BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 9| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: SB 9 Author: Beall (D), et al. Amended: 6/2/15 Vote: 21 SENATE ENVIRONMENTAL QUALITY COMMITTEE: 7-0, 3/18/15 AYES: Wieckowski, Gaines, Bates, Hill, Jackson, Leno, Pavley SENATE TRANS. & HOUSING COMMITTEE: 10-0, 4/28/15 AYES: Beall, Cannella, Bates, Gaines, Galgiani, Leyva, McGuire, Mendoza, Roth, Wieckowski NO VOTE RECORDED: Allen SENATE APPROPRIATIONS COMMITTEE: 7-0, 5/28/15 AYES: Lara, Bates, Beall, Hill, Leyva, Mendoza, Nielsen SUBJECT: Greenhouse Gas Reduction Fund: Transit and Intercity Rail Capital Program SOURCE: Author DIGEST: This bill makes a number of changes to the Transit and Intercity Rail Capital Program, including recasting the program's mission to fund large, transformative, capital improvement projects and requiring that 70% of the funding be allocated to projects with a total cost of $100 million or more, and 30% of the funding be allocated to projects costing less than $100 million. ANALYSIS: SB 9 Page 2 Existing law: 1)Under the California Global Warming Solutions Act of 2006, requires the 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 moneys collected pursuant to a market-based mechanism be deposited in the fund. (Government Code §16428.8) 3)Requires moneys from the GGRF be used to facilitate the achievement of reductions of GHG emissions in this state consistent with the California Global Warming Solutions Act of 2006. (HSC §39712) 4)Requires the GGRF investment plan to allocate, at a minimum, 25% of the funds to benefit disadvantaged communities, and to allocate 10% of GGRF monies within disadvantaged communities. (HSC §39713) 5)Establishes the Transit and Intercity Rail Capital Program, funded through a continuous appropriation of the GGRF, to fund capital improvements and operational investments that reduce GHG emissions and modernize California's intercity, commuter, and urban rail systems to achieve specified goals. The program establishes a programmatic goal to provide at least 25% of available funding to projects that provide a direct, meaningful, and assured benefit to disadvantaged communities, and among other things, requires: a) Eligible projects demonstrate they will achieve greenhouse gas emissions reductions. b) The California State Transportation Agency (CalSTA), in evaluating grant applications for funding, consider: SB 9 Page 3 i) Specified cobenefits, including reduction of auto vehicles miles traveled, promotion of housing development near rail stations, expanding existing rail and transit systems, implementation of clean vehicle technology, promotion of active transportation, and improvements to public health. ii) The project priorities developed through the collaboration of two or more rail operators and any memoranda of understanding between state agencies and local or regional rail operators. iii) Geographic equity. iv) Consistency with the adopted sustainable communities strategies and the recommendations of regional agencies. c) Applications for grants be submitted to the CalSTA for evaluation in accordance with procedures and program guidelines adopted by the agency and requires CalSTA to submit a list of recommended projects to the California Transportation Commission (CTC) for awarding grants. d) CalSTA to develop draft program guidelines containing selection criteria prior to adoption and specifies public participation and notice requirements. This bill: 1) Modifies the objective of the program to fund large transformative capital transit improvements, including bus and ferry transit systems, in addition to rail systems. 2) Requires that the 70% of the funds be programmed and allocated to projects with a total cost of $100 million or more, and 30% be programmed and allocated to projects costing less than $100 million. 3) Requires CalSTA to consider the extent to which a project reduces GHG emissions in selecting projects for funding. 4) Expands eligible applicants from only rail-system operators SB 9 Page 4 to include bus and ferry systems. 5) Requires CalSTA to additionally consider the following when evaluating grant applications: a) Other cobenefits including enhanced connectivity, integration and coordination of state and local transit systems, and whether the project provides a direct connection to the high-speed rail system. b) The extent to which a project has supplemental funding from non-state sources. c) The extent to which a project will increase ridership. 6) Authorizes an eligible applicant to submit a multiyear funding application and authorizes CalSTA to make multiyear funding commitments for projects. 7) Requires applicants to: a) Make determinations regarding project purpose, intended scope, intended funding sources and project completion schedule; b) Specify the phases of work for which they are seeking allocation; and c) Identify the sources and timing of all funds required to undertake and complete any phase of a project, and describe intended sources and timing of funds to complete subsequent phases of the project. 8) Requires CalSTA, by July 1, 2016, to develop a five-year estimate of revenues of the program in annual increments and adopt an initial program of projects for those five years, and requires CalSTA to adopt subsequent programs every other year. 9) Authorizes CalSTA to enter into and execute a multiyear funding agreement with an eligible applicant for a multiyear project. SB 9 Page 5 10)Authorizes a lead applicant agency to apply to CTC for a letter of no prejudice in order to allow the lead applicant to expend their own funds for the project and be eligible for future reimbursement from the GGRF. Background 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 León, 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. Pérez, 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 strategic planning and development of sustainable infrastructure projects, 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 monies from the GGRF, they must prepare a record specifying: (1) how the expenditures will be used, (2) how the expenditures will further the purposes of AB 32 (Nuñez 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, SB 9 Page 6 Statutes of 2014) requires the ARB to develop guidelines on maximizing benefits for disadvantaged communities by 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 as one of the key sectors that provide the best opportunities for achieving the legislative goals and supporting the purposes of AB 32. The plan recommended the aforementioned sector receive the largest allocation of funds from the GGRF, but did not specify a monetary amount. 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), a budget trailer bill, established a long-term cap-and-trade expenditure plan by SB 9 Page 7 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 Transit and Intercity Rail Capital Program. The Transit and Intercity Rail Capital Program, created through SB 862 (Budget and Fiscal Review Committee, Chapter 36, Statutes of 2014), funds capital improvements for GHG emission reductions that expand and improve rail service, and integrate state and local rail and other transit systems, including the high-speed rail system. The 2014-15 Budget provided for a continuous appropriation of 10%, or $25 million, of cap-and-trade funds to this program beginning in 2015-16. CalSTA is required to evaluate applications, and then prepare a list of projects recommended for funding to be used by the CTC in awarding grant monies for the Transit and Intercity Rail Capital Program. The Governor's 2015-16 budget proposal appropriates $265 million to CalSTA for the Transit and Intercity Rail Capital Program. CalSTA released draft guidelines for the program in December 2014, and finalized them on February 6th. The guidelines describe the policy, standards, criteria, and procedures for the development, adoption and management of the Transit and Intercity Rail Capital Program. The guidelines have project applications due to Caltrans by April 10, of this year. By late August, CalSTA will present a project list to the CTC for subsequent funding. The guidelines state that it is CalSTA's intent to adopt an initial multiyear program of projects covering a minimum of two years of estimated funding. The Division of Transportation Programming at Caltrans describes "programming" as "the commitment of transportation funds to be available over a period of several years to particular projects." Given that transportation projects take a number of SB 9 Page 8 years to develop and build, a multiyear program of projects provides some level of predictability to allow agencies to plan their projects. Thus, a program of projects is fairly common in the world of transportation. The guidelines also note that "CalSTA will also make some funding available for demonstration projects that are smaller scale efforts with great potential to be expanded. These may include projects such as a novel approach to attracting new riders or a test of a concept related to integrated ticketing, as well as intercity rail or transit effectiveness or operational studies that are expected to have elements that can be implemented with little or no capital investment (such studies must result in a reduction in net greenhouse gas emission)." SB 862 establishes a goal for the Transit and Intercity Rail Capital Program of providing at least 25% of available funding to projects that provide a direct, meaningful, and assured benefit to disadvantaged communities. SB 862 also requires the ARB, in consultation with CalEPA, to develop funding guidelines for all agencies that are appropriated monies from the GGRF. These guidelines must include a component for how administering agencies should maximize benefits for disadvantaged communities. ARB draft SB 535 guidelines. ARB approved a revised draft of interim SB 535 guidelines in September of last year. The guidance for the Transit and Intercity Rail Capital Program specifies criteria for evaluating whether projects provide benefits to or within disadvantaged communities. New transit lines, more frequent service, greater capacity on existing lines that are nearing capacity, improved reliability for routes in disadvantaged communities, as well as bus rapid service for disadvantaged community residents, all count towards the 10% of GGRF moneys that must be spent within disadvantaged communities. The guidelines also specify criteria for determining whether projects provide benefits to disadvantaged communities. Some of these criteria include whether projects provide improved local bus transit service or improved connectivity for riders using stations or stops that are accessible by walking within onehalf SB 9 Page 9 mile of a disadvantaged community, or if the project will increase intercity rail, commuter bus or rail transit ridership, with at least 25% of new riders from disadvantaged communities; or whether projects result in at least 25% of project work hours performed by residents of a disadvantaged community. Comments Purpose of Bill. According to the author, "Transportation funding available under the Transit and Intercity Rail Capital Program should be invested in projects that maximize reductions in greenhouse gas emissions to ensure California meets its climate goals set forth by AB 32. "If California is to be successful in achieving significant greenhouse gas emissions reductions from the transportation sector, a necessary outcome since the transportation sector accounts for roughly 40% of these emissions, it is important to ensure that cap-and-trade auction proceeds can be invested in transit capital expansion projects that will have the most impact. SB 9 is intended to focus the Transit and Intercity Rail Capital Program on funding a smaller number of large-scale transit expansion projects that would result in substantial reductions in greenhouse gas emissions. The changes proposed in SB 9 would result in a more desirable outcome for the Transit and Intercity Rail Capital Program, as opposed to scattering small amounts of money around to a very large number of projects-an approach that typically gets used for transportation competitive grant programs, but would not be effective in the case of expending cap-and-trade dollars, given the emphasis on reducing greenhouse gas emissions. "SB 9 would allow the Transit and Intercity Rail Capital Program to accommodate large-scale transit expansion projects seeking more substantive sums of cap-and-trade dollars by enabling CalSTA to program, commit and allocate funding over multiple fiscal years. Accommodating such projects would not be possible if CalSTA were to initiate a new competitive process for the Transit and Intercity Rail Capital Program every single fiscal year and program only one year's worth of funding at a time because a public transit agency would have to resubmit an application for the same project and compete year after year in SB 9 Page 10 order to obtain the amount of cap-and-trade that it needs. In turn, this uncertainty would not allow a public transit agency to use cap-and-trade revenues to leverage federal dollars or to secure financing for its large-scale project." FISCAL EFFECT: Appropriation: Yes Fiscal Com.:YesLocal: No According to the Senate Appropriations Committee: Unknown cost pressures, at least in the millions of dollars, to the GGRF (special) by expanding eligibility of the Transit and Intercity Rail Capital Program to include ferry transit systems. Potential relief of cost pressures to the GGRF by deleting operational expenditures from eligibility from the Transit and Intercity Rail Capital Program. SUPPORT: (Verified5/29/15) International Longshore and Warehouse Union Northern California Carpenters Regional Council San Francisco Bay Area Water Emergency Transportation Authority Santa Clara County Board of Supervisors Santa Clara Valley Transportation Authority Silicon Valley Leadership Group OPPOSITION: (Verified5/29/15) Alameda-Contra Costa Transit District Antelope Valley Transit Authority Napa County Transportation Planning Agency TransForm ARGUMENTS IN SUPPORT: Supporters note that SB 9 allows CalSTA to accommodate larger-scale projects by programming and SB 9 Page 11 allocating their funding over multiple fiscal years, and that these types of projects could not be accommodated if CalSTA were to initiate a new competitive process every single fiscal year and program only one year's worth of funding at a time. They also note that these larger scale projects would result greater GHG emission reductions than the current design of the program, which they describe as spreading a small amount of money around to a large number of projects. ARGUMENTS IN OPPOSITION:Alameda-Contra Costa Transit District, Napa County Transportation Planning Agency, and Antelope Valley Transit Authority state that many transit improvement projects identified in their areas that would significantly increase service and improve transit do not exceed $100 million. Antelope Valley Transit Authority also states that SB 9 reduces competition to a few large transit agencies and that projects need not cost over $100 million to be transformative in nature and request a more equitable split of the funds between high cost and lower cost projects. TransForm argues that SB 9 may eliminate from eligibility many projects within disadvantaged communities who currently lack the funding for even smaller projects that target high propensity riders and provide desperately needed transportation choices. Prepared by:Rebecca Newhouse / E.Q. / (916) 651-4108 6/2/15 21:37:43 **** END ****