BILL ANALYSIS                                                                                                                                                                                                    Ó




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          |SENATE RULES COMMITTEE            |                          SB 9|
          |Office of Senate Floor Analyses   |                              |
          |(916) 651-1520    Fax: (916)      |                              |
          |327-4478                          |                              |
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                                   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:      










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          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:









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               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  








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             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.








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           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,  








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            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  








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          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  








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          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  








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          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  








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          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  








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          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


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