for funding, or provide categorical guidance for  
             plans and projects that may be funded under the Program.  
             Instead, the bill specifies that the Program will fund  
             "neighborhood-level transformative" plans that include  
             "multiple, coordinated greenhouse gas emissions reduction  
             projects." The bill also requires that plans and projects  
             awarded grants by SGC demonstrate an "integrated, innovative,  
             crosscutting" approach and "provide multiple benefits to the  
             community and demonstrate community engagement and leadership  
             in all phases." 

             The Governor's proposal included investments in energy,  
             transportation, active transportation, housing, urban,  
             greening, land use, water and waste efficiency, and other  
             areas, as possible projects that could be funded through the  
             Program.

             The sponsors of the bill have provided examples of the types  
             of projects that might be funded through the Program. These  
             include community-led planning in National City to develop a  
             land use plan to build a vibrant, healthy community with  
             affordable housing, equitable transit, safe pedestrian  
             walkways, and increased clean energy. Other examples from the  
             sponsors include an urban greening project in the San Fernando  
             Valley to increase green infrastructure and active  
             transportation, and an affordable housing development in South  
             Los Angeles that includes community gardens, open space, and a  
             community room and commercial space that serves the local  
             community. 

          3) Plans and projects. AB 2722 requires SGC award grants for  








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             transformative climate community plans, and projects that  
             implement those plans. The bill authorizes SGC to make grant  
             awards for plan development contingent on implementation of  
             one or more projects identified in the plan. 

             Although plans are critical for successful projects that  
             reduce GHGs, plans without corresponding projects do not  
             result in GHG emissions reductions.  
             As achieving GHG emissions reductions is required for  
             investments from the GGRF (which is not specified in the bill,  
             but is the most likely source of funding for the Program), an  
             amendment is needed to require SGC make grant awards for plan  
             development contingent on implementation of one or more  
             projects identified by the plan. 

          4) Weighing benefits equally. This bill includes a requirement  
             that SGC weigh economic, environmental, and health benefits  
             equally with climate benefits resulting from GHG emissions  
             reductions. It is not clear how this provision will be  
             implemented. Will any level of public health or economic  
             benefits (e.g., bike lanes for active transportation or some  
             threshold of job creation) be weighted equivalently with GHG  
             emissions reduction, no matter how significant those  
             reductions? 

             Instead of requiring SGC give equal weight to benefits that  
             are disparate and difficult to compare across the board,  
             amendments are needed to 1) require projects demonstrate GHG  
             emissions reductions to be eligible for funding under the  
             program, and 2) require SGC, in awarding grants, prioritize  
             projects that maximize, to the extent feasible, climate,  
             public health, environmental, workforce, and economic  
             benefits.  

          5) Guidelines.  Although AB 2722 sets up the basic framework and  
             goals for the Transformative Climate Communities Program,  
             there are a variety of program specifications that SGC will  
             need to establish. 

             Amendments are needed to require SGC to develop guidelines,  
             consistent with the statutory requirements for adopting  
             guidelines for the Affordable Housing and Sustainable  
             Communities Program (implemented by SGC and funded through  
             GGRF), through a transparent and public process that includes  








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             outreach to affected communities and consideration of input  
             from stakeholders.

          6) Author amendment. The author would like to amend the bill to  
             include joint powers authorities as an eligible entity under  
             the Program. 

            SOURCE:                    California Environmental Justice Alliance
                         Greenlining Institute  
           
          SUPPORT:               

          Audubon California
          California Association of Local Conservation Corps
          California Equity Leaders Network 
          California League of Conservation Voters 
          California Pan Ethnic Health Network
          Coalition for Clean Air
          Fresno Economic Opportunities Commission
          Health Officers Association of California
          Los Angeles Neighborhood Land Trust 
          Lutheran Office of Public Policy - California
          National Audubon Society
          PAN North America
          Sierra Club California
          The Greenling Institute
          TransForm
          Union of Concerned Scientists
          Valley Clean Air Now
           
           OPPOSITION:    

          None received  

           ARGUMENTS IN SUPPORT:  Supporters state that the Program will  
          foster an integrative collaborative approach to comprehensively  
          address the burdens of disproportionately impacted communities  
          that have suffered from decades of environmental pollution and  
          neglect. They also state that the Program moves out of the  
          project-specific silos that has characterized most GGRF spending  
          thus far and instead, the bill promotes multi-stakeholder  
          collaborations and leverages a range of funding sources,  
          including private sector, to achieve large-scale impact in a  
          holistic manner. 








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